find the latest legal job
Corporate and Commercial Partner
Category: Corporate and Commercial Law | Location: Adelaide SA 5000
· Full time · Join a leading Adelaide commercial law firm
View details
In-house Legal Counsel & Commercial Lawyers
Category: Corporate and Commercial Law | Location: All Sydney NSW
· Providing lawyers with flexibility and control over when they work, how they work and who they work for.
View details
In-house Legal Counsel & Commercial Lawyers
Category: Corporate and Commercial Law | Location: All Melbourne VIC
· Providing lawyers with flexibility and control over when they work, how they work and who they work for.
View details
Legal Inhouse / Lawyer / Company Secretary
Category: Other | Location: Brisbane QLD 4000
· Fantastic Company · Potential to be Part Time / Flexible Work Pattern
View details
Part Time Risk & Compliance Officer
Category: Other | Location: Brisbane QLD 4000
· Brisbane City · Flexible Part Time Hours
View details
Lenders to back Slater and Gordon, expert predicts

Lenders to back Slater and Gordon, expert predicts

Help button

A financial expert has spoken exclusively to Lawyers Weekly ahead of the announcement of Slater and Gordon’s recapitalisation plan, sharing his predictions for the ailing firm.

It has been reported Slater and Gordon’s negotiations with its lenders could be finalised as early as 17 March. In light of this, Mark Humphery-Jenner, an associate professor of finance at UNSW Business School, spoke exclusively to Lawyers Weekly about the likely outcome.

The academic said that although it will not be certain until the recapitalisation plan is announced, he believes the lenders are likely to agree to swap their debt for equity in Slater and Gordon.

“There’s a possibility that that would be either: a) effectively acquiring the whole firm, or b) potentially, more likely, acquiring so many shares that every other shareholder is diluted,” he said.

“That’s more likely because there are reports that the lenders want the firm to remain listed.”

Slater and Gordon was removed from the ASX 300 last Friday, effective 20 March, which Mr Humphery-Jenner said was not surprising. Given its debt of more than $750 million, compared with its market capitalisation of around $30 million, he said a debt for equity swap was the most plausible way forward.

“It’s unlikely that if [the lenders] were to liquidate the firm they would be able to obtain back all the capital that they have lent, and we can see that because some of these lenders are already willing to take haircuts on the debt that they have,” he said.

Mr Humphery-Jenner’s prediction comes despite the typical reluctance of banks to swap debt for equity. He said that Slater and Gordon’s dire circumstances will likely prompt its lenders, which include Westpac and NAB, to run the risk of holding equity in the firm.

“[The big banks] typically don’t want a debt for equity swap because typically it creates prudential issues, in that equity is more risky than debt, and they typically don’t want to have equity on their balance sheet that’s understandable, from bank regulatory perspectives,” he said.

“The issue for banks of course is whether they believe they would get very much, if anything, back in a liquidation.”

In the event of a debt for equity swap, the value of current shares would probably be highly diluted, Mr Humphery-Jenner said. However, he said the long-term impact of this on Slaters’ share price is not immediately obvious.

“The reduction in share price, on the one hand, could come from that dilution,” he said.

“On the other hand, if this is the only plausible way to save the company, there could potentially be some benefit at least in the long term for those shareholders, in that saving the company, for a person who holds the shares at the moment, is more valuable than letting the firm go bankrupt.

“The shareholders who had already potentially sold their shares, or have access to the class action, those shareholders may still be able to recover depending on the extent to which Slater and Gordon can rely on liability insurance.”

However, Mr Humphery-Jenner said the ongoing ASIC investigation into Slater and Gordon’s operations could limit its capacity to access liability insurance.

“If liability insurance is not available, then [current] shareholders are unlikely to be able to recover as much. And secondly, Slater and Gordon lacks assets to be able to pay out on all of those claims, so therefore their avenues for recovery are more limited if the ASIC investigation finds there’s relevant wrongdoing,” he said.

Mr Humphery-Jenner took a pragmatic view on the probability of Slater and Gordon’s eventual recovery, listing three key hurdles facing the firm.

“There are a few underlying issues with it recovering: in the short term, Slater and Gordon has actually stated that it’s suffering a lack of confidence in its product and services. That lack of market confidence in actually hiring them is clearly going to deter their recovery in the short term.

“A second short-term deterrent is that employees could easily leave the company in fear of Slater and Gordon going bankrupt. The lack of human capital could then reduce its chances of recovery.

“Then, thirdly, there are several other large players in this similar space. So Maurice Blackburn, for example, is a large player in this class actions space. This could seriously impact its ability to recover because it is now going to need to compete against a much larger incumbent competitor.”

Add to these factors the towering class action brought against Slater and Gordon by Maurice Blackburn, on behalf of Slaters’ former shareholders, and the outlook is bleak.

“The lenders, assuming they do this debt for equity swap, clearly believe Slater and Gordon has the potential to continue as a going concern,” Mr Humphery-Jenner said.

“So in the long term it could potentially recover, although it would certainly take a very long time for it to do so. And it certainly is contingent upon it not falling over in the short term.”

Disclosure statement: Mark Humphery-Jenner was a shareholder in Slater and Gordon and lost money on these shares. He elected not to participate in the class action.

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Lenders to back Slater and Gordon, expert predicts
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
Nov 23 2017
Education a passion for YL president
Promoted by University of Melbourne. Melbourne Law Masters student Phoebe Blank is successfully j...
Crowd
Nov 23 2017
Anti-radicalisation programs playing ‘second fiddle’ to terrorism laws
Several academics have questioned the balance between Australia’s counterterrorism legislation and...
 William Ah Ket
Nov 23 2017
‘Bamboo ceiling’ thought piece wins inaugural law prize
A paper that explores the idea of affirmative action to achieve greater diversity among members of A...
APPOINTMENTS
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
opinion
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
Help
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...