Legal Business

Slater and Gordon to sue Quindell for £600m over failed professional services acquisition

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Litigation Slater and Gordon

Listed law firm Slater and Gordon (S&G) is to bring a £600m action against the company formerly known as Quindell over its 2015 deal to acquire Quindell’s professional services division.

According to S&G, the acquisition, which contributed to the recent firm’s financial turmoil, would not have taken place were it not for fraudulent misrepresentation on the part of Quindell.

Quindell, now known as Watchstone Group, told the London Stock Exchange today (11 May) that S&G intends to bring proceedings forward by the end of this month.

The notice read: ‘Its letter states that [S&G] intends to make a claim for a total amount of approximately £600m on the basis that but for fraudulent misrepresentation it would not have entered into the transaction at all.

‘A groundless claim for fraudulent misrepresentation was dismissed by the independent barrister in respect of the warranty escrow process relating to the sale of the Professional Services Division in November 2016.

‘The opinion, which was formed on the basis of evidence provided by both [S&G] and Watchstone, stated that a misrepresentation claim was not a bona fide claim with a better than 50 per cent prospect of success.’

S&G purchased the professional services division of Quindell after it generated revenues of nearly £180m in just the first half of 2014. The alternative business structure (ABS) covers legal services mostly relating to personal injury but also included marketing and motor services.

The firm, which makes 80% of its UK revenue from personal injury claims, lost half its stock value in November 2015 after the UK government unexpectedly announced plans to limit the number of personal injury claims.

After running into financial trouble, S&G’s lenders appointed investigative accountants in January 2016 to look at the firm’s books. In September last year, S&G announced to the Australian Stock Exchange (ASX) its intention to bring claims against Quindell, informing the ASX that £50m of the purchase price for the acquisition would be held in escrow against warranty claims that might arise under the share purchase agreement.

tom.baker@legalease.co.uk

Legal Business

Slater and Gordon set for debt for equity swap as banks sell off 94% of loan book

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Finance Slater and Gordon

Australian-listed law firm Slater and Gordon has sold off 94% of its loans to a consortium of investors to restructure the business.

The banks backing the firm have reportedly accepted heavy losses of up to 80% on their loans to the firm. Shares in the firm traded as low as 13 Australian cents.

Slater and Gordon said its new lenders ‘fully intend to implement a solvent restructure of the company…to ensure that the company has a sustainable level of debt and a stable platform for its future operations both in Australia and the UK’.

The firm said it was planning a debt for equity scheme to revive the business.

Slater and Gordon’s Australian and UK operations have had a difficult run since the firm’s takeover of UK insurance claims provider Quindell for £673m in 2015, which has since been rebranded as Watchstone Group.

The firm has come under increased scrutiny after its banks last year ordered an investigative review of its books, while in 2015 the UK’s Serious Fraud Office opened an investigation into Quindell’s ‘business and accounting practices’.

Earlier this year, the firm posted an A$425.1 (£262.6m) net loss for the second half of 2016. UK fee income declined 35% in the last six months of the year, while the firm was forced to restructure its UK operations.

In the UK, the personal injury firm launched a plan to reduce headcount by 16% and set a target of cutting down its operating sites from 47 to 32 ‘with further locations scheduled to be re-organised or closed in the remainder of 2017’.

matthew.field@legalease.co.uk

Read more: ‘Guest post: Slater and Gordon’s woes have nothing to do with being an ABS’

 

Legal Business

‘Taking longer than anticipated’: Slater and Gordon posts another loss as restructure continues

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Financial results 2016/17 Slater and Gordon

The struggle continues for Slater and Gordon (S&G) with the firm posting a A$425.1m (£262.6m) net loss for the second half of last year.

The ASX listed law firm said its results were impacted by a A$350.3m (£216.4m) impairment charge relating to its £637m purchase of Quindell’s professional services division in 2015. Quindell has since rebranded as Watchstone Group.

The firm also pointed to underperformance across UK and Australia in relation to the resolution of personal injuries claims and an A$13.7m (£8.5m) cost for restructuring across the firm.

Following the release of the results, shares in the firm fell 22% to A12.5c in Sydney on Monday (27 February).

