Australian claimant firm Slater and Gordon is once again breaking new ground – but probably not in the way its visionary former CEO Andrew Grech imagined when he led it into the world's first law firm listing in 2007.

Instead, with Grech ousted in June alongside the entire management board as part of a recapitalisation deal with lenders, and the UK arm to be hived off into a separate holding company entirely controlled by senior lenders, the embattled firm is standing out for the wrong reasons.

After Slaters' share price tanked and losses exploded in the wake of its disastrous 2015 acquisition of the professional services arm of Quindell in the UK, New York hedge fund Anchorage Capital and other senior lenders are set to control the firm's future in the UK.

While lenders have been able to exert control over struggling law firms in the past, a major firm being wholly owned by its lenders goes a significant step further.

John Lord, a disputes partner at Knights who has previously advised ex-partners on the fallout of law firm collapses such as that of Manchester firm Halliwells, says he has not seen a situation like this before.

I don't think anyone has seen a law firm owned by a hedge fund before. They can be pretty ruthless

"The law firm failures where I have acted for former LLP members have largely been driven by the banks pulling the plug or demanding that partners put more money in where there was no appetite to do so. In many ways, the banks were heavily involved in influencing the management decisions of those businesses, but were they in control of the business? Probably not. Having a lender in control of the business to the extent which appears to be the case here is somewhat unusual in my view," he says.

A former Slater and Gordon partner agrees, saying: "I don't think anyone has seen a situation where a law firm has been owned by a hedge fund before. They can be pretty ruthless because it is just an investment for them.

"It's a strange scenario where you have lawyers owned by a hedge fund, and quite how that squares with the primary duty to the client is not clear," the ex-partner adds.

As an alternative business structure (ABS) firm, Slaters can be owned by non-lawyers as long as they have been approved by the Solicitors Regulation Authority (SRA), according to partnership law expert Tina Williams, chair of Fox Williams.

"If they are coming in under a security document, they may have been vetted at the outset. If not, any non-lawyer owner of an SRA authorised law firm has to be approved, both the institution itself plus any person who can exercise control over that institution," she says.

This process is fairly straightforward, so Anchorage is likely to secure SRA approval, according to Williams.

It was just a bad business decision and no doubt those who made it will assert that they were misled

Once approved, there is speculation that the takeover could be a precursor to a sale of all or part of the UK business. Insurance firm BLM, for example, has confirmed that it is in talks to acquire Slaters' business services division.

But while Slaters' high-profile woes are continuing to have huge ramifications for the firm itself, many believe they will not suppress appetite for both ABS structures and IPOs in the legal market generally.

Listed UK firm Gateley has been nominated for an AIM award following a strong two-year showing on London's AIM market, while West End firm Gordon Dadds went public last month via a reverse takeover by the Work Group.

I would not be surprised if in the next 12 months there were further IPOs of legal services firms

"There is definitely momentum building in that space," says Fieldfisher equity capital markets head Neil Matthews, who advised broker Cantor Fitzgerald in connection with Gateley's 2015 flotation.

"Gateley has performed very well – at one point its share price had nearly doubled, and it is still way ahead of its IPO price. We have seen the Gordon Dadds reverse takeover, and we know that other banks and brokers are looking closely at the legal market at the moment," he says.

Partners argue that it is not Slaters' structure that has caused its problems, but simply its unfortunate – and expensive – £637m Quindell acquisition.

One former Slaters partner describes that acquisition as the "worst takeover in history", while another says: "The whole thing would have gone well without the Quindell businesses."

Shortly after the Quindell deal was announced in March 2015, the insurance company was placed under investigation by the Serious Fraud Office over previous accounting practices. This June, Slaters, which reported a A$546.8m loss for the year ending 30 June due in large part to the deal, served a £600m claim against Watchstone Group – Quindell's new identity – relating to the acquisition.

Lord comments: "That was a catastrophic decision, but I don't think that decision is necessarily the result of the model; it was just a bad business decision and no doubt those who made it will assert that they were misled – hence the ongoing litigation."

Matthews predicts that further firms will choose the IPO route, arguing that law firms are generally a profitable and safe asset class for investors, notwithstanding the performance of Slaters and the European arm of King & Wood Mallesons (KWM), which collapsed earlier this year.

"I would not be surprised if in the next 12 months there were further IPOs of legal services firms, whether a traditional City firm, a personal injury firm or an alternative legal structure," he says.

"Law firms, apart from a few such as KWM, have survived post-Lehman pretty well. They are seen as solid performers with generally strong cashflow and high margins and there is an appetite from investors to invest in stable sectors which will generate healthy dividends. That investor appetite could drive more firms to look at the IPO route," he argues.

However, Osborne Clarke UK managing partner Ray Berg questions whether the business case for investing in law firms is strong enough to see numbers increase significantly.

He asks: "The question for me as a punter, rather than as a lawyer, is whether I would invest in a law firm when the goodwill can walk out the door, or invest in an IPO to let the partners take the money off the table?  It will be interesting to see how investors think, particularly if Gateley wins the AIM award… it would be interesting to see if that has a positive impact."