Annual
Report
2019
ABN 72 088 749 008
LawFinance Limited
Contents
31 December 2019
Corporate directory
Directors' report
Auditor's independence declaration
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members of LawFinance Limited
Shareholder information
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LawFinance Limited
Corporate directory
31 December 2019
Directors
Tim Storey - Non-Executive Chairman
Diane Jones - Chief Executive Officer, Executive Director
Anthony Murphy - Non-Executive Director
David Wattel - Executive Director
Company secretary
Dean Jagger
Registered office
Share register
Auditor
Solicitors
Suite 2, Level 16
56 Pitt Street
Sydney NSW 2000
Tel: +61 2 9696 0220
Fax: +61 2 9252 3430
Automic Pty Ltd
Level 5
126 Phillip Street
Sydney NSW 2000
Tel: 1300 288 664 (within Australia) or +61 2 9698 5414 (outside Australia)
Fax: +61 2 9287 0303
Stantons International
6 Middlemiss Street
Lavender Bay NSW 2060
Corrs Chambers Westgarth
Level 17
8-12 Chifley Square
Sydney NSW 2000
Automic Pty Ltd
Level 5
126 Phillip Street
Sydney NSW 2000
Stock exchange listing
LawFinance Limited shares are listed on the Australian Securities Exchange (ASX
code: LAW)
Website
www.lawfinance.com.au
Corporate Governance Statement
The directors and management are committed to conducting the business of
LawFinance Limited in an ethical manner and in accordance with the highest
standards of corporate governance. LawFinance Limited has adopted and
substantially complied with the ASX Corporate Governance Principles and
Recommendations (Third Edition) (‘Recommendations’) to the extent appropriate to
the size and nature of its operations.
The Corporate Governance Statement, which sets out the corporate governance
practices that were in operation during the financial year and identifies and explains
any Recommendations that have not been followed, was approved by the Board of
Directors at the same time as the Annual Report and can be found at
http://www.lawfinance.com.au/investorcentre/governance/
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LawFinance Limited
Directors' report
31 December 2019
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as
the 'Group') consisting of LawFinance Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it
controlled at the end of, or during, the year ended 31 December 2019.
Directors
The following persons were directors of LawFinance Limited during the whole of the financial year and up to the date of this
report, unless otherwise stated:
Tim Storey
Anthony Murphy
Diane Jones
David Wattel
Nature of operations and principal activities
The Group has developed into a diversified provider of financing solutions for law firms. During the financial year the
principal activities of the Group consisted of:
● Medical lien funding;
●
●
Disbursement funding; and
Litigation funding, which is being wound down.
Medical lien funding
National Health Finance Holdco, LLC and its subsidiaries ('NHF') operate a medical lien funding business in the United
States.
Established in 1999, the NHF business is an Arizona-based medical lien funding business providing funding in 21 states in
the United States. The medical liens purchased generally relate to the provision of medical services to individuals involved
in motor vehicle accidents where the services are required due to an injury sustained in the accident and where those
individuals were the not-at-fault party. This business was purchased by the Group on 28 September 2018.
NHF purchases a lien or obtains a letter of protection over medical receivables associated with personal injury cases from
healthcare providers and hospitals. The return to NHF is realised upon payment by the at-fault party or their insurance
carrier upon conclusion of the personal injury litigation, either by settlement or judgment.
NHF provides a funding solution for the victim of a motor vehicle accident by facilitating access to medical care they would
likely not otherwise receive. NHF’s funding solution enables medical providers to obtain quick liquidity and reduce the
administrative burden by managing the medical claims through the litigation process. Medical providers working on a lien
basis who do not use the NHF solution are required to wait for a successful conclusion of the legal proceeding before being
paid. NHF’s funding solution is also of benefit to the lawyers acting on behalf of the injured party as it ensures there is no
“gap” in medical care and the claim can be maximised. Thus the solution assists all three plaintiff-side parties.
The key business drivers of the NHF business entail ensuring that:
●
an appropriate discount is negotiated with the medical provider when purchasing each medical lien or letter of
protection. On average NHF pays around 30% of the face value of the relevant invoice;
the law firm progresses the case within normal parameters. On average NHF’s cases are completed within 37
months; and
an appropriate amount for the medical lien is paid from each case settlement. On average NHF collects around 50%
of the face value of a medical lien when the applicable case concludes.
●
●
In any given financial period, the profitability of this business is dependent upon revenue and settlement levels. Legislative,
regulatory, judicial, policy changes, and additional competition may have an impact on future profitability.
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LawFinance Limited
Directors' report
31 December 2019
Disbursement funding
The disbursement funding division operates in Australia and is referred to as 'JustKapital Finance'.
JustKapital Finance provides finance to law firms to fund the legal disbursements required to progress the claims of their
clients and which the client generally cannot fund themselves. The deferred payment structure offered by JustKapital
Finance addresses the immediate and growing demand where the client or firm cannot, or may not be willing to, fund
disbursements directly. JustKapital Finance does not fund the legal fees related to the case. JustKapital Finance pays the
disbursements directly, charges a standardised mark-up and immediately invoices the law firm once the disbursements are
paid. The JustKapital Finance invoice becomes payable upon completion of the underlying case, which on average is in
about 25 months’ time. Discounts may be provided to the invoiced cost if the case concludes quickly or in other exceptional
circumstances. The key business driver of the disbursement funding business is to ensure that the client law firm
progresses the case within normal parameters. In any given financial period, the profitability of the disbursement funding
business is dependent upon revenue and discount levels. Legislative, regulatory, judicial, policy changes, and additional
competition may have an impact on future profitability.
Litigation funding
During the 2018 financial year the Board resolved to exit the litigation funding division. The litigation funding division is
capital intensive which stretched the Group’s working capital resources. Therefore, the Board determined that the best use
of the Group’s limited resources was to invest in its core businesses, being the JustKapital Finance and NHF businesses.
The litigation funding division provided investigation and management services, as well as providing finance to claimants to
progress their claims. These services and funding are provided pursuant to a contract with each funded claimant or as
otherwise ordered by the Court. The Group does not provide legal advice to any claimant. The key business driver is to
manage and fund the litigation to a successful conclusion. If the litigation is successful, the Group may earn a fee and will
generally be reimbursed the costs paid to progress the litigation, both of which are payable from the sums recovered in the
litigation. The fee is generally a percentage of the settlement or judgment proceeds. If the litigation is unsuccessful, the
Group does not generate any income. In Australia, the litigation funding agreement contains an undertaking to the
contracted parties that the Group will pay any adverse costs ordered in respect of the costs incurred by the defendant(s)
during the period of funding.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial period.
