Slater & Gordon: It will take 18 months to complete separation of UK and Australian businesses

Slater & Gordon: Approve recapitalisation or else

It will take around 18 months to completely separate Slater & Gordon’s (S&G) Australian and UK operations, the law firm revealed this week as it told shareholders that failure to approve plans to recapitalise the business will leave it facing an “unsustainable” level of debt.

The firm’s meagre share price plummeted 23% to just 4c (2.2p) after S&G’s senior lenders approved the plan and the firm urged shareholders to follow suit at its annual general meeting next week. It will lead to shareholders’ stake in the company being virtually wiped out.

“If the resolution required to implement the recapitalisation is not successful at the upcoming AGM, the board will be placed in a position where it will have to re-assess the solvency of the company, as its level of debt is unsustainable,” the firm said in a statement to the Australian Stock Exchange.

“If this were to occur, shareholders would most likely receive nothing because the company’s debt is greater than the value of its assets.

“Shareholders should note that the company is continuing to operate due to the direct financial support of its senior lenders, including the provision of incremental super senior funding. The board believes that there are no feasible alternatives to reduce the company’s secured debt.”

Part of the recapitalisation will see the UK operation owned by the senior lenders separately from the Australian business.

The £380m S&G UK currently owes the senior lenders would be transformed into £15m plus £250m of convertible notes only repayable from specific proceeds, including the legal action against Watchstone Group (formerly Quindell) for fraudulent misrepresentation in the deal which sent the firm on its downward spiral. Watchstone is fighting the claim.

As partial consideration to shareholders, the Australian business would have recourse to the first £24m of any recovery from the Watchstone action.

There would be a perpetual royalty-free licence for S&G UK to use the brand in the UK, Ireland and the rest of Europe. The UK and Australian businesses “require different strategies and possess different investment opportunities,” the firm said when it outlined the plan.

In an update published this week, S&G said that to effect the separation, the two will into enter into transitional arrangements governed by a business separation agreement.

This would see the Australian business “released from parent guarantees and other forms of security and financial support that it has provided to the UK operations, such as parent guarantees for UK leases and other material contracts”.

But this was likely to take up to 18 months following the recapitalisation being implemented, with the main exposure under parent guarantees relating to leases for the major office premises used in the UK, primarily in Manchester.

The announcement stressed, however, that from implementation the Australian company would be released from any obligations to pay, guarantee or otherwise secure the payment of any secured debt in respect of the UK operation.

Meanwhile, S&G has announced that it is planning another round of office closures, with the Chester, Wrexham, Milton Keynes and Preston offices on the chopping block. It will have 10 offices nationally if and when these happen.

The main reason was that there were close to larger offices. A statement said: “We have assessed our geographic footprint with a view to bringing it in line with our vision of delivering our services from strategic centres of excellence.

“Following this review, we are considering a plan to consolidate a number of our smaller offices into our larger regional hubs, where colleagues can share their outstanding knowledge and expertise across a range of legal fields.”

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