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EMBATTLED law firm Slater and Gordon Group (ASX: SGH) has provided a market update which confirms it will cut ties with its loss-making UK business.
Following substantial economic woes for the ASX listed group over FY17, Slater & Gordon announced the UK operations will be hived off to focus on its Australian business.
This separation has progressed ahead with the group providing further detail as to what the transitional separation will look like.
To achieve an amicable split with Slater & Gordon UK, the agreement ensures that the Australian arm will be released from parent guarantees and other forms of security and financial support it currently provides to the UK business.
The company has agreed the timeframe which will be a period of up to 18 months following the implementation date.
If the UK business defaults on any loans or leases it currently has that the Australian arm guarantees, the parent arm may be liable for any unpaid amounts under those contracts, meaning the Australian arm is nowhere near out of the woods just yet.
In late October, the Australian law firm called on its shareholders to vote in favour of a recapitalisation of its "unsustainable debt levels" to ensure it did not become insolvent. Splintering off its UK business was just one part of the recapitalisation process.
The law firm says its owes a total of $761 million as of June 30, 2017, which it cannot pay down.
Slater & Gordon posted a loss of $546.8 million for the 2016-17 financial year, coming on the back of the previous year's impairment-heavy loss of $1.01 billion.
The main cause of the company's fall from grace was the $1.3 billion acquisition of British professional services firm Quindell in 2015 which led to two class actions by aggrieved shareholders. One of these class actions was settled in July for $36.5 million.
Splintering the UK business is just one part of the recapitalisation process which will be considered by shareholders at the Company's AGM on Wednesday, 6 December.
Shares in the firm are currently trading down 17.31 per cent to $0.043 per share at 11.20 am AEDT.
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