Slater and Gordon saw in late 2015 the second instance of their share price plummet despite assurances made by chairman John Skippen. Skippen, not long before the price plummet, described the $1.3 billion acquisition of the UK-based Quindell business in April as an invaluable means for Slater and Gordon to assess regulatory risk. Later, when the UK government announced that it was capping the number of personal injury road accident claims, the already vulnerable stocks of Slater and Gordon plunged. Tumultuous transactions and business choices saw the value of stocks lowered by over 80%. In August, the same month in which Skippen assured investors, Slater & Gordon reported a loss of $1.06 billion.
Shareholders were understandably unhappy, and in October 2016 the decision was made to pursue legal action. Rival law firm Maurice Blackburn enabled more than 3000 shareholders the opportunity to take part in a class action law suit that sought $250 million as recompense. Slater and Gordon had overstated their profit margin in their most recent accounts, and it was the discovery of these false profits that saw stock prices plummet. The underlying allegations of the suit were therefore related to the false reassurances provided to the shareholders, which resulted in huge monetary losses for many.
On the 12th of October, Maurice Blackburn filed the suit against Slater and Gordon Limited (SGH) on behalf of shareholders who acquired shares 30th of March 2015 and 24th of February 2016.
The Result of the Slater and Gordon Class Action
The class action against Slater and Gordon was settled in-principle on the 11th of July 2017. The proposed settlement was to remedy all potential shareholder claims against Slater and Gordon, its directors and its offices.
The problem in this instance was that Slater Gordon insurers were to pay $32.5 million (all but a small amount available from SGH insurance policies), with hedge funds contributing an additional $4 million. There was little else available to fund the settlement – Slater and Gordon possessed no assets available to fund a settlement, with what little assets being in possession of the new owners of its debt.
The resulting $36.5 million, while a better result than complete insolvency for Slater and Gordon, represents only a small fraction of the losses accrued by shareholders in SGH. This decision was readily made due to defence costs for Slater and Gordon coming out of the insurance limit, which would, in turn, result in a smaller return for the shareholders.
The Shareholder Claimant Scheme
As a means to resolve the value of shareholder claims, a Shareholder Claimant Scheme was introduced. This scheme means shareholder claimants must provide proof of their status as a shareholder, after which they will receive a rateable portion of the $36.5 million. In this instance, a shareholder is anyone who has acquired, dealt or sold shares within the 6-year period before the scheme was enacted.
In doing this, Slater and Gordon are effectively relieved of the duty to reimburse their shareholders, regardless of whether the value of the claim significantly exceeds the compensations received. As part of the scheme, it is still permissible for shareholders to bring claims against third parties (such as auditors and advisors) to receive additional compensation.
What happens now?
A vote is being conducted in 2017 regarding the Shareholder Claimant Scheme – directors are advising that shareholders vote in favour, although there are very clearly positive and negative outcomes of the scheme (as illustrated in the Claimant Scheme document itself).
It is also advised that shareholder claimants seek advice regarding this scheme, whether it be professional financial, taxation, or legal advice. If you require legal advice, Marocchi Law are here to advise you regarding many aspects of the Shareholder Claimant Scheme. Get in touch today for more information.