Is this an attempted ‘get out of jail’ move by near bankrupt listed law firm, Slater & Gordon (SGH) to try and find money from anywhere to offset its looming restructure?
A London report overnight revealed that Slater and Gordon is seeking damages over the ill-judged acquisition of Quindell of the UK, a professional legal services group that has pushed the Australian law firm into the hands of its bankers and close to the edge of collapse.
It is planning to sue the UK company that sold it Quindell in mid 2015 for 673 million pounds (around $A1.22 billion).
In a statement late on Thursday, Watchstone, the name for the ongoing London-listed company which sold Quindell to Slater and Gordon, confirmed it has been notified the Australian company is to seek £600 million in damages, over a claim for "fraudulent misrepresentation".
Watchstone said that according to a letter received by the UK company from Slater and Gordon’s lawyers, “it intends to issue proceedings by the end of this month”.
"Its letter states that SGH intends to make a claim for a total amount of approximately £600m ($1.1 billion) on the basis that but for fraudulent misrepresentation it would not have entered into the transaction at all." Slater & Gordon has impaired the cost of Quindell by $1 billion, and found the bad publicity about the UK foray has caused local clients to desert to other law firms over doubts S&G will remain in business.
Slater and Gordon is expected to restructure in coming weeks through a debt for equity swap that is expected to destroy existing shareholders.
In early April, it revealed it had received a $72 million boost from its new lenders (hedge funds which bought out its bank financiers earlier in the year), by way of a $40 million capital injection and the agreement to capitalise $32 million in interest payments due in June this year. In February the company reported a net loss of $425 million and sad its debts were around $740 million.
The company’s shares have crashed from nearly $8 almost two years ago to 8.8 cents yesterday (valuing it at $31 million).
The two companies have been arguing for months over a separate amount of £50 million ($88 million) which is being held in escrow by Watchstone following the sale to Slater and Gordon. Legal action by the Australian law firm was dismissed late last year.
"A groundless claim for fraudulent misrepresentation was dismissed by the independent barrister in respect of the warranty escrow process relating to the sale of the Professional Services Division in November 2016," Watchstone told the UK market on Thursday.
This legal opinion "was formed on the basis of evidence provided by both SGH and Watchstone, stated that a misrepresentation claim was not a bona fide claim with a better than 50 per cent prospect of success", the UK company said.
"Watchstone denies any misrepresentation in the strongest terms and remains satisfied that neither the warranty claim nor a misrepresentation claim have merit and will defend such claims robustly if proceedings are brought."
Slater and Gordon “has continuously declined to disclose key evidence in its possession which would be relevant to the merits and quantum of its purported claims”, Watchstone claimed in its statement.
“This evidence will be available to it in the event that SGH issues proceedings and it intends to seek disclosure of such information at the earliest possible opportunity,”, the UK company told its investors in London.
Watchstone shares fell by 10% following the announcement.
