Shares in Australian legal firm Slater & Gordon Ltd. lost half their value Thursday, after the company said that that the U.K. government had proposed changes to limit minor personal injury claims in road accidents, commonly referred to as “whiplash claims.”
The changes, which, if implemented, would ban cash payouts for minor injury claims was “unexpected” and could limit the number of people eligible to seek legal counsel for such claims, the company warned, in a statement.
Slater & Gordon stock plunged dramatically following the announcement during morning trade, falling 44 percent in 30 minutes. The stock was down 51.42 percent at the close of trading on the Sydney Stock Exchange.
The law firm said its guidance for this year is unchanged and it expected no effect on fiscal 2016. Slater & Gordon, the first law firm to go public in the world, added that it would participate in the government’s consultation process and provide more information to investors about any financial impact on the company’s performance in 2017.
However, investors were hardly reassured by the company’s statements. The law firm reportedly hired a new auditor earlier this month after errors in its reporting of cash flow for its U.K. business came under regulatory scrutiny.
“People are taking a cautious, worst-case approach,” Gareth James, a Sydney-based analyst at Morningstar Inc, told Bloomberg. “There’s a lot of concern around exactly what the earnings are going to be in their U.K. business.”
The company’s stock has lost about 84 percent of its value this year.
According to proposals set forward by U.K. Chancellor George Osborne Wednesday, London reportedly wants to remove the right to claim damages for minor injuries such as soft tissue injuries in car accidents.
It also wants to raise the bar for small claims from 1,000 pounds ($1,512.4) to 5,000 pounds($7,562), effectively increasing the number of people going to small claims court, where a person making a claim is not required to be accompanied by a lawyer.
"This will end the cycle in which responsible motorists pay higher premiums to cover false claims by others," the U.K. government said in a statement. According to the Guardian, whiplash claims cost the U.K. insurance industry about 2 billion pounds ($3.02 billion) a year.