SGH - close ties with EA

http://www.copyright link/business/...-close-ties-with-equal-access-20150729-gin66c

another dirt dug up by AFR a bit bias IMO.



With the cloud of an ASIC investigation hanging over Slater & Gordon, every aspect of its business is coming under intense scrutiny. Even businesses connected to Slaters are being put under the microscope.

One such business is Equal Access Funding, a so-called disbursement funder which has one client – Slaters.

On the surface, the partnership between EA and Slaters is a win-win.

EA lends to 'no-win, no-fee' clients of Slater & Gordon to cover their non-legal medical expenses during the course of the case, sourcing its funds from wealthy Melbourne families.


For Slaters, the external financing of expenses helps ease the cash flow constraints that arise from the no-win/no-fee nature of their business model. As Macquarie analysts explain Slater "utilises third-party disbursement funders, like Equal Access in Australia, to significantly reduce this cash working capital requirement".

The industry effectively created because non-legal service providers would allow clients to either pay for costs in advance or pay an inflated price upon winning the case. Via disbursement funders the client could instead pay the lower cost and incur interest that lawyers cannot incur.

Slater & Gordon, says EA, which was appointed after its previous funder stopped lending, was "selected following a competitive tender process as it offered the most competitive rate".

But the links between the two companies are close.



Equal Access's corporate address is the same as Slater & Gordon, which EA chief executive Alistair Swain says "has brought mutual convenience and benefits to both parties".

LONG SERVING
More importantly, EA's shareholders both have ties to Slaters. A former long-serving Slater & Gordon partner, Paul Henderson, is a shareholder in EA's controlling entity. His LinkedIn profile says he worked for Slater & Gordon for more than 29 years, from February 1986 to March 2015.

Mr Swain says Mr Henderson was not a director of EA when it was appointed by Slaters, and says Mr Henderson "has not held a management position at Slater & Gordon for a period of eight years.


"Mr Henderson retired from SGH and is no longer a paid consultant. Before his retirement, his most recent consulting work at SGH has been as a medical lawyer."

Mr Henderson could not be reached for comment via EA.

Phillipa Davey, an artist, is the other major shareholder of EA and records with the corporate regulator show she shares an address with Mr Swain.

While she has never been an employee of Slater & Gordon, she was an 'artist in residence' at the law firm back in 2003.


Ms Davey could not be reached for comment.

To the untrained eye it may appear that EA is more of a 'related party' to Slater & Gordon than 'third party'.

But Slater & Gordon is firmly of the view that Equal Access is most certainly not a related party and that its disclosure has been adequate in all circumstances.

The Australian Financial Review spoke to experts in the disbursement funding and legal industry who were generally in agreement that there were no financial issues with the arrangement – there would and should be no balance sheet impact, other than the disclosed contingent liability and the intention of easing cash flow pressures.

But the fact remains that disbursement financing is highly profitable. Either the client pays back the financier when the law firm wins the case, or the law firm pays up if the client losses – but given Slater & Gordon wins 19 out of 20 cases, and the interest rates on disbursement lending can be as high as 15 per cent, there are clearly good margins to be made here.

That Slaters has chosen a disbursement funder with at least historic connections to the firm and locked them in as an exclusive funder might lead some to question whether this potentially lucrative source of work was obtained favourably.

Such suggestions have been strongly refuted by Slater & Gordon in response to questions from the Financial Review.

For a company that has recently disclosed two accounting errors, and on Monday declined to say exactly why it had ended what had previously been described as a major contract in its UK business, it's another arrangement that poses questions of disclosure.