Shine Corporate Ltd (ASX: SHJ) saw its share price cut exactly 75% within minutes of the ASX’s open this morning.

The small-cap law firm emerged from a 10-day trading halt after announcing it had conducted its nervously awaited business review, and the market was merciless.

Shockingly, Shine announced it now expects 2016 EBITDA (earnings before interest, tax, depreciation and amortisation) of around $26 million – down from previous guidance of $54 million.

Source: Shine Corporate ASX announcement, 29 January 2016

Source: Shine Corporate ASX announcement, 29 January 2016

The company said a comprehensive review of its modelling for recovery rates and work in progress (WIP) on all cases excluding class actions lead to a one-off $17.5 million write-down. Management also conducted a detailed review of the entire business, including all businesses it acquired since listing on the ASX.

“The increase in provisions will not impact operating cashflow in 1H FY2016 and protects the balance sheet against the risk of future write-downs,” Shine Managing Director, Simon Morrison, said.

And as a result of the business review, the company announced a further $10.5 million impact to guidance (shown above) reflecting below-budget income performance, increased competition and write-offs.

Further, given the worse-than-expected outlook Shine said it will scrap its interim dividend although the board expects to pay a final dividend.

The company says it has confirmed with its bank that the reduced forecast keeps it within its debt covenants.

Source: Shine Corporate ASX announcement 29 January 2016

Source: Shine Corporate ASX announcement 29 January 2016

Shine said it has and will introduce sweeping cultural changes, covering WIP processes, case selection, succession planning for high-achieving staff, IT and marketing.

“Our underlying business model remains solid,” Mr Morrison added. “The Company will continue to execute on its long term strategy having addressed the matters set out in this announcement.”

Foolish takeaway

Previously, we detailed the issues Shine and its larger rival Slater & Gordon Limited (ASX: SGH) faced in regards to their method of profit forecasting. While today’s news was mostly expected (following the trading halt), the ASX’s legal arena is currently in hot water and investors are reacting swiftly to concerns regarding both Shine’s and Slater’s accounting policies. Only time will tell if today’s sharp share price drop was an overreaction.

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Motley Fool writer/analyst Owen Raszkiewicz owns shares of Slater & Gordon. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.