Review of operations
The last twelve months has been a transformational year for the Group as management focused on the operational
challenges of integrating, and operationally improving, the very substantial NHF acquisition. This work has largely been
completed and has led to a material improvement in the way the business is managed, and the returns being generated
from the capital being deployed.
Key Highlights:
●
●
●
FY2019 total comprehensive loss has improved 80% to US$2.225 million.
Net assets have remained static despite the loss in the period at US$17.74 million.
Cash on hand has improved 56% to US$5.8 million.
A preliminary set of accounts was released to the market on 28 February 2020. Those accounts were prepared with the
Group using the “fair value through profit or loss” accounting methodology under AASB 9 'Financial Instruments'. Following
the release of those preliminary accounts, the Group received advice from its external accounting experts that it was more
appropriate to use the “amortised cost” accounting methodology under AASB 9 for the NHF business, but not the
JustKapital Finance business (refer to note 2 and note 4) . Therefore, these accounts have been prepared based upon this
latest accounting advice using the two different accounting methodologies for the different businesses.
Despite the amortised cost accounting methodology used to report the NHF business, much of the economic returns from
NHF's originations are not yet apparent in the consolidated statement of profit or loss. During the current year the
Company impaired US$8.4 million in receivables (using the amortised cost accounting methodology) and reported negative
revenue of US$4.2 million (refer to note 6). The impairment was offset by a reduction in the NHF Vendor loans (refer to
note 22) and compares to US$22.7 million in cash collections from customers in the NHF business in the period.
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LawFinance Limited
Directors' report
31 December 2019
The Board and management remain convinced of the profound opportunity the US medical lien market represents. The
balance sheet reorganisation, which commenced in December 2019 and which should be completed by June 2020, will
afford the Company the financial fire power required to vigorously pursue this multi-billion dollar segment of the medical
claims market in the US.
Details of the various balance sheet initiatives are summarised in the matters subsequent to the end of the financial period
section of this report.
The statement of financial position ('balance sheet') reflects a carrying value of the receivables from the main NHF and
JustKapital Finance businesses of US$95,314,000 (2018: US$96,777,000). There is also an estimated US$2,738,000
(2018: US$3,037,000) classified as “unrecognised day 1 margin” and US$2,227,000 (2018: US$2,798,000) classified as
“fair value” under AASB 9, both of which represent future profit to be recognised in the statement of profit or loss for the
JustKapital Finance business.
The Group’s exit from the litigation funding business is expected to be completed within the next 12 months as the cases
that are currently funded are completed. This is expected to provide significant capital inflows as the portfolio of cases are
resolved on the assumption that the remaining cases are successful.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the Group during the financial period.
Matters subsequent to the end of the financial period
1. Capital raise
On 24 December 2019, the Company announced that it had completed a US$3.4 million (A$5.0 million) equity placement
('Placement') with existing and new sophisticated investors at US$0.045 (A$0.064) per share. The funds raised and shares
issued have been included in these financial results.
Also on 24 December 2019, the Company announced that all shareholders will be offered the opportunity to participate in a
further capital raising to be undertaken via a 1:1 Pro-Rata Non-Renounceable Entitlement Offer at US$0.045 (A$0.064) per
share ('Entitlement Offer'), representing a 16% discount to the 30-day VWAP.
The Entitlement Offer was partially underwritten to US$14.0 million (A$20.0 million) by Lucerne Australia Pty Ltd.
On 19 February 2020, the Company announced it had raised a total of US$14.8 million (A$21.2 million) under the
Entitlement Offer.
Of these funds raised under the Entitlement Offer, US$9.0 million (A$12.9 million) was used to repay existing debt. The
balance of US$5.8 million (A$8.3 million) was received in cash.
The issue of shares occurred on 21 February 2020. The total shares on issue are as follows:
Description
Original shares on issue
Shares issued under the Placement (completed 24 December 2019)
Shares issued under the Entitlement Offer (completed 21 February 2020)
Shares on issue as at 21 February 2020
Number of
shares
483,635,467
78,125,000
330,923,639
892,684,106
The proceeds from the Placement and the Entitlement Offer were used by the Company for the following purposes:
●
●
●
reduce existing debt totalling US$9.0 million (A$12.9 million);
provide working capital, particularly for new funding opportunities in the US medical lien funding business; and
pay the costs of the Entitlement Offer and the Placement.
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LawFinance Limited
Directors' report
31 December 2019
2. Extraordinary General Meeting ('EGM')
On 10 March 2020, the Company held an EGM that proposed five resolutions to shareholders for approval. All of the
resolutions were approved. The Company will now be able to finalise the implementation of a number of the reorganisation
initiatives following on from the Placement and the Entitlement Offer. The overall outcome from all of these initiatives is a
significant reduction in total Group net debt with a corresponding material improvement in the balance sheet and an
immediate and significant reduction in interest costs.
The five resolutions approved at the EGM were as follows:
Resolution 1:
Resolution 2:
Resolution 3:
Resolution 4:
Resolution 5:
Approval of issue of shares on the conversion of the convertible bonds to non-related parties.
Approval of Issue of shares on the conversion of the convertible bonds to a related party.
Approval of issue of options to David Wattel.
Approval of issue of options to Mark Siegel.
Approval of issue of Capitalising Converting Note.
(a) Bondholder conversion: The Company has shareholder approval to permit the conversion of US$3.5 million (A$5.0
million) (plus outstanding interest) of convertible bonds into shares at an issue price of 4.5 US cents (US$0.045) (6.4
Australian cents (A$0.064)) per share. The projected number of shares to be issued if all Bondholders elect to convert
is 81,693,872 shares.
This conversion was approved under Resolutions 1 and 2 of the EGM.
(b) NHF Vendor Debt Conversion: In connection with the Company’s acquisition of NHF, the Company entered into
various arrangements with David Wattel and Mark Siegel (jointly 'the NHF Vendors'). As part of the acquisition, Mr
Wattel was appointed an executive director of the Company.
As part of the capital reorganisation arrangements announced by the Company, the NHF Vendors have agreed to
accept a combination of unlisted options as full payment for its promissory notes (under which US$9.0 million (A$12.9
million) is owed by the Company to the two NHF Vendors, split evenly between the two NHF Vendors) and vendor
loans (where the principal amount of US$12.0 million (A$17.2 million) is owed by the Company to the NHF Vendors,
split evenly between the two NHF Vendors).
