[1]Clarke: The directors have a lot of explaining to do
A UK-based litigation funder is to back a shareholder class action against Slater & Gordon as its share price continues to tank following Monday’s announcement of huge losses [2].
Having started the week at 83c, the embattled firm saw its shares finish trading on the Australian Stock Exchange today at just 26c, their lowest ever point and a world away from nearly A$8 of a year ago before it bought Quindell’s professional services division.
Two Australian law firms have been working towards shareholder class actions, and one of them, ACA Lawyers, said it has finalised a funding agreement with listed Australian funder Justkapital Litigation Finance, and London-based Woodsford Litigation Funding.
The class is people who bought Slater & Gordon shares between 1 April 2015 and 17 December 2015, the day before ACA announced its examination of statements [3] made by the firm at the time of its £460m capital raising in April 2015 to make the acquisition, and profit forecasting for the 2016 financial year.
The £493m loss revealed on Monday was mainly attributable to a write-down in goodwill in relation to the deal.
Bruce Clarke, principal with ACA Lawyers, said investors have many questions about the UK acquisition. “The directors have a lot of explaining to do. It was only in November shareholders and the market were being told the company was in good shape. Now three months later there are massive losses and write downs.” he said.
“It is not only large institutional investors who have been burnt. Mum and dad investors and the company’s own staff took up shares in the rights issue in reliance on what the company said. It now looks like they have done their money.”
Mr Clarke said his firm had been “inundated” with enquiries from aggrieved investors. “There is real anger among Slater and Gordon investors, from small mum and dad investors to large institutional investors who are looking for some way to recover the millions of dollars that have been lost over the past 10 months,” he said.
Andrew Watson, the national head of class actions at Maurice Blackburn Lawyers, the other law firm sizing up proceedings, said: “The sheer size and scale of this write down casts enormous doubt on the adequacy of disclosures made by Slater & Gordon in relation the true value of the Quindell assets, from the time of the transaction’s announcement right through until [Monday].
“[The announcement on Monday] strengthens the themes our class action investigation is pursuing, and although we still have some work to do, it now seems almost certain that we will file a class action on behalf of the thousands of aggrieved shareholders who have already registered.”
Meanwhile, analysts in Australia said Slater & Gordon would be expected to settle as many cases as possible in the next month to soothe the concerns of its bankers.
According to the Sydney Morning Herald, National Australia Bank and Westpac have given the firm until 30 April to prove it can improve its cash flow position. Receipts from customers in the six months to December 31 were £276m, while payments to suppliers and employees were £307m.
“Over the next month, the group will need to prove to advisers that [Slater Gordon Solutions – the renamed professional services division] can be operated profitably with sufficient cash flow for the debt facility to be extended past March 2017,” Macquarie Bank analyst Michael Higgins told the newspaper.
“In Slater & Gordon’s favour is that the only asset with the potential to generate future positive cash flows is work in progress, and work in progress is of most value in the hands of Slater & Gordon.”
This meant Slater & Gordon stood a better chance at repaying its debts if it could finish its existing cases.
See blog: The sorry tale of a fallen giant [4]