Biglaw

A $700 Million Loss Puts A Law Firm On The Ropes

The world's first publicly traded law firm finds itself in dire straits.

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The bigger they are, the harder they fall.

The bigger they are, the harder they fall.

If you go to as many panel discussions about the future of law as we do, you’ve heard countless times about Slater & Gordon. This giant Australian law firm, with more than 2,500 employees, generates tons of buzz due to its status as the world’s first publicly traded law firm. In light of regulatory developments in different jurisdictions that are loosening up the rules against non-lawyers owning law firms, industry observers have looked to Slater & Gordon as a model for the law firm of tomorrow.

For a time, while it enjoyed growing revenue and a surging stock price, Slater & Gordon was a great success story. But now the biggest firm Down Under is in danger of going under, as reported by the ABA Journal:

The first law firm to go public may be on the verge of collapse after reporting a loss of nearly $700 million during the second half of 2015….

Australia-based firm Slater and Gordon must present a plan to several banks in Australia by the end of April; otherwise the firm could face a deadline as early as March 2017 to repay its debt. John Skippen, Slater and Gordon’s chairman, apologized to shareholders during an earnings call to go over the firm’s financial performance. Skippen also revealed that he and chief executive Andrew Grech both considered resigning, but opted against it, citing a need for stability.

Why is this huge firm in such huge trouble? Being a public company meant access to more capital, which meant more… opportunity to waste capital on ill-fated acquisitions:

According to the Herald Sun, the firm’s financial woes are serious. In December, the firm took a AU$876.4 million (approximately $676 million) write-down during the second half of 2015 with the vast majority of it being related to a slowdown in business in the United Kingdom. This was in stark contrast with the second half of 2014, when the firm reported an AU$49.3 million profit. A major part of the firm’s problems stem from its April 2015 purchase of U.K.-based insurance claims processor Quindell’s legal services arm for a whopping AU$1.3 billion ($928 million) in the hopes of cashing in on the lucrative car accident market. New proposed laws in the U.K. designed to crack down on fraudulent claims has caused a huge slowdown in business for the firm. According to the Herald Sun, the firm’s stock has taken a nosedive of nearly 40 percent after a trading suspension was lifted.

So it was a classic case of overexpansion — which can, of course, happen even with non-publicly traded firms (boy Dewey know of some examples). But the temptation to be reckless might be greater when you’re playing with other people’s money.

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Law firm Slater and Gordon on the ropes [Herald Sun via Morning Docket]
Slater and Gordon could be on the brink after reporting huge losses [ABA Journal]

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