Subsequent to shareholder approval of Resolutions 3 and 4 of the EGM, the following options were issued on 13
March 2020:
Number of options
Exercise price
Expiry date
24,000,000
22,500,000
25,000,000
US$0.175 (A$0.25)
US$0.28 (A$0.40)
US$0.42 (A$0.60)
28 September 2021
28 September 2022
28 September 2023
In addition, the NHF Vendors have agreed to vary their respective employment agreements so that a non-
discretionary bonus is no longer payable by the Company.
(c)
Issue of new Capitalising Converting Note: A group of subordinated debtholders have agreed to convert their
subordinated debt into a new convertible note ('Capitalising Converting Note') which has the following material terms:
(i) Face value of US$19.9 million (A$28.4 million);
(ii) 6% per annum interest rate that is capitalised;
(iii) Convertible on or before 31 December 2022;
(iv) Conversion price of US$0.07 (A$0.10) per share; and
(v) Projected maximum number of shares the Capitalising Converting Note is convertible to is 335,048,088 shares
(based on fully capitalised sum as of 31 December 2022).
The issue of shares under the Capitalising Converting Note was approved by Shareholders under Resolution 5 of the
EGM.
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LawFinance Limited
Directors' report
31 December 2019
3. Application for waiver of ASX Listing Rule 6.23.3
In connection with the Company’s acquisition of NHF, the Company issued 452,743,636 warrants. The warrants were
issued to various lenders, otherwise known as the 'Syndicated Acquisition Lenders', as well as the NHF Vendors, including
Mr Wattel.
In order to gain approval from this lender group for the capital reorganisation arrangements announced by the Company,
the Company has agreed to vary the warrants issued to the Syndicated Acquisition Lenders and the NHF Vendors as
follows:
(i)
(ii)
each warrant entitles the warrant holder to acquire one (1) fully paid ordinary share upon payment to the Company of
A$0.10 per warrant (‘Exercise Price’) (the previous Exercise Price was A$0.14 per warrant); and
the warrants may be exercised at any time prior to 8 November 2023 (previous expiry date was prior to 28 September
2022).
In order to put the above amendments to shareholders, the Company sought a waiver from ASX Listing Rule 6.23.3. The
ASX did not grant the waiver requested due to the level of warrants on issue when compared to the total number of shares
on issue. The Company has informed the Syndicated Acquisition Lenders of the decision of the ASX and continues to work
with these lenders to find a workable solution to finalise this aspect of its capital reorganisation.
4. COVID-19 (Coronavirus)
On 11 March 2020, Coronavirus was declared a pandemic by the World Health Organisation, with resulting significant
impacts on local and world economies. At this point in time given the rapidly evolving situation, the Group is unable to
quantify the impact the Coronavirus pandemic will have on the future financial performance of its businesses. However,
both cash collections and originations are likely to slow down as both the USA and Australian governments implement
quarantine initiatives and economic activity in general slows down.
Whilst the Group continues to actively monitor the situation and its impacts, it is likely that cash collection covenants in the
Group’s financial facilities will not be met over the next few months. In addition, other financial covenants contained within
the various loan arrangements the Group is party to may be breached. The Group is working with each of its financiers in
advance of these potential challenges in order to obtain standstill and/or forbearance agreements during this time. These
discussions are on-going and the Group will update the market as and when appropriate in accordance with its continuous
disclosure obligations.
5. Earn out - Litigation funding portfolio
The seller of the Litigation funding portfolio, which was acquired by the Group on 11 July 2016, is entitled to receive 50% of
proceeds over A$4,000,000 from the "free carry" component of the litigation funding agreements. There was a dispute with
the seller in relation to the calculation of the "free carry" entitlement generated by four case settlements in the portfolio
(there is one on-going case from this portfolio). The seller of this portfolio claims that amounts are due to be paid by the
Company under the "free carry" entitlement.
This dispute was settled between the parties on 27 March 2020 with no admission as to liability. The Group has agreed to
issue the seller 14,000,000 shares at an agreed value of A$0.064 per share (A$896,000) and release claims to certain
amounts currently in a solicitor’s trust account. The Company will receive approximately A$750,000 from funds currently
held in trust.
No other matter or circumstance has arisen since 31 December 2019 that has significantly affected, or may significantly
affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.
Likely developments and expected results of operations
Information on likely developments in the operations of the Group and the expected results of operations have not been
included in this report because the directors are unable to determine the impact the Coronavirus pandemic may have on its
future results at this time. The Group is likely to require the agreement of its lenders to standstill and/or forbear in relation
to expected future covenant contraventions. At the date of this report none of the Group’s lenders have demanded
repayment of their loans and all have indicated a willingness to work with the Group during the Coronavirus
pandemic. Discussions with the Group’s lenders are on-going and the Group will update the market as and when
appropriate in accordance with its continuous disclosure obligations.
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LawFinance Limited
Directors' report
31 December 2019
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law.
Information on directors
Name:
Title:
Experience and expertise:
Other current directorships:
Tim Storey
Non-Executive Chairman, Non-Executive Director
Tim holds a number of directorships in various private and public companies. He is a
barrister and solicitor and was a partner at one of New Zealand’s premier law firms
through to 2006 and has practised in both Australia and New Zealand, focusing on
corporate, commercial and property transactions. He is a member of the Institute of
Directors (NZ) and the Financial Services Institute of Australasia.
Chairman of Stride Property Group (NZX: SPG) and Director of Investore Property
Limited (NZX: IPL).
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Interests in rights:
Member of the Remuneration and Nominations Committee and Chairman of the Audit
and Risk Committee
7,263,315 ordinary shares
Nil options/warrants over ordinary shares
Nil performance rights over ordinary shares
Name:
Title:
Experience and expertise:
Anthony Murphy
Non-Executive Director
Anthony is the Chief Executive Officer of Lucerne Investment Partners and is
responsible
leading both Group strategy and ongoing
management at Lucerne Investment Partners. Anthony founded and led the
Australian Wealth Management business at Canaccord Genuity – a global investment
bank. Anthony holds a Bachelor of Economics and Bachelor of Commerce degrees
from Australian National University.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
for overseeing and
Chairman of the Remuneration and Nominations Committee and member of the Audit
and Risk Committee
4,936,250 ordinary shares
Nil options/warrants over ordinary shares
Nil performance rights over ordinary shares
Interests in shares:
Interests in options:
Interests in rights:
Name:
Title:
Experience and expertise:
Diane Jones
Chief Executive Officer, Executive Director
Prior to joining LawFinance Limited in 2016, Diane was the Chief Operating Officer,
Chief Financial Officer and Company Secretary of Australia’s largest litigation funder
IMF Bentham Limited (ASX: IMF).
