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Holdings on legal listing

News

Cite as: (2006) 80(12) LIJ, p. 23


Plans by three Perth firms to be the first to list on the Australian Stock Exchange hang in the balance.

Plans to launch Australia’s first publicly-listed law firm may be shelved following stop orders issued by the Australian Securities and Investments Commission (ASIC).

At the time of going to press, Integrated Legal Holdings Limited (ILH) had until 4 December to convince ASIC that it had remedied faults found in its prospectus by the regulator.

While neither ASIC or ILH would com-ment on the reasons for the stop orders, ASIC has the power to issue interim stop orders if it believes that the prospectus does not comply with the Corporations Act 2001 (Cth).

ASIC issued the first stop order on 23 October and the second order on 10 November.

An ASIC spokesman said the second order was issued due to a request by ILH for more time to revise the prospectus.

The stop orders have not surprised some members of the stockbroking and legal professions who had in October greeted the news of the proposed listing with scepticism.

FW Holst & Co stockbroker David Holst predicted partners of law firms would not commit to swapping ownership of a firm for shares in an umbrella company, because most firms would not want or need to increase their capital.

“I can’t view the world as a partner of a law firm, but I would think to do that would be to lose a lot of control over your firm,” he said.

The Perth firms hoping to list on the Australian Stock Exchange (ASX) as ILH are Talbot Olivier, Durack Zilko and Brett Davies Lawyers.

Online document business LawCentral and management consulting practice Professional Services Development are also part of the float.

ILH hopes to raise $14 million by selling 46 per cent of the company to the public at 50 cents a share.

ILH spokesman Brett Davies said the corporate business structure would attract firms because it provided a growth strategy based on opportunities for improved staff retention; a cross-referral network; and the ability to service clients over the Internet.

Risk factors included the possibility clients would follow partners if they left the company and the absence of precedents to show that this model would work in the legal profession.

The first ILH prospectus, sponsored by Sentry Financial Services and aaudited by Ernst & Young, showed $10.9 million of the money raised would be paid to the owners of the three firms and other operating divisions.

Under a two-year employment contract, the nine current partners would receive an annual salary of $100,000 each, and be entitled to a 20 per cent profit share.

About 80 per cent of the company’s assets, or $12 million, would be made up of goodwill.

However, Pitcher Partners Melbourne business advisory and assurance division partner Terry Benfold said most law firms were not based on goodwill and a corporate entity could not create goodwill.

The corporate business structure of ILH will function like an incorporated legal practice (ILP), which under recent law changes operate in Victoria, New South Wales and Western Australia.

An ILP can be owned by a non-lawyer and provide both legal and non-legal services, but is required to have at least one legal practitioner director.

Victorian Legal Services Board statistics seen by the LIJ showed there were 422 Vic-torian ILPs last month, including 78 which incorporated after the Legal Profession Act 2004 was introduced last December.

Mr Davies said the incorporated model was appealing because the partnership structure was “beginning to show signs of decay”, as lawyers lost interest in becoming partners.

“While lawyers may not wish to become a partner, they do wish to share in the ownership of law firms, and a company that incorporates can offer employee shares and option schemes to professional and support staff,” he said.

Media reports of the proposed listing have raised ethical concerns in the legal profession, particularly around conflicts of interest in the areas of a lawyer’s duty to the court and client versus their duty to shareholders.

The issue of conflicts of interest for directors of ILPs has also been raised.

Victorian Legal Services Commissioner Victoria Marles met with her New South Wales and Queensland counterparts in Sydney on 9-10 November to discuss ILP regulation.

Ms Marles said while the ILH listing was of great interest to the profession, regulators needed to ensure all practitioners complied with their overriding duties to the law, the courts and their clients.

“If complaints about conflict of interest are made about individual practitioners employed by ILPs or indeed any practices, the commissioners’ roles will be to deal with those complaints,” she said.

The commissioners agreed to provide uniform guidance on matters of conflict, including identifying the different types of conflict, at a date to be determined.

Harriet Morley

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