Speaking to Lawyers Weekly late last week in anticipation of the results, Morningstar senior technology equities analyst and portfolio manager Gareth James said the situation was dire for Slaters and its shareholders.

“Basically what [Slater and Gordon are] saying is that there isn’t any equity left at the current time. If you’re a shareholder, it doesn’t get worse than that. I mean, you’ve lost everything,” he said.

He said Morningstar has had a zero equity value on the firm for some time, on the basis that the analysts didn’t think Slaters would be able to generate sufficient profits to justify a valuation that exceeded its liabilities.

Slaters’ half-year results confirmed this assessment. While its cash flow improved over the second half of 2016, it remained negative, with an outflow of $11.4 million recorded for the half year.

Andrew Grech, managing director of Slater and Gordon Group, said the firm is still working on a recapitalisation plan with its lenders.

“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,” he said.

“Discussions with lenders on the recapitalisation plan are ongoing, and the board has reason to believe that a successful outcome will be concluded in the coming months.”

Mr James emphasised Slaters’ profit dilemma, which is central to its hopes of recovery.

“The business simply needs to generate a much, much higher level of profits and that’s really the responsibility of the management team to try and achieve that. It seems as though they have been trying to do that, well, ever since they bought the business in the UK, and they realised that there was a shortfall between their expectations of earnings and what they actually were,” he said.

While he noted that Slaters’ move into the UK market was the start of many of its troubles, Mr James said it raised further questions about the acquisition model for law firms.

“There’s no question that that particular transaction was a disaster, no question about that. But I think you can go even further back and question the business model altogether, and the sense in trying to consolidate the legal industry when so much of the value that’s created is created by individuals,” he said.

“So if your business model is to go around and just simply acquire lots and lots of law firms, other than the valuation arbitrage between the private market and the listed equity market, I think the question you’ve got to ask is, ‘What real value is being created?’. Sure, you’re getting a better valuation, but what’s really happening to earnings? Are earnings actually better? Are you getting any synergies?

“I think you could say the whole business model is questionable, and you could argue that it was just inevitable that they were going to have problems sooner or later.”

Slaters is facing an ongoing ASIC investigation into its accounts, as well as a $250 million class action filed by Maurice Blackburn on behalf of Slaters shareholders.