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Interests in rights:
Contractual rights to shares:
Diane retained the role of Group Company Secretary up to 15 November 2018.
4,303,014 ordinary shares
Nil options/warrants over ordinary shares
Nil performance rights over ordinary shares
500 convertible bonds
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LawFinance Limited
Directors' report
31 December 2019
Name:
Title:
Experience and expertise:
David Wattel
Executive Director
David graduated from the University of Illinois in 1984 with a degree in economics
before obtaining his Juris Doctor (JD) in 1988 from Arizona State University College
of Law. He has practiced personal injury law ever since graduating. He founded
Wattel & York; a multi-state personal injury and medical malpractice law firm. He
speaks at numerous conferences in the area of personal injury and litigation. David
has been actively managing and overseeing the growth of NHF.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
107,548,701 ordinary shares
Interests in shares:
61,431,818 warrants over ordinary shares; Nil options over ordinary shares as at
Interests in options:
balance date, however, please see note 40 for 35,750,000 options issued
subsequent to balance date.
Nil performance rights over ordinary shares
Interests in rights:
'Other current directorships' quoted above are current directorships for listed entities only and exclude directorships of all
other types of entities, unless otherwise stated.
'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and
excludes directorships of all other types of entities, unless otherwise stated.
Company secretary
Dean Jagger was appointed Company Secretary on 15 November 2018. Dean works in the company secretarial division of
Automic Group, a professional services company providing company secretarial, legal, registry and accounting services to
Australian entities. Dean provides company secretarial and corporate compliance services to several listed and private
companies. Dean has over 10 years’ experience in the financial services sector.
Meetings of directors
The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2019,
and the number of meetings attended by each director were:
Tim Storey
Anthony Murphy
Diane Jones
David Wattel
Full Board
Attended
Held
6
6
6
6
6
6
6
6
Held: represents the number of meetings held during the time the director held office. In addition to formal board meetings
held, the Board has regular conferences that have not been designated formal board meetings.
The Audit and Risk Committee and Remuneration Committee meetings were combined with Board meetings as detailed
above.
Remuneration report (audited)
The remuneration report details the key management personnel ('KMP') remuneration arrangements for the Group, in
accordance with the requirements of the Corporations Act 2001 and its Regulations.
KMPs are those persons having authority and responsibility for planning, directing and controlling the activities of the
relevant entity, directly or indirectly, including all directors.
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LawFinance Limited
Directors' report
31 December 2019
The remuneration report is set out under the following main headings:
●
●
●
●
●
●
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Share-based compensation
General performance and link to remuneration policy
Additional disclosures relating to KMPs
Details of the KMPs
The KMPs currently comprise of the following directors and other senior executives of the Group.
Name
Title
Non-Executive Directors
Tim Storey
Anthony Murphy
Non-Executive Chairman, Non-Executive Director
Non-Executive Director
Executive Directors
Diane Jones
David Wattel
Senior Executives
Anthony Hersch
Craig Beatton
Sarika Merchant
Richard Cruz
Chief Executive Officer, Executive Director
Chief Executive Officer - NHF, Executive Director
Chief Operating Officer
Chief Financial Officer
Chief Financial Officer - NHF
Chief Operating Officer - NHF
Principles used to determine the nature and amount of remuneration
Remuneration & Nominations Committee ('R&NC')
Due to the size and composition of the Board, the responsibilities of the R&NC continued to be performed by the full Board
during the financial year ended 31 December 2019. Therefore, during the financial year ended 31 December 2019 the
Board was responsible for the following in relation to the remuneration policy and practices of the Group:
●
●
determining and reviewing remuneration arrangements for the Board and senior executives; and
assessing the appropriateness of the nature and amount of the emoluments of the directors and senior executives by
reference to relevant employment market conditions, with the overall objective of ensuring the best stakeholder
benefit from the Board and executive team.
Remuneration policy
The remuneration policy of the Group has been designed to align KMP objectives with shareholder and business
objectives by providing a fixed remuneration component and offering specific short term and long-term incentives based on
key performance areas affecting the Group’s financial results.
During the financial year ended 31 December 2019, the Board’s policy for determining the nature and amount of
remuneration for KMP of the Group was approved by the Board prior to the financial year ended 31 December 2019. This
is detailed below:
●
●
●
●
senior executives receive a fixed remuneration component;
senior executives may receive a variable remuneration component via performance incentives;
performance incentives are paid once predetermined key performance indicators ('KPIs') have been met;
incentives paid in the form of options or rights are intended to align the interests of the Group and senior executives
with those of the shareholders. In this regard, KMP are prohibited from limiting risk attached to those instruments by
use of derivatives or other means; and
senior executive packages are reviewed annually by reference to the Group’s performance, executive performance
and comparable information from industry sectors.
●
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Non-executive directors remuneration
Non-executive directors' fees and payments are reviewed annually. Usually, this review will be undertaken by the R&NC,
however due to the current structure of the Board this responsibility has currently moved to the Board. The chairman's fees
are determined independently to the fees of other non-executive directors based on comparative roles in the external
market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non-
executive directors may be offered the opportunity, and encouraged, to participate in the Group’s equity plan arrangements
to align their interests with shareholder interests.
Non-executive directors fees
Role
US$
Chairman
Non-Executive Director
73,490
52,493
ASX listing rules require the aggregate non-executive director remuneration be determined periodically by a general
meeting. The most recent determination was at the Annual General Meeting held on 30 November 2011, where the
shareholders approved a maximum annual aggregate remuneration of US$209,970 (A$300,000).
Executive remuneration
The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which
has both fixed and variable components. The executive remuneration and reward framework has the following
components, the combination of these comprise the executive's total remuneration.
Fixed remuneration
Fixed compensation, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the
Board. The process consists of a review of Group and individual performance, relevant comparative compensation in the
market and internally and, where appropriate, external advice on policies and practices.
Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle
benefits) where it does not create any additional costs to the Group and provides additional value to the executive.
Variable remuneration
The objective of the variable compensation incentive is to reward executives in a manner that aligns this element of their
compensation with the objectives and internal KPIs of the Group. The total potential incentive available is set at a level so
as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is
reasonable in the circumstances.
