The hedge fund that will soon have a controlling stake in endangered law firm Slater & Gordon has bluntly told retail shareholders not to expect it to protect their interests in the boardroom.
At a sometimes fiery annual general meeting, Slater & Gordon gathered enough support on Wednesday to pass a bailout plan that will see Anchorage Capital Group take a 95 per cent ownership stake in the company in exchange for forgiving some of the listed law firm's massive debts.
Existing shareholders' will be reduced to 5 per cent of the share registry, and their shares will be consolidated on a 1 for 100 basis under the plan. That will see the stock devalued from Tuesday's price of 4?? to between 0.3?? and 1.1??.
The company had warned it risked insolvency if the recapitalisation was not approved.
Slater & Gordon's shares were traded as high as $7.85 in early 2015, but have shed more than 99 per cent of their value after the law firm ran up huge losses and a billion dollar plus impairment to the value of a disastrous acquisition in the United Kingdom.
Three Anchorage nominees were elected to the board at Wednesday's meeting, including Merrick Howes, managing director of Anchorage's local subsiduary ACPA and formerly of Goldman Sachs, Merrill Lynch and Macquarie.
Asked by a retail shareholder before the vote how his appointment would protect or assist existing shareholders, Mr Howes said his job was to work in Anchorage's interests.
"I have been appointed to the board as a representative of Anchorage, which is effectively my employer, so I'll be looking after the interests of Anchorage on the board," he told the room.
Stephen Brown, the shareholder who quizzed Mr Howes, said another Slater & Gordon director, James Millar, approached him after the meeting to apologise for Mr Howes' response.
"We still rely on Anchorage to do the right thing," Mr Brown, who has 50,000 shares prior to the consolidation, told Fairfax Media.
"But when you hear one of the Anchorage directors saying that he's only interested in Anchorage, I look at it and think, well, all he's going to do is look to recover the money that they've invested.
"Does that mean they're going to run the business into the ground and extract all the money out of it? That's my concern."
Section 181 of the corporations act says that directors are obliged to act in "the best interests of the corporation".
Professor of law Melbourne University at Ian Ramsay, while declining to comment on Slater & Gordon or Mr Howes specifically, said that a director's obligation to the company overrode loyalties they might have to a company that appointed them to the board.
"A director might be appointed to represent a significant shareholder or creditor but the director's primary duty is to the company," Professor Ramsay said.
Another retail investor, Giuliano Contento, said he was disappointed former chief executive Andrew Grech did not address the meeting to apologise for the losses shareholders had suffered.
"Apart from the name itself, no one has confidence in it," Mr Contento said of the once high-flying company, which he predicted Anchorage would take private and then sell off in smaller parts.
"I just think it is a catastrophe."
Chairman John Skippen said the recapitalisation scheme was on track to be implemented by December 22, at which point he would step down, after being re-elected on Wednesday.
The company was hit with a "second strike" on executive pay afted 30 per cent of shareholders lodged protest votes against its remuneration report.
But the company avoided having to spill the board, with only 25 per cent of shareholder voting in favour of that measure - short of the 50 per cent required.
Chief executive Hayden Stephens was also appointed to the board.