Slater & Gordon bankers bring in investigative accountants

Slater & Gordon faces further scrutiny after it emerged that the company's lenders have appointed investigative accountants to take a closer look at its books.

The move follows a shock abandonment of its earnings guidance in late 2015 that unnerved shareholders and prompted a potential class action.

Slater & Gordon managing director Andrew Grech says the law firm is working "very collaboratively and co-operatively ...
Slater & Gordon managing director Andrew Grech says the law firm is working "very collaboratively and co-operatively with the banks and our advisers". Photo: Louie Douvis

The company's managing director, Andrew Grech,​ said the law firm was working "very collaboratively and co-operatively with the banks and our advisers".

"As part of that process, we agreed that our banking syndicate would appoint their own advisers, who we expect to work alongside those appointed by the board," he said.

"This is a part of the process and you can be assured that we remain strong and will continue to deliver excellent outcomes for our clients, just as we have done for the past 80 years."

A spokeswoman for insolvency firm McGrathNicol, which was reported by The Australian to have been appointed by the law firm's key lenders, National Australia Bank and Westpac, said it did not comment on rumours or speculation.

Advertisement

Shares fall further

Slater & Gordon shares, which declined by 86 per cent in 2015, fell sharply again in 2016's first week of trading, declining by 12 per cent to 72.5¢ on Thursday. That valued the law firm at $250 million, down from a peak of $2.75 billion in April 2015.

In December, the company shocked the market by dropping its previous earnings guidance of $205 million, but reassured investors that it had more than $100 million of "headroom" within its banking facilities which would increase as the year progressed. The banks were understood to have expressed comfort with Slater & Gordon despite the publicised accounting issues it faced throughout 2015.

The abandonment of its earnings guidance came amid doubts among the analyst community that Slater & Gordon would be able to hit its ambitious earnings target, with a failure to do so potentially threatening a breach of its debt covenants.

The shock announcement prompted rival plaintiff law firm Maurice Blackburn to reach out to affected shareholders in anticipation of a class action.

Slater & Gordon's debt-to-equity levels had increased above the board's 40 per cent target after it took on $375 million of debt to partly fund the controversial $1.3 billion purchase of Quindell's professional division in March.

In addition to Westpac and NAB, long-time bankers of Slater & Gordon, Macquarie and Citigroup, formed part of the acquisition loan syndicate. The latter banks were underwriters.

Slater & Gordon reported a net debt level of $623 million in June, but the weaker projected cash flows are expected to increase that figure to around $720 million, some analysts forecast.

Meanwhile, Slater & Gordon remains the subject of an inquiry by the Australian Securities and Investments Commission into its 2014 accounts. The scope of the investigation is understood to have expanded following the drop in its earnings guidance.