The variable component is delivered in two parts:
a) Short Term Incentive Plan ('STIP')
The STIP is a discretionary annual bonus payment available to participants who are senior executives of the Company and
is based on a percentage (up to 30% for the financial year ended 31 December 2019, with a further 15% stretch at the
discretion of the Board) of the senior executive participant's total fixed remuneration ('TFR'), payable in cash or ordinary
shares of the Company at the discretion of the Board.
The purpose of the STIP component is to provide an annual 'at risk' incentive to senior executive participants that is linked
to the achievement of specific financial and non-financial objectives. Participants are eligible to participate in the STIP from
the beginning of each financial year, which is also when financial and non-financial performance objectives are set for each
Executive Participant. At the end of the financial year, the financial objectives are reassessed for the following financial
year, and may include stretch targets where the Board thinks this is consistent with enhancing Total Shareholders Return
('TSR').
b) Long Term Incentive Plan ('LTIP')
The LTIP is a discretionary bonus available to directors and senior executives and complements the STIP. The LTIP
encourages equity ownership and gives participants the opportunity to be rewarded for shareholder value creation.
The LTIP comprises any one, or a combination, of the following:
options;
(i)
(ii) performance rights (or, in certain circumstances, a cash payment in lieu of shares); and/or
(iii) plan loan under the Loan Agreement (for the purpose of funding the issue price of the shares offered.
11
LawFinance Limited
Directors' report
31 December 2019
Use of remuneration consultants
During the financial year ended 31 December 2019, the Board engaged HRascent to review and advise on KMP
remuneration, for both directors and senior executives. The advice is continuing and no fees were paid to HRascent during
the financial year.
Voting and comments made at the Company's 2019 Annual General Meeting ('AGM')
At the 2019 AGM held on 4 April 2019, 98.80% of the votes received supported the adoption of the remuneration report for
the financial period ended 31 December 2018.
Details of remuneration
Amounts of remuneration
Remuneration for the year 1 January 2019 to 31 December 2019.
12 months 31 December
2019
Executive directors:
Diane Jones
David Wattel
Non-Executive Directors:
Tim Storey (i)
Anthony Murphy
Other KMP:
Anthony Hersch
Craig Beatton
Sarika Merchant
Richard Cruz
Short-term
benefits
EIP and
bonuses monetary
Non-
Salary and
fees
Post-
employme-
nt benefits
Super-
annuation
Long-term
benefits
Long
service
leave
Share-
based
payments
Equity-
settled
US$
US$
US$
US$
US$
US$
368,421
400,000
122,869
1,882
73,095
47,681
-
-
-
-
-
-
229,193
143,043
274,748
230,000
1,766,181
51,166
20,884
36,882
51,882
285,565
-
-
5,149
5,842
10,991
14,457
-
-
4,530
14,457
13,589
-
-
47,033
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
US$
505,747
401,882
73,095
52,211
294,816
177,516
316,779
287,724
2,109,770
(i) Prolex Limited, an entity associated with Tim Storey, was paid US$73,095 for directors fees (2018: US$27,651).
12
LawFinance Limited
Directors' report
31 December 2019
Remuneration for the period 1 July 2018 to 31 December 2018.
6 months 31 December
2018
Executive directors:
Diane Jones
David Wattel (i)
Non-Executive Directors:
Tim Storey (ii)
Anthony Murphy
Other KMP:
Anthony Hersch
Craig Beatton
Sarika Merchant (iii)
Richard Cruz (iii)
Short-term
benefits
EIP and
bonuses monetary
Non-
Salary and
fees
Post-
employme-
nt benefits
Super-
annuation
Long-term
benefits
Long
service
leave
Share-
based
payments
Equity-
settled
US$
US$
US$
US$
US$
US$
164,268
100,833
72,290
2,298
27,651
20,301
119,086
74,271
56,400
57,500
620,310
-
-
-
-
27,298
52,298
154,184
-
-
-
-
-
-
983
1,135
2,118
7,421
-
-
1,929
7,421
7,056
-
-
23,827
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
US$
243,979
103,131
27,651
22,230
126,507
81,327
84,681
110,933
800,439
(i)
(ii)
(iii)
From date of appointment, 26 September 2018 to 31 December 2018. The short-term benefits paid in the period
related to liabilities assumed as part of the purchase of NHF.
Prolex Limited, an entity associated with Tim Storey, was paid US$27,651 for directors fees and bonuses (2018:
US$65,056).
From date of appointment, 1 October 2018 to 31 December 2018 (date of effective control of NHF). The short-term
benefits paid in the period related to liabilities assumed as part of the purchase of NHF.
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Performance related - STIP Performance related - LTIP
12 months
31 December
2019
12 months
31 December
2019
6 months
31 December
2018
6 months
31 December
2018
24%
1%
30%
2%
-
-
17%
12%
12%
18%
-
-
-
-
32%
47%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Name
Executive Directors:
Diane Jones
David Wattel
Non-Executive Directors:
Tim Storey
Anthony Murphy
Other KMP:
Anthony Hersch
Craig Beatton
Sarika Merchant
Richard Cruz
Fixed remuneration
12 months
31 December
2019
6 months
31 December
2018
76%
99%
100%
100%
83%
88%
88%
82%
70%
98%
100%
100%
100%
100%
68%
53%
13
LawFinance Limited
Directors' report
31 December 2019
Service agreements
Remuneration and other terms of employment for KMP are formalised in service agreements. Details of these agreements
are as follows:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Tim Storey
Non-Executive Chairman, Non-Executive Director
1 April 2015
Ongoing
Tim is paid a gross salary of US$73,490 (A$105,000) (US$34,700 (A$48,000) until 30
September 2018) per annum.
Anthony Murphy
Non-Executive Director
31 October 2017
Ongoing
Anthony is paid a gross salary of US$52,493 (A$75,000) (US$34,700 (A$48,000) until
30 September 2018) per annum inclusive of superannuation.
Diane Jones
Chief Executive Officer, Executive Director
15 March 2016
Ongoing
Diane is paid a gross salary of US$384,945 (A$550,000) (US$289,160 (A$400,000)
until 30 September 2018) per annum inclusive of superannuation. Notice period is 6
months by the Company or 3 months by the employee.
David Wattel
Executive Director
28 September 2018
Ongoing
David is paid a gross salary of US$400,000 per annum inclusive of superannuation.