UK fee and service revenue declined 35% in the last six months of last year. The dip came as the firm was forced into a restructure of its UK operation after posting an A$958m (£493m) loss for the six months ending 31 December 2015, primarily due to a hefty writedown of its UK business.

Managing director Andrew Grech (pictured) said: ‘While we have made progress in the UK in the past 12 months, the turnaround is taking longer than we anticipated and billed revenue performance in segments of the business is lower than expected. The full impact of the performance initiatives will take time.’

He added Slater Gordon Solutions, formerly the Quindell professional services division, delivered ‘positive earnings and operating cash flow’.

In November Grech provided an update on the firm’s UK restructuring programme which has included a 16% reduction in headcount as well as a re-organisation of the legal services business into three divisions: serious and specialised personal injury claims; family law, employment law and dispute resolution and fast track personal injury claims.

In addition to the reduction in headcount, S&G had also set a target of reducing operating sites from 47 to 32 by January 2017 ‘with further locations scheduled to be re-organised or closed in the remainder of 2017’.

In September it emerged S&G was gearing up to sue Watchstone Group following acquisition of the UK company’s professional services division.

madeleine.farman@legalease.co.uk

Legal Business

Slater and Gordon’s battle against Quindell over deal has merit, independent barrister finds

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Litigation Slater and Gordon
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Australia-listed Slater and Gordon (S&G) is pressing ahead in its battle to recover some of the money it paid for Quindell’s professional services division last year, after an independent barrister declared the claim has merit.

In September it emerged S&G was gearing up to sue Watchstone Group, formerly known as Quindell, following the £637m acquisition of the UK company’s professional services division in 2015.

In a statement to the Australian Stock Exchange (ASX), S&G said it had advised Watchstone that it and/or Slater and Gordon UK (SGH UK) intends to bring claims against Watchstone arising from the purchase of Quindell’s professional services division.

The S&G has since obtained an opinion from an independent barrister in respect of the warranty escrow relating to the sale, and announced that it had obtained a ‘positive merits-based opinion from an independent barrister.’

The statement added: ‘Having now satisfied that requirement, the £50m currently held in escrow against warranty claims that may arise under the share purchase agreement will continue to be held in escrow until such time as claims notified under the agreement are resolved.’

In response Watchstone said it received a copy of the opinion and it has shelved £50m to be retained in the warranty escrow account until the claim is resolved.

It added: ‘The opinion is solely for the purpose of determining whether the warranty escrow may be released to Watchstone at this time. It does not pre-judge the outcome of any legal proceedings. Watchstone remains satisfied that the warranty claim has no merit and will defend it robustly if proceedings are brought.’

The company will now not proceed with its further capital return to shareholders until the warranty claim detailed above is resolved. As of late November Watchstone had cash of £83.1m (excluding the warranty escrow).

The latest update in the case follows a turbulent year for the firm, which has also been restructuring its UK operation after announcing disappointing global financial results. It additionally had a two month window until the end of March from its banks to deliver a repayment plan by the end of this month for its debt of A$741m, and reached agreement with its banks in May.

sarah.downey@legalease.co.uk

Legal Business

Slater and Gordon, Eversheds and HSF take roles on Jay inquiry into child sexual abuse

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Legal affairs Eversheds SutherlandHerbert Smith FreehillsSlater and Gordon
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Slater and Gordon, Eversheds, Herbert Smith Freehills (HSF), Kingsley Napley, BLM, Hill Dickinson, Farrer & Co and Weightmans are all among the firms acting on the Independent Inquiry into Child Sexual Abuse (IICSA).

The firms are representing ‘core participants’ in the investigation, led by Professor Alexis Jay (pictured), into decades of sexual exploitation and abuse by the UK establishment, according to IICSA documents seen by Legal Business.

Slater and Gordon principal lawyer for abuse Richard Scorer and head of abuse Liz Dux are representing a large number of the 152 initial claimants. The firm has previously stated it represents more than 800 victims of child abuse. Other victims are being advised by Brentford law firm Howe + Co, while Leeds firm Simpson Millar, Bindmans and Imran Khan are all representing core claimants.

