Just how did Slater and Gordon manage to get bowled out by Quindell?

The future of the listed Australian law firm Slater & Gordon is in doubt after a £450m writedown on the assets it acquired from the controversial British business. Jamie Nimmo reports on a financial car crash that many saw coming

Alastair Cook, England’s Test captain, was Slater & Gordon’s UK brand ambassador (AP)

Slater & Gordon’s stock market slump over the past year is reminiscent of the batting collapse that England cricket fans are used to enduring – which is ironic as the Test team’s current captain, Alastair Cook, was until January the face of the Australian law firm in the UK.

Cook only lasted a year as brand ambassador, but it will probably go down as the most memorable 12 months in S&G’s history. Yesterday, the company’s share price hit a record low, crashing 93 per cent from 2 April last year. That was the day after its £637m takeover of the bulk of Quindell, the controversial AIM-listed insurance claims outsourcer, began to unravel.

At 3.15pm on 1 April, Quindell, whose accounts were already being questioned by investors in the UK long before the fraud investigation was launched, issued an ominous warning. It revealed that it had got the maths wrong and that profits from the professional services division it was selling – which deals with car accidents, injuries at work and noise-induced hearing-loss cases – were actually higher than it had stated.

Good news, you would think. But alarm bells started ringing for investors and S&G’s shares were quickly on a slippery slope.

Management were unfazed by the criticism and defended the deal through rose-tinted spectacles. Managing director Andrew Grech called it a “once in a generation opportunity” to tap into the UK’s personal injury claims market, with a 12 per cent market share. Mr Grech also insisted that the company was satisfied with its due diligence into Quindell, helped by EY.

The deal to sponsor England’s Test captain was symptomatic of the company’s intent to grow its brand in the UK at whatever cost.

The purchase was also thought to be a way of propelling the company into the S&P/ASX 100, Australia’s equivalent of the FTSE 100, though it ended up having the opposite effect as it is now set to drop out of the list of biggest 200 companies down under by market value.

The firm rejected calls from investors to call off the deal. Part of its argument was that for Quindell’s long-suffering shareholders it was a chance to cash in some of their investment “after an extended period of uncertainty”. It seems then the deal was opportunistic – a chance for S&G to grow its existing UK operations, convinced that Quindell’s woes were purely “historical” as PwC’s review into its accounts were for 2013 and 2014.

It is not as if S&G needed to make any drastic changes. The company had just grown half-year revenues by 38 per cent to A$245.3m and pre-tax profits by 47 per cent to A$47.4m – strong figures by anyone’s standards.

The company rushed through the sale, even with all the background noise about Quindell, and the deal was done and dusted by May. But that was the start of S&G’s problems.

In August, Quindell, now known as Watchstone Group, released its long-awaited annual results and accounts, which revealed the scale of its accounting inaccuracies.

It made a £238m loss in 2014 after writing down the value of its assets by £157m, including acquisitions made by controversial founder and former boss Rob Terry, who quit in 2014 amid a share-dealing scandal.

That same day in August, the Serious Fraud Office revealed it was investigating the business. And still S&G ignored the red flags, repeating again that the SFO was probing “historical revenue recognition” and repeating that it had done adequate due diligence into the deal.

But that did not deter the Australian regulator from launching an investigation into S&G’s accounts.

The probe, which lasted almost eight months, is now complete and while it emerged largely unscathed from the review of “the recoverable amount of goodwill attributable to the company’s Australian and UK businesses”, it came at a huge cost.

The company was forced to write down the value of its Quindell assets by A$876.4m (£450m), prompting crisis talks with its lenders, who are demanding it comes up with a solution by the end of next month to cut its A$741m debt mountain, or face its loans being called in. To put that into perspective, S&G’s market value is only just above A$200m.

With the company’s future in the balance, Mr Grech offered to resign, but the board rejected his proposal.

Once again, the company said it remained “convinced that the emerging market environment in the UK will make scale at least as important as it has been in Australia in generating earnings”, although it has apologised to shareholders.

Its unwavering faith in the deal seems even more bizarre, following the Government’s crackdown on whiplash claims unveiled in George Osborne’s Autumn Statement in November, with plans to raise the small claims limit for personal injury claims to £5,000 – another blow for investors, who continued to watch the shares slide.

While Alastair Cook is no longer the group’s brand ambassador, shareholders remain stumped by the decision to push through the takeover and are now queueing round the block to sue the company.

In a statement accompanying the results, Mr Grech said: “We have always put the interests of our clients first and that will never change.”

Perhaps the company should consider putting investors higher up the priority list. After all, they saw the car crash coming a mile off.