Notice period is 1 month by NHF, or 3 months by the employee. Refer to details of
bonus at the end of this section.
Anthony Hersch
Chief Operating Officer
18 April 2016
Ongoing
is paid a gross salary of US$269,462 (A$385,000) (US$244,965
Anthony
(A$350,000) to 31 December 2019) per annum inclusive of superannuation. Notice
period is 3 months.
Craig Beatton
Chief Financial Officer
9 September 2016
Ongoing
Craig is paid a gross salary of US$173,225 (A$247,500) (US$157,478 (A$225,000) to
31 December 2019) per annum inclusive of superannuation. Notice period is 1 month.
Sarika Merchant
Chief Financial Officer - NHF
11 April 2018
Ongoing
Sarika is paid an annual salary of US$300,000 (US$225,000 to 30 April 2019) per
annum. No notice period.
14
LawFinance Limited
Directors' report
31 December 2019
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Richard Cruz
Chief Operating Officer - NHF
No signed agreement in place
No agreement in place and employment relationship is governed by general Arizonan
law.
Richard is paid an annual salary of US$230,000 per annum. No notice period.
KMPs have no entitlement to termination payments in the event of removal for misconduct.
Details of bonus
David Wattel was entitled to receive a non-discretionary bonus pursuant to his employment agreement. However under an
agreement dated 24 October 2019, this non-discretionary bonus was varied so that it is no longer payable. Previously,
David was entitled to receive a US$4.15m non-discretionary bonus paid equally over 5 quarterly payments (US$0.83m per
quarter) after satisfaction of certain collection criteria in respect of the NHF receivables.
Share-based compensation
Issue of shares
There were no shares issued to directors and other KMP as part of compensation during the year ended 31 December
2019.
Options
There were no options over ordinary shares issued to directors and other KMP as part of compensation that were
outstanding as at 31 December 2019.
Performance rights
There were no performance rights over ordinary shares issued to directors and other KMP as part of compensation that
were outstanding as at 31 December 2019.
General performance and link to remuneration policy
The earnings of the Group for the five years to 31 December 2019 are summarised below:
31 December
2019
US$'000
31 December
2018
US$'000
30 June
30 June
30 June
2018
US$'000
2017
US$'000
2016
US$'000
Total revenue and other income
EBITDA (excluding the litigation funding
business)
Loss after income tax
323
4,554
5,918
3,570
(675)
1,723
(3,100)
120
(11,548)
2,857
(5,142)
1,929
(4,279)
(1,603)
(2,034)
The factors that are considered to affect TSR are summarised below:
31 December
2019
31 December
2018
30 June
30 June
30 June
2018
2017
2016
Share price at financial year end (A$)
Basic loss per share (cents per share)
Diluted loss per share (cents per share)
0.06
(0.54)
(0.54)
0.07
(4.60)
(4.60)
0.07
(3.68)
(3.68)
0.20
(3.53)
(3.53)
0.23
(1.85)
(1.85)
Short Term Incentive Plan
Financial year ended 31 December 2019 - STIP
KMPs were paid an incentive for the successful integration of the NHF business into the Group, to create a platform to
achieve future growth and improved financial performance.
15
LawFinance Limited
Directors' report
31 December 2019
Name
Diane Jones
David Wattel
Anthony Hersch
Craig Beatton
Richard Cruz
Sarika Merchant
Maximum
STI
$
Actual
STI
$
Awarded
STI
%
122,869
120,000
68,758
42,913
69,000
82,424
122,869
1,882
51,666
20,884
51,882
36,882
505,964
286,065
100%
2%
75%
49%
75%
45%
Financial period ended 31 December 2018 - STIP
Diane Jones was paid a short term incentive of $72,290 to reflect her efforts in successfully completing the acquisition of
NHF. There were no other short term benefits granted during the financial period ending 31 December 2018 (please note
the other incentives paid during the year to 31 December 2018 were accrued to the KMP prior to the purchase of NHF by
the Group, although these amounts were paid by the Group).
Long Term Incentive Plan
There were no grants of equity under the LTIP during the financial period ended 31 December 2019 and 31 December
2018.
Additional disclosures relating to KMPs
Shareholding
The number of ordinary shares in the Company held during the financial year by each director and other KMPs of the
Group, including their personally related parties, is set out below:
Tim Storey
Anthony Murphy
Diane Jones
David Wattel
Anthony Hersch
Craig Beatton
Balance at Received as
part of rem-
the start of
uneration
the year
Additions
Disposals/
other
6,603,014
1,015,000
3,574,098
107,548,701
957,227
50,000
119,748,040
-
-
-
-
-
-
-
-
2,850,000
337,733
-
-
-
3,187,733
Balance at
the end of
the year
6,603,014
3,865,000
3,911,831
107,548,701
957,227
50,000
122,935,773
-
-
-
-
-
-
-
During the financial year ended 31 December 2019, there were no shares in the Company held by directors and other
KMPs other than those disclosed in the table above.
Performance rights
During the financial year ended 31 December 2019, there were no performance rights over ordinary shares in the
Company held by directors and other KMPs.
Convertible bonds
The number of convertible bonds in the Company held during the financial year by each director and other KMPs of the
Group, including their personally-related parties, is set below:
Diane Jones
500
-
-
-
500
Balance at Received as
the start of part of rem-
uneration
the year
Additions
Disposals/
Other
Balance at
the end of
the year
16
LawFinance Limited
Directors' report
31 December 2019
During the financial year ended 31 December 2019, there were no convertible bonds in the Company held by directors and
other KMPs other than those disclosed in the table above.
Warrants
The number of warrants over ordinary shares in the Company held during the financial year by each director and other
KMPs of the Group, including their personally-related parties, is set out below:
Balance at
the start of
the year
Granted
Vested
Expired/
forfeited/
other
Balance at
the end of
the year
David Wattel
61,431,818
-
-
-
61,431,818
During the financial year ended 31 December 2019, there were no warrants over ordinary shares in the Company held by
directors and other KMPs other than those disclosed in the table above.
Other transactions with KMPs and their related parties
Lucerne Group manages funds on behalf of third parties. Anthony Murphy is the Chief Executive Officer of Lucerne
Investment Partners, part of the Lucerne Group. Refer to note 32 for further details.
David Wattel is a director of Multus Medical LLC, a company that specialises in creating 3-Dimensional anatomical
schematics from standardised MRI data. This company provides services to patients to assist in their personal injury
insurance claims, and NHF funds the cost of these services. David is also a founding member of Wattel & York – Attorneys
at Law, a personal injury and property damage law firm. Wattel & York have the carriage and conduct over a small number
of personal injury matters where NHF holds a medical lien. Refer to note 32 for further details.