A number of LB 100 firms are representing key organisations linked to the investigation. HSF partner Nusrat Zar, Eversheds key inquiries partner Peter Watkin Jones and Weightmans head of police Hannah Walsh are all acting on the investigation into the Anglican Church.

Farrer & Co partner David Smellie and Kingsley Napley partner Adam Chapman are both advising on the inquiry into the Roman Catholic Church.

Other firms are advising insurers on reparations, Hill Dickinson partner Alastair Gillespie is representing Royal Sun Alliance and Browne Jacobson partner Sarah Erwin-Jones is acting for Municipal Mutual Insurance, while Zurich insurance has retained HSF disputes partner Andrew Lidbetter.

The potential cost and scope of the inquiry has raised eyebrows within the legal profession, with IICSA set to run 13 separate investigations. IICSA has spent around £3.2m on legal costs during its first year for 2015/16 and the former chair of the inquiry, retired New Zealand judge Dame Lowell Goddard, was retained on an annual salary of £360,000, before her resignation this summer. New chair Jay, who is the fourth head of the inquiry takes home a salary of £185,000 per year.

One senior lawyer acting on the inquiry told Legal Business that although the inquiry would be a challenge to run successfully it was not impossible: ‘You would have to have a very imaginative approach and have hugely strong leadership and a really crack legal team. The chair is not a lawyer, I just don’t know if that could be a problem.’

Fieldfisher public and regulatory partner Martin Smith is acting as solicitor to the inquiry, while the inquiry’s lead counsel Ben Emmerson QC of Matrix Chambers was suspended from his role in September.

matthew.field@legalease.co.uk

Legal Business

‘A process of transition’: Slater and Gordon to close more offices as UK restructure continues

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Restructuring Slater and Gordon
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Slater and Gordon‘s (S&G) group managing director Andrew Grech has provided an update on the firm’s UK restructuring programme which has included a 16% reduction in headcount as well as a re-organisation of the legal services business into three divisions: serious and specialised personal injury claims; family law, employment law and dispute resolution and fast track personal injury claims.

The project, dubbed the ‘UK Performance Improvement Programme’ also includes a focus on rationalising business generation investment, enhancing programs and systems and communications and employee engagement.

Speaking at S&G’s annual general meeting Grech (pictured) said: ‘The business remains in a process of transition as we implement a very significant performance improvement programme. Whilst we are making progress there are still challenges and a lot more work that needs to be done to build a sustainable business in the UK.’

Grech added: ‘It is important to recognise that this is a business transformation programme which will take time to complete. We are substantially through phase one with focuses on a re-organisation of people into the three legal services businesses and a rationalisation of the number of sites at which we have a presence. Phase two is on improving productivity and cash conversion. There are a number of project teams reporting into the steering committee undertaking the changes to work practices, process and technology required to achieve the desired improvements.’

In addition to the reduction in headcount, S&G have also set a target of reducing operating sites from 47 to 32 by January 2017 ‘with further locations scheduled to be re-organised or closed in the remainder of 2017’.

Grech concluded: ‘In summary, we are making progress in the UK. There are risks and challenges that we still face as we strive to achieve this. These risks are well understood and are being managed but remain constant.’

S&G was forced to restructured its UK operation after posting an A$958m (£493m) loss for the six months ending 31 December 2015, primarily due to a hefty writedown of its UK business.

Senior names to depart from the firm this year include general counsel and company secretary Moana Weir who resigned after just two months while in February its UK chief, Neil Kinsella, announced his retirement as UK head of general law, with Siri Siriwardene replacing him.

The annual report for the year ending June 2016 reveals that the value of work in progress decreased by A$89.2m (£53m), of which just under half is due to a decline in case volumes in the Australian and UK practices and the resolution of acquired work.

In 2015, the personal injury business Slater Gordon Solutions, which took on the acquired professional services division of Quindell, accounted for 6% of the group’s A$627.3m (£375m) income. That proportion has jumped to 50% of the group’s A$908m (£543m) turnover for 2016.

The Australian arm of that business accounted for half the group’s turnover in 2016 and today stands at 26%. The UK business is stated to generate a £300m annual turnover.

Earlier this year it emerged S&G is to sue Watchstone Group, formerly known as Quindell, following the £637m acquisition of the UK company’s professional services division in 2015.

