What is Defunct
Defunct, in a business context, refers to the condition of a company, whether publicly traded or private, that has gone bankrupt and ceased to exist. In general, "defunct" refers to something that is no longer existing, functioning, or in use. It may be used to describe laws and regulations, businesses, organizations, currencies, brands, practices and more. According to the Securities and Exchange Commission (SEC), the shares of a defunct company may continue to be traded until the company has the shares re-registered or until the stock's registration has been revoked.
Breaking Down Defunct
Companies may become defunct for a variety of reasons. For example, bankruptcy may lead a company to shutting down operations. Illegal activity or fraud may also cause a company to become defunct, as customers abandon it and its business prospects erode. Companies may also become defunct as a result of merger and acquisition activity, in which their operations, personnel, brands and trademarks are rolled into the acquiring company.
Defunct Companies: Trading Shares
The SEC has no rule that prohibits the trading of a company's stock once it has become defunct. It takes the position of not wanting to forbid transactions between willing buyers and sellers. That includes the shares of defunct companies. In the case of defunct public companies, their shares may still be traded even if they are not operating if there is still outstanding registered stock. The two actions that will stop trading of any stock, defunct company or not, is when a company de-registers their stock or if the stock's registration is revoked. Once that happens, a stock is delisted from the exchange, may no longer be traded and is worth nothing. For more, see "Defunct Company, Stock Continues to Trade" from the SEC, its rules on defunct companies as it relates to bankruptcy, which cover a variety of stock listing issues related to bankrupt and defunct companies.
Some well-known companies have become defunct. Some examples include:
- Enron: Energy company went bankrupt in 2001 after it was discovered that its financial reports were the product of massive accounting fraud.
- Long-Term Capital Management: Highly leveraged hedge fund that had financial luminaries on its board was bailed out in 1998 and then dissolved in 2000.
- Tower Records: Music mega-store chain went bankrupt in 2004.
- Polaroid: Instant photo camera company went bankrupt in 2001.
- The Sharper Image: Gadget retailer went bankrupt in 2008.
- E.F. Hutton: Brokerage that made famous the tagline "when E.F. Hutton talks, people listen" was acquired in 1987.
"Defunct" may be applied to currencies that are no longer in circulation, such as the 19 European currencies that were retired with the adoption of the euro on Jan. 1, 1999. History has seen many defunct currencies (e.g. the Greek drachma and the Dutch guilder). Currencies can become defunct for many reasons. For example, due to political upheaval or revolution, or because the currency has become worthless in the foreign exchange market.