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Revealed: Slater & Gordon Limited’s rescue plan

Famous fund manager Peter Lynch once claimed that average investors have incredible advantages when it comes to investing, thanks to their experience working in a given industry every day. This experience can benefit you in all kinds of surprising ways, like when a colleague from the UK read an article in the UK’s Law Gazette about Slater & Gordon Limited’s (ASX: SGH) (“SGH”) restructuring efforts in the UK.

Most recently, Foolish readers will remember that Slater & Gordon posted significant losses on the back of massive write-downs on UK assets that it purchased only months beforehand. Slater & Gordon has until 31 April  to strike a deal with creditors to restructure its debt, otherwise due dates on its $783 million in debt could be brought forward to 31 March 2017 – and it’s unlikely the company will be able to pay.

Enter: A company-saving restructure?

The UK’s Law Gazette reported on the 6 April that Slater & Gordon was examining the future of its offices in Bristol, Halifax, Newcastle, and Liverpool, while the Derby office would be closed. The business will consolidate its operations in city centre offices, and may close regional offices. Slater & Gordon’s Ashton office is ‘likely’ to close, while Personal Injury law will cease at Preston, Wrexham, and Chester.

Work on Noise-Induced Hearing Loss (NIHL) claims – previously touted for their expected positive benefits to cash flow – will also be scaled back as a result of delays in resolutions in many of these cases. Law Gazette also reported that Slater & Gordon has divested its Accident Claims Helpline, potentially preventing up to 75 redundancies. Slater & Gordon declined to comment on the restructure.

Investors may be surprised to read that article, given that Slater & Gordon has not yet made any comment to the market on its progress (or lack thereof) in negotiations with lenders. It seems the market at least suspects what is going on however, with Slater & Gordon shares down 36% in the past month.

Foolish takeaway

While management may not be able to comment on the restructure while it is still in progress, this also makes it extremely difficult for shareholders to weigh up the future of their investment. A track record of opaque dealings and inaccurate guidance will likely have compounded the issue, and shareholders should be asking why management is not up-front with them about developments within the business.

As things stand, there is an incredible amount of uncertainty facing Slater & Gordon, and I would not recommend buying shares today. On the plus side, the reported restructuring efforts make it look like management is making changes to save the business, which could bode well for ongoing negotiations with lenders. Something to keep an eye on.

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