Melbourne firm Maurice Blackburn Lawyers filed a AU$250m class action on behalf of S&G shareholders in early October while Sydney-based ACA Lawyers is also preparing a similar suit.

kathryn.mccann@legalease.co.uk

Legal Business

Slater and Gordon slashes 640 UK jobs in a year as PI firm continues to restructure

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Restructuring Slater and Gordon
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Lawyers at Australia-listed Slater and Gordon (S&G) have faced a turbulent year at the firm as it has emerged via its annual report that headcount has been reduced by 16% in the UK.

Published on the Australian stock exchange this morning, the firm revealed it has 3,310 employees in the UK across 25 locations compared to 3,950 at 28 locations the previous year.

The firm, led by chair Andrew Skippen and managing director Andrew Grech, has been embroiled in a major restructure of its UK operation since February after announcing disappointing global results including the goodwill impairment. The reorganisation is expected to be finalised in the first quarter of 2017.

It had a two month window until the end of March from its banks to deliver a repayment plan by the end of this month for its debt of A$741m, and finalised an agreement with its banks in May.

Senior names to depart from the firm this year include general counsel and company secretary Moana Weir who resigned after just two months while in February its UK chief, Neil Kinsella, announced his retirement as UK head of general law, with Siri Siriwardene replacing him.

The annual report for the year ending June 2016 reveals that the value of work in progress decreased by A$89.2m (£53m), of which just under half is due to a decline in case volumes in the Australian and UK practices and the resolution of acquired work.

Skippen said UK performance in the first half of 2016 was significantly below expectations and a performance improvement program was commenced in the second half. ‘This has involved ceasing operations in some locations and resizing the workforce. This component of the performance improvement programme will be substantially completed by early 2017.’

In 2015, the personal injury business Slater Gordon Solutions, which took on the acquired professional services division of Quindell, accounted for 6% of the group’s A$627.3m (£375m) income. That proportion has jumped to 50% of the group’s A$908m (£543m) turnover for 2016.

The Australian arm of that business accounted for half the group’s turnover in 2016 and today stands at 26%. The UK business is stated to generate a £300m annual turnover.

Recently it emerged S&G is to sue Watchstone Group, formerly known as Quindell, following the £637m acquisition of the UK company’s professional services division in 2015.

sarah.downey@legalease.co.uk

Legal Business

‘Will defend it robustly’: Slater and Gordon to sue Watchstone over 2015 Quindell acquisition

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Restructuring Slater and GordonWatchstone Group
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Slater and Gordon (S&G) is to sue Watchstone Group, formerly known as Quindell, following the £637m acquisition of the UK company’s professional services division in 2015.

In a statement to the Australian Stock Exchange (ASX), S&G said it had advised Watchstone that it and/or Slater and Gordon UK (SGH UK) intends to bring claims against Watchstone arising from the purchase of Quindell’s professional services division.

The statement added: ‘S&G has previously informed the ASX that £50m of the purchase price for the acquisition would be held in escrow against warranty claims that may arise under the share purchase agreement. If claims made under that agreement cannot be resolved prior to the release date of the escrow (currently 29 November 2016), and subject to compliance with threshold requirements under the share purchase agreement including a merits assessment by an independent barrister, part or the whole of that amount may be retained in the escrow amount subject to resolution of the claim.’

In response, Watchstone said in a statement that it had received a preliminary correspondence on behalf of S&G notifying it of a purported claim and that ‘the company does not believe that there are grounds for a claim to be brought and will defend it robustly.’

In response to the £50m held in escrow, Watchstone added: ‘Following 29 November 2016, monies will be released to Watchstone from the warranty escrow unless, inter alia, Watchstone receives an opinion of a senior independent barrister stating that a given claim is more likely to succeed than not. The opinion will also quantify what such claim, if successfully brought against Watchstone, would be valued at and this amount would then be retained in the warranty escrow until the purported claim was resolved with any excess up to the £50m released to Watchstone.’

In February, S&G announced its plans to restructure its UK operation, as it announced disappointing global results including the goodwill impairment. It had a two month window until the end of March from its banks to deliver a repayment plan by the end of this month for its debt of A$741m, and reached agreement with its banks in May.

