Listed Australian firm Slater and Gordon today confirmed it has reached a deal to settle class actions brought by disgruntled shareholders.
The company, whose share price has slumped in the past two years, has agreed in principle to pay almost £21.6m to investors to settle their claims.
Slater and Gordon faced two shareholder class action proceedings, with the potential for a third still to come, from former and existing shareholders.
The settlement deal involves a £19m payment from the firm’s directors and officers’ liability insurance. The remainder is being paid by the firm's new lenders, led by hedge fund Anchorage Capital, who effectively took control under a new agreement last month which saw long-time head Andrew Grech leave the firm.
Payment of approved legal costs incurred by the claimants is made out of the shareholder creditor scheme fund. Slater and Gordon’s announcement states the settlement is made without admission of liability.
The settlement figure is only a fraction of that sought in the name of investors who saw the value of their holding fall from a high of A$8 a share two years ago to just eight cents a share today.
Maurice Blackburn Lawyers, the Melbourne firm that led one of the class actions, said the proposed settlement represents almost all of what is available under the company’s insurance policies, with the hedge funds who bought nearly all the company’s debt making a £2.4m contribution.
Andrew Watson, head of class actions, said the settlement was the best outcome from a ‘terrible situation’ for shareholders, given the alternative would mean ‘likely insolvency’ for Slater and Gordon.
He said that Slater and Gordon has no assets that would be available to fund a settlement or satisfy a judgment against the company. The company’s secured debt exceeds the value of its assets, and the new owners of the debt hold a fixed and floating charge over those assets. As a result, said Watson, the only source of potential recovery from the company for shareholders were the benefits from responsive insurance policies, which were found to have an ‘unexpectedly low’ policy limit.
Watson added: ‘Given the insurance policy limits, and the fact that Slater and Gordon’s defence costs for all actions also come out of the insurance, the proposed settlement will avoid further erosion of the available fund and return to class members as much of what remains under the policies as possible.’
The settlement is in principle at this stage and is subject to approval from the Federal Court of Australia.
Slater and Gordon shares closed up 9.5% at A$0.081 (5p), but are still down nearly two-thirds on the year to date.