The CEO of embattled law firm Slater and Gordon has quit and the board will follow under a deal that will see almost full ownership of the company move to its lenders.
Under a recapitalisation announced on Thursday, lenders led by Anchorage Capital (a New York hedge fund) and holding three quarters of Slater and Gordon’s secured debt, will take 95% of the company’s stock, diluting and in fact all but destroying any value left in existing shareholdings.
But before the deal can be completed, there are several conditions including settlement of an outstanding class action against the company.
Managing director Andrew Grech has left his role, effective immediately, but will remain on the board, with all directors to resign as new board members are appointed by the new lender/shareholders.
The dramatic changes became necessary after Slater and Gordon was forced to make massive write downs in the $1.2 billion value of a big move into the uK in mid 2015 that saw it buy the professional services operations of a company called Quindell. Those operations were linked to the processing and handling of insurance claims.
Slater and Gordon’s market value fell from $2.8 billion in April 2015, to just $32 million after the Quindell acquisition went sour.
“The recapitalisation is intended to provide the Company with a sustainable level of senior secured debt and a stable platform for its future operations in both Australia and the UK,” the company said in a statement to the ASX on Thursday. The news saw the shares fall 4.4% to just 8.8 cents. That’s too much – the shares are all but worthless.
Slater and Gordon has been in restructuring talks with its lenders since late last year when the full extent of the financial cost of the UK debacle became apparent. Earlier this year the shares fell so far that it became apparent that the company was insolvent and being kept alive by financial support from the lenders
Soon after the purchase Quindell came under investigation by the UK’s Serious Fraud Office for its historic business and accounting practices, while the UK government changed the law which hurt Qundell’s business model.
Slater and Gordon booked a net loss of $A425.1 million for the six months to December 31 thanks to a $A350.3m impairment charge related to the Quindell purchase.
In mid-June, a UK subsidiary of Slater and Gordon served a claim against Watchstone (as Quindell is now called), seeking up to £673 million in damages for the ill-fated Quindell purchase.
The deal requires shareholder approval, with Slaters’ board of directors in unanimous support and pledging to vote their shares in favour of the deal.
Among conditions for approval are an independent expert concluding that the law firm will be solvent and that the deal is either "fair and reasonable" or "not fair but reasonable" to shareholders.
Another condition of the restructure is settlement of the class action from rival law firm Maurice Blackburn who is representing thousands of Slater and Gordon shareholders over disclosure of financial information between March 2015 and February 2016.
At least two other law firms are claiming to be looking at class actions against the company, but settlement of the Maurice Blackburn action should end the issue.
