Troubled plaintiff law firm Slater & Gordon is at risk of being given a dose of its own medicine after one of its competitors revealed yesterday it was investigating launching a class action because of the collapse in Slater’s share price.
A team of lawyers from ACA Lawyers is examining whether Slater is vulnerable to a class action on behalf of shareholders who lost money due to big changes in Slater’s earnings guidance, and the way in which the firm raised $890 million for an ill-fated British takeover.
“What we are seeing at the moment is a company that appears to be unable to accurately provide the market with the information needed to make considered decisions on the value of Slater & Gordon,” said ACA principal Bruce Clarke.
“If this is the case, and investors have not been fully informed, then Slater & Gordon could face legal proceedings, including a potential class action by investors who have purchased shares without all available information.”
ACA is examining whether the listed law firm’s public statements amount to misleading and deceptive conduct, which is the same legal tactic Slater has used in a series of class actions against major companies.
ACA has already had talks with litigation funders about financing any class action “and at least two, in a very informal sense, have indicated an interest”.
The prospect of a class action comes soon after Slater’s share price fell by 14 per cent this week when it withdrew earnings guidance that had been announced on November 20 and repeated on November 26 and 30.
ACA is examining those announcements as well as the circumstances in which Slater raised $890m in March to partially fund the purchase of the professional services division of British company Quindell.
At the time, Slater said the Quindell deal would increase earnings per share by 30 per cent in the first year. The share price has fallen by 86 per cent since the capital raising, wiping out almost $2 billion in shareholder value.
Mr Clarke said any class action would be run in Australia and this would be of benefit to Slater’s British shareholders because the Australian class action regime was more favourable.
“It’s much better in Australia,” he said. “The federal government was forward looking enough to work on our Federal Court rules and set up a regime that does not exist in the UK.”
He said ACA expected to spend several weeks assessing the viability of a claim before seeking formal backing from a litigation funder. These companies finance most of the class actions against Australian companies and take a share of any settlement. Up to 35 per cent of some settlements is paid to litigation funders.
The risk of a class action coincides with speculation the Slater board is considering big changes to its executive team, including the possible departure of managing director Andrew Grech.
Slater declined to discuss the prospect of a class action against the firm but Mr Grech told the Australian Securities Exchange on Thursday that Slater’s British operations had experienced a slower than expected rate of case resolutions. It had become clear that this had made a larger impact than expected and “may well flow through to a reduced profit for the full year”.