This concludes the remuneration report, which has been audited.
Shares under option
There were no unissued ordinary shares of LawFinance Limited under option outstanding at 31 December 2019.
The following options were issued after the date of this report, following the Company’s extraordinary general meeting
(refer to note 40).
Grant date
13/03/2020
13/03/2020
13/03/2020
Expiry date
28/09/2021
28/09/2022
28/09/2023
Exercise
price*
Number
under option
US$0.175
US$0.280
US$0.420
24,000,000
22,500,000
25,000,000
71,500,000
*
Exercise price - A$0.25, A$0.40 and A$0.60 respectively.
No person entitled to exercise the options had or has any right by virtue of the options to participate in any share issue of
the Company or of any other body corporate.
Shares under performance rights
There were no unissued ordinary shares of LawFinance Limited under performance rights outstanding at the date of this
report.
17
LawFinance Limited
Directors' report
31 December 2019
Shares under warrants
Unissued ordinary shares of LawFinance Limited under warrants at the date of this report are as follows:
Grant date
28/09/2018*
28/09/2018**
Expiry date
28/09/2022
28/09/2022
Number
under rights
329,880,000
122,863,636
452,743,636
The exercise price of the warrants is A$0.135 (2018: A$0.14). As a result of the capital raising undertaken, the exercise
price of the warrants was adjusted in accordance with ASX Listing Rule 6.22.2.
* Warrants issued to other Syndicated Acquisition Facility participants
** Warrants issued to NHF Founders
Shares issued on the exercise of options
There were no ordinary shares of LawFinance Limited issued on the exercise of options during the year ended 31
December 2019 and up to the date of this report.
Shares issued on the exercise of performance rights
There were no ordinary shares of LawFinance Limited issued on the exercise of performance rights during the year ended
31 December 2019 and up to the date of this report.
Shares issued on the exercise of warrants
There were no ordinary shares of LawFinance Limited issued on the exercise of warrants during the year ended 31
December 2019 and up to the date of this report.
Indemnity and insurance of officers
The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a
director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial period, the Company paid a premium in respect of a contract to insure the directors and executives of
the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits
disclosure of the nature of the liability and the amount of the premium.
Indemnity and insurance of auditor
The Company has not, during or since the end of the financial period, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
During the financial period, the Company has not paid a premium in respect of a contract to insure the auditor of the
Company or any related entity.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking
responsibility on behalf of the Company for all or part of those proceedings.
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial period by the
auditor are outlined in note 29 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial period, by the auditor (or by another
person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by
the Corporations Act 2001.
18
LawFinance Limited
Directors' report
31 December 2019
The directors are of the opinion that the services as disclosed in note 29 to the financial statements do not compromise the
external auditor's independence requirements of the Corporations Act 2001 for the following reasons:
●
all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity
of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code
of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including
reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company,
acting as advocate for the Company or jointly sharing economic risks and rewards.
●
Officers of the Company who are former directors of Stantons International
There are no officers of the Company who are former directors of Stantons International.
Rounding of amounts
The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that
Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
immediately after this directors' report.
Auditor
Stantons International continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act
2001.
On behalf of the directors
___________________________
Tim Storey
Chairman
31 March 2020
Sydney
19
PO Box 1908
West Perth WA 6872
Australia
Level 2, 1 Walker Avenue
West Perth WA 6005
Australia
Tel: +61 8 9481 3188
Fax: +61 8 9321 1204
ABN: 84 144 581 519
www.stantons.com.au
Stantons International Audit and Consulting Pty Ltd
trading as
Chartered Accountants and Consultants
31 March 2020
Board of Directors
LawFinance Limited
Suite 2, Level 16
56 Pitt Street,
Sydney NSW 2000
Dear Directors
RE:
LAWFINANCE LIMITED
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of LawFinance Limited.
As Audit Director for the audit of the financial statements of LawFinance Limited for the year ended 31
December 2019, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i)
(ii)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
any applicable code of professional conduct in relation to the audit.
Yours sincerely
STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD
Martin Michalik
Director
Liability limited by a scheme approved
under Professional Standards Legislation
LawFinance Limited
Consolidated statement of profit or loss and other comprehensive income
For the period ended 31 December 2019
Consolidated
12 months
31 December
2019
6 months
31 December
2018
*Restated
US$'000
Note
US$'000
Revenue
Net income from disbursement funding/medical lien funding
Other revenue
Total revenue
Non-supplier related cost of sales
Gross margin
Other income
Foreign exchange gain
Expenses
Fair value gain on financial liabilities
Employee benefits expense
Depreciation and amortisation expense
Impairment of assets
Administration and other expenses
Business purchase/selling expenses
Finance costs
Loss before income tax benefit
Income tax benefit
Loss after income tax benefit for the period
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income for the period, net of tax
Total comprehensive loss for the period
Loss for the period is attributable to:
Non-controlling interest
Owners of LawFinance Limited
Total comprehensive loss for the period is attributable to:
Non-controlling interest
Owners of LawFinance Limited
6
7
8
9
9
9
20
9
9
9
10
(925)
661
(264)
206
(58)
582
5
20,828
(5,760)
(591)
(458)
(3,210)
-
(17,249)
2,028
192
2,220
(278)
1,942
1,744
590
-
(1,727)
(82)
(2,765)
(2,553)
(5,768)
(5,333)
(5,911)
(13,952)
2,811
2,404
(3,100)
(11,548)
875
875
559
559
(2,225)
(10,989)
(494)
(2,606)
(208)
(11,340)
(3,100)
(11,548)
(494)
(1,731)
(208)
(10,781)
(2,225)
(10,989)
Basic loss per share
Diluted loss per share
*Refer to note 4 for detailed information on Restatement of comparatives.
