Shine faces class action from investors over share price fall

Shine Lawyers, faces the risk of a shareholder class action after the collapse of its share price.

Shine in the cross hairs

A second listed law firm, Shine Lawyers, faces the risk of a shareholder class action after the collapse of its share price.

Shine Lawyers is being targeted by a newly launched class action adviser over a series of announcements that preceded February’s 75 per cent decline in its share price.

That wiped more than $253 million from Shine’s market capitalisation.

Investor Claims Partner, which is being launched today, is assembling a register of institutional shareholders who bought Shine shares in the five months before February. ICP’s research shows that throughout that period Shine provided annual earnings guidance of between $52m and $56m before downgrading this on January 29 to between $24m and $28m.

Shine joins Slater & Gordon, which is also being targeted for possible class actions by rival law firms ACA Lawyers and Maurice Blackburn.

Shine, which has 48 offices and more than 700 staff, disclosed last month that its net profit for the year to June had fallen by 50 per cent to $14.8m.

In February Shine revealed that its net profit had plunged by 90 per cent for the six months to December from $13.3m to $1.3m.

However, Shine is still pursuing several class actions of its own and uses US legal identity Erin Brockovich as its “ambassador”.

The possible claim against Shine was referred to ICP by litigation specialist Quinn Emanuel Urquhart & Sullivan after an approach from shareholders. It is one of three potential class actions that ICP is unveiling today.

Quinn Emanuel partner Damian Scattini said Shine had been over-estimating how much it would be able to recover from the firm’s work in progress.

“They record the hours they have spent and they record it as revenue, whereas it is only hours they have spent. They have not recovered it at all,” Mr Scattini said.

“They grossly over-estimated the amount they would recover.”

Shine issued a statement denying any wrongdoing.

“Shine has not been contacted by the firm in question in relation to any potential cause of action,” it says. “Shine has, at all times, met its continuous disclosure obligations including compliance with the Australian accounting standards and refutes any statements to the contrary.”

ICP’s chief executive and founder is John Walker, a former executive director of Bentham IMF, which is the nation’s largest litigation funder. His new company is not a funder but instead acts as an adviser to institutional shareholders that identifies potential claims (see accompanying report). The other possible claims he has unveiled are against Sims Metal and Spotless, which have both suffered significant falls in their share price.

ICP’s research shows the market capitalisation of Sims Metal fell by $530m in November last year after it effectively halved its earnings guidance. It had stated in September that its targets had been reviewed and were realistic.

The possible claim against Spotless concerns a decline in market capitalisation of $961m in December when the company said its earnings outlook was flat and profit would be down 10 per cent.

In October, ICP’s research shows Spotless shareholders were told to expect the annual results to materially exceed those of the year before.

Shine was floated in 2013 and subsequently has acquired several small practices including Western Australia’s Stephen Browne Personal Injury Lawyers and north Queensland’s Emanate Legal.