Law firm Slater & Gordon (S&G) is well known for taking class action lawsuits against other companies.
But in just five months after becoming a public company, the firm is reported to have lost 90% of its share value.
Now, the firm is on the other end of two separate class action lawsuits, one of which is shaping up to be one of the largest shareholder class actions ever undertaken in Australia.
Another law firm, Maurice Blackburn, has announced it will file a $250 million class action against the embattled firm, representing more than 3,000 aggrieved shareholders.
A class action is sometimes called a ‘representative action’. It is a lawsuit where a number of people affected by the same issue are represented collectively by a member of that group. Class actions take place in the Federal Court and State Supreme Courts of Australia.
The shareholder leading this class action, Matt Hall, has personally lost hundreds of thousands of dollars in the SGH share price plunge. He says:
“There has been a colossal failure here… An Australian Listed Company, purporting to comply with all the rules has seen a decrease of nearly $2 billion in its market capitalisation. It should not have been a surprise.”
Largest shareholder action in Australia
A spokesperson for Maurice Blackburn says the sheer scale of the suit –as well as the number of shareholders affected – means it could go down as one of the largest shareholder actions in Australia’s history.
Between April 2015 and February 2016, shares in S&G fell approximately 95% in price, losing shareholders more than $2 billion. In February 2016, S&G voluntarily suspended share trading as it tried to hose down shareholder panic and anger.
In August 2016, the company reported a $102 million dollar loss, largely due to underperformance by its UK Professional Services firm Quindell PLC.
S&G Group Managing Director Andrew Grech described the loss as “disappointing and below expectations”.
Lack of transparency
The class action stems from questions raised about S&G’s acquisition of Quindell PLC, which was partly funded by a capital raise from existing shareholders.
There are concerns about the company’s due diligence and whether shareholders were provided with accurate and reliable information about the risks of the acquisition and its value.
In a noticed issued on its website, Maurice Blackburn says
“The Statement of Claim alleges that between March 2015 and February 2016, SGH made false and misleading statements, engaged in misleading and deceptive conduct, and/or breached its continuous disclosure obligations to shareholders which prevented shareholders from being able to make informed investment decisions based on complete, accurate, and timely information about the Quindell acquisition and the true state of the company’s overall financial position and performance.”
“It is alleged that by this conduct SGH contravened various provisions of the Corporations Act, ASX Listing Rules, the Australian Securities and Investment Commissions Act 2001 and the Australian Consumer Law.”
The firm intends to argue that if the real risks of the acquisition been adequately disclosed, S&G would not have been able to conduct the $900 million capital raising from existing shareholders, and the transaction would not have taken place.
The leading lawyer in the action, Andrew Watson, says S&G:
“…didn’t just miss their earnings guidance predictions – they were miles off, and that suggests systemic issues across the company. The problems that are currently known, and there are many of them, might be just the tip of the iceberg.”
“To blindside shareholders once is really bad news. If it happens twice it’s then a farce – but to happen again and again and again – you can understand why shareholders want serious questions answered about the internal corporate governance of the company.”
The ACA Lawyers’ class action
Another firm, ACA Lawyers has also just announced it will be undertaking a separate shareholder class action against S&G.
It has been reported that an investigation by the firm identified potential misconduct by S&G prior to its April 2015 capital raising, going as far back as the release of its 2014 full-year results.
The principal of ACA Lawyers says that, in light of the developments since April 2015, the firm has been investigating S&G’s conduct over several previous years.
S&G is yet to formally comment.