The world's first publicly listed law firm has warned its shareholders that if they don't approve plans for recapitalisation it will likely be forced into bankruptcy.
Slater & Gordon Limited (ASX: SGH) owes a total of $761.6 million as of 30 June 2017, according to the firm.
It blames a large portion of the debt on the disastrous acquisition of Quindell Plc's Professional Services Division in 2015.
Slater & Gordon Chairman John Skippen said the law firm's directors have formed the view that the company's secured debt materially exceeds total enterprise value.
"Therefore, in the event that the recapitalisation was not implemented and Slater and Gordon became insolvent, shareholders would most likely receive nothing because the assets of Slater & Gordon are not sufficient to fully satisfy its secured debt obligations, let alone the claims of other secured creditors, unsecured creditors or any interests of shareholders," Mr Skippen said.
"In addition, the value of Slater & Gordon's business may be further eroded due to the loss of current employees and clients that would likely occur as a result of entering an insolvency process."
Should the recapitalisation go ahead, pending shareholder approval at the upcoming AGM, the law firm's senior lenders, including Anchorage Capital Group, will have a collective ownership of approximately 95% of Slater & Gordon.
"It is likely that there will be limited liquidity in the remaining shares," the law firm stated.
The Slater & Gordon share price has dived since reaching a peak of $7.85 in early 2015.
Its share price closed on Monday at 6.8 cents.
The law firm, with a market cap down to $23.6 million reported a net loss of $546.8 million for FY17, a significant improvement of FY16's net loss which exceeded $1 billion.
Although some seem to delight in the downfall of a once mighty law firm like Slater & Gordon, it should not be forgotten that it has been behind some of the most significant legal cases in Australia's history.
In the mid-90s, Slater & Gordon successfully represented Papua-New Guinean landowners whose traditional lifestyle was damaged by tailings waste from the Ok Tedi mine operated by BHP Billiton Limited (ASX: BHP).
Slater & Gordon has also represented investors in class actions against OZ Minerals Limited (ASX: OZL) and Nufarm Limited (ASX: NUF).
Slater & Gordon CEO Hayden Stephens hopes the law firm can turn things around.
"While there is much work ahead to restore financial performance to the levels achieved in the past, it is important to remember that the underlying business is strong," Mr Stephens said.
"The Slater and Gordon brand remains the most recognised brand for consumer legal services in Australia."