At the end of March the firm’s general counsel and company secretary Moana Weir resigned after spending just two months at the firm. In February the firm’s UK chief, Neil Kinsella, announced his retirement as UK head of general law, with Siri Siriwardene replacing him.

kathryn.mccann@legalease.co.uk

Legal Business

Slater and Gordon narrows loss to A$1bn after UK performance improves

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Financial results 2015/16 Slater and Gordon
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Beleaguered Slater and Gordon has announced it expects to post an A$1.01bn net loss for the 12 months to 30 June 2016, with total revenue expected to come in at A$908.2m.

Slater and Gordon said it had improved its net loss in the second half of the year with after tax deficit expected to sit at A$59.3m following on from a first half loss of A$958.3m, due to a significant goodwill impairment.

The firm’s group managing director Andrew Grech pointed to upheaval in the firm’s UK arm in the first half of the financial year as a reason for the loss. Slater and Gordon began to restructure its UK operation after posting the almost £1bn shortfall in February this year. Concurrently the Australian-listed firm was given a two month deadline by its banks to deliver a repayment plan as it faces debt of A$741m.

As part of its bid to improve performance, the firm confirmed in January it was consulting on the closure of two of its UK offices, affecting 51 staff. Thirty-seven jobs at its Failsworth office were on the line while 14 staff also faced cuts in Derby.

Grech said the firm’s results for the first half were ‘extremely disappointing and well below expectations but claimed last year’s financial performance was ‘a story of two different halves’. He added: ‘In the second half we have taken significant steps to turn around the performance of the UK business. Whilst the UK performance programme is still in its early stages, the second half results indicate that our efforts are beginning to bear fruit.’

Earlier this month, Slater and Gordon’s head of professional standards and risk Rebecca Bell left to take on a similar role at Bates Wells Braithwaite.

In February the firm’s UK chief, Neil Kinsella, announced his retirement as UK head of general law, with Siri Siriwardene replacing him. The announcement coincided with media reports that Slater and Gordon was in talks over debt restructuring and brought in FTI Consulting in a bid to address its financial health.

madeleine.farman@legalease.co.uk

Legal Business

‘Positive and clear endorsement’: Slater and Gordon extends loan package with banks

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Finance Slater and Gordon
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Shares in Australia-listed Slater and Gordon (S&G) jumped yesterday (2 May) after the beleaguered law firm announced a deal with its lenders following a year battling with significant debts.

The firm released details of the successul debt refinancing on the Australian Stock Exchange on Monday after it was given a two-month window by its banks to deliver a repayment plan by the end of April for its debt of A$741m (£383m).

To extend its principal and interest repayments as it continues to deal with the repercussions of a non-cash impairment charge of A$876.4m (£452.4m) against goodwill that the firm received last year, it has agreed to amendments to the terms of its existing syndicated facility agreement, which includes withholding dividends and increasing the frequency of reporting to its lenders. Under the deal, A$480m (£247.6m) of the debt and interest will be due in 2018 and $360m (£185.7m) in 2019.

The charge was mostly due to a A$814.2m (£420.1m) impairment in goodwill for its Slater Gordon Solutions unit, previously known as Quindell. The firm also pointed to the potential impact of planned government changes that would limit personal injury claims being a significant contributory factor.

The company’s first date for repayment is now listed as May 2018, according to the announcement. In the stock exchange announcement, the firm said the agreed facility was a ‘positive and clear endorsement of the company’s improvement program’.

S&G’s group managing director Andrew Grech said the firm was ‘pleased and grateful for the strong level of support that we have received from our lending group. We remain focused as a management team, on executing our performance improvement program across the business to improve profitability and cash flow, and reduce debt. We are confident that the amendments we have entered into today with our lending group provide us with the flexibility and time to execute and continue our performance improvement program.’

In February, S&G announced its plans to restructure its UK operation as it announced disappointing results, with a £493m global loss for the six months to 31 December 2015.

At the end of March the firm’s general counsel and company secretary Moana Weir resigned after spending just two months at the firm. In February the firm’s UK chief, Neil Kinsella, announced his retirement as UK head of general law, with Siri Siriwardene replacing him.

madeleine.farman@legalease.co.uk