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Could Slater & Gordon Limited face a class action over its guidance update?

Credit: Patrick McKnight

Fairfax media reported at lunchtime on Friday that embattled legal firm Slater & Gordon Limited (ASX: SGH) may itself be facing legal action, with law firm ACA Lawyers considering a class action against the company on behalf of the shareholders.

ACA Lawyers’ head, Bruce Clark, said he was investigating a class action against Slater & Gordon for potentially misleading investors over a capital raising for the company’s acquisition of Quindell’s Professional Services Division, now rebranded as Slater & Gordon Solutions (“SGS”), as well as the recently cancelled guidance forecast.

For context, Slater & Gordon recently confirmed its full-year guidance (including the contribution from SGS) on November 30. Subsequently, on December 17 the company announced that “there is a significant risk that full year guidance will not be met. Previous guidance has been withdrawn.

While no class action has been launched yet that I am aware of, similar updates have in the past led to legal action against companies like Myer Holdings Ltd (ASX: MYR), Billabong International Limited (ASX: BBG), and the now-defunct Forge Group Limited.

The onus of proof will be on claimants who will have to provide evidence that Slater & Gordon either misled shareholders (by reaffirming guidance when it was likely they would have to downgrade for example), or was deceptive in the information it provided regarding the SGS acquisition.

As reported in Fairfax, Slater & Gordon declined to comment on the class action, but a spokeswoman reportedly stated the firm was not ‘near insolvency’ in response to questions unrelated to the class action.

On another front, the prospect of regulatory action could be looming as the ASX will no doubt have questions for Slater & Gordon regarding the timing of its guidance and subsequent abandoning of that guidance.

Spotless Group Holdings Ltd (ASX: SPO) recently received a ‘please explain’ from the ASX with regards to its surprise trading update/downgrade on 2 December, after confirming its guidance at the end of November. The ASX may or may not decide to make further enquiries of Slater & Gordon.

While the situation may be precisely as management explained in their latest releases, the sudden change in fortunes – as well as potential legal action – is likely to add to the uncertainty surrounding the company, and investors are better off steering clear of Slater & Gordon for the time being.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. 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.

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