Cents
Cents
11
11
(0.54)
(0.54)
(4.60)
(4.60)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
21
LawFinance Limited
Consolidated statement of financial position
As at 31 December 2019
Assets
Current assets
Cash and cash equivalents
Financial assets at fair value through profit or loss
Financial assets at amortised cost
Other loans and receivables
Prepayments
Total current assets
Non-current assets
Financial assets at fair value through profit or loss
Financial assets at amortised cost
Other loans and receivables
Investment held in joint operations
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangibles
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Employee benefits
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provision for withholding tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Equity attributable to the owners of LawFinance Limited
Non-controlling interest
Total equity
Consolidated
31 December
2019
31 December
2018
*Restated
US$'000
Note US$'000
12
13
14
15
13
14
15
16
17
18
19
20
10
21
22
22
23
24
5,777
12,260
17,236
1,654
165
37,092
9,923
55,895
5
1,157
168
1,443
40,504
8,040
10,340
127,475
3,696
8,846
16,460
2,423
67
31,492
12,418
59,053
-
1,166
198
-
40,539
8,784
6,789
128,947
164,567
160,439
9,322
66,894
369
213
76,798
68,064
1,162
804
70,030
11,649
19,602
-
215
31,466
111,120
-
-
111,120
146,828
142,586
17,739
17,853
40,924
6,873
(28,930)
18,867
(1,128)
37,649
5,998
(26,310)
17,337
516
17,739
17,853
As there were no adjustments made as at 1 July 2018, the Group has elected not to show the 1 July 2018 statement of financial
position.
*Refer to note 4 for detailed information on Restatement of comparatives.
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
22
LawFinance Limited
Consolidated statement of changes in equity
For the period ended 31 December 2019
Consolidated
Issued
capital
US$'000
Reserves
US$'000
Accumulated
losses
US$'000
Non-
controlling
interest
US$'000
Total equity
US$'000
Balance at 1 July 2018
18,421
1,184
(14,970)
-
4,635
Loss after income tax benefit for the period
Other comprehensive income for the period,
net of tax
Total comprehensive income/(loss) for the
period
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction costs
(note 23)
Acquisition of non-controlling interests
Distributions to NCI
Share-based payments
-
-
-
-
(11,340)
(208)
(11,548)
559
-
-
559
559
(11,340)
(208)
(10,989)
19,228
-
-
-
-
-
-
4,255
-
-
-
-
-
903
(179)
-
19,228
903
(179)
4,255
Balance at 31 December 2018 - restated
37,649
5,998
(26,310)
516
17,853
Refer to note 4 for detailed information on Restatement of comparatives.
Consolidated
Issued
capital
US$'000
Reserves
US$'000
Accumulated
losses
US$'000
Non-
controlling
interest
US$'000
Total equity
US$'000
Balance at 1 January 2019 - restated
37,649
5,998
(26,310)
516
17,853
Adjustment for change in accounting policy
(note 2)
-
-
(14)
-
(14)
Balance at 1 January 2019
37,649
5,998
(26,324)
516
17,839
Loss after income tax benefit for the period
Other comprehensive income for the period,
net of tax
Total comprehensive income/(loss) for the
period
Transactions with owners in their capacity as
owners:
Distributions to NCI
Issue of shares - placement (note 23)
Share issue costs
-
-
-
-
(2,606)
(494)
(3,100)
875
-
-
875
875
(2,606)
(494)
(2,225)
-
3,499
(224)
-
-
-
-
-
-
(1,150)
-
-
(1,150)
3,499
(224)
Balance at 31 December 2019
40,924
6,873
(28,930)
(1,128)
17,739
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
23
LawFinance Limited
Consolidated statement of cash flows
For the period ended 31 December 2019
Cash flows from operating activities
Cash collections from customers (inclusive of GST)
Payments to suppliers and employees
Payments for disbursement reports and medical liens
Drawdowns from working capital facilities - disbursement funding division
Drawdowns from working capital facilities - medical lien funding division
Repayment of working capital facilities - disbursement funding division
Repayment of working capital facilities - medical lien funding division
Interest and fees related to working capital facilities
Interest received
Interest paid
Net cash (used in) operating activities
Cash flows from investing activities
Payment for purchase of business, net of cash acquired
Payments for purchase of non-controlling interest
Payments for property, plant and equipment
Payments for litigation case funding
Receipts for other intangibles (net of co-funders contributions)
Net proceeds from realisation of investments (case settlements)
Loans from other entities
Net cash (used in)/from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share issue transaction costs
Proceeds from borrowings - corporate
Repayment of borrowings - corporate
Repayment of lease liabilities
Interest and fees related to loans and borrowings
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial period
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial period
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
Note
33,060
(11,772)
(30,015)
9,903
17,625
(8,326)
(15,925)
(8,476)
7
(70)
10,674
(4,632)
(9,600)
5,919
4,912
(3,840)
(4,697)
(2,606)
72
-
(13,989)
(3,798)
-
(5)
(156)
(799)
-
632
-
(328)
3,499
-
18,468
(1,186)
(159)
(4,116)
16,506
2,189
3,696
(108)
5,777
(27,520)
-
(158)
-
901
1,348
30,546
5,117
5,093
(55)
438
(1,988)
-
(2,348)
1,140
2,459
934
303
3,696
36
34
23
38
38
38
12
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
24
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 1. General information
The financial statements cover LawFinance Limited as a Group consisting of LawFinance Limited ('Company' or 'parent
entity') and the entities it controlled ('the Group') at the end of, or during, the period.
The financial statements are presented in United States dollars ('US$' or '$'), which is LawFinance Limited's presentation
currency. The functional currency of the Group's Australian operations is Australian dollars ('A$') and that of its United
States operations is United States dollars.
The Group changed its financial year end from 30 June to 31 December in order to synchronise its financial year with that
of its US subsidiaries. The financial statements have been prepared for the 12 months ended 31 December 2019. The
comparative accounting period is for the 6 months ended 31 December 2018, therefore the results are not directly
comparable.
LawFinance Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered
office and principal place of business is:
Suite 2, Level 16
56 Pitt Street
Sydney NSW 2000
A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is
not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 March 2020.
Note 2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are consistent with those of the
previous financial year. These policies have been consistently applied to all the periods presented, unless otherwise
stated.
New or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian
Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
The following Accounting Standards and Interpretations are most relevant to the Group:
Interpretation 23 Uncertainty over Income Tax
The Group has adopted Interpretation 23 from 1 January 2019. The interpretation clarifies how to apply the recognition and
measurement requirements of AASB 112 'Income Taxes' in circumstances where uncertain tax treatments exist. The
interpretation requires: the Group to determine whether each uncertain tax treatment should be treated separately or
together, based on which approach better predicts the resolution of the uncertainty; the Group to consider whether it is
probable that a taxation authority will accept an uncertain tax treatment; and if the Group concludes that it is not probable
that the taxation authority will accept an uncertain tax treatment, it shall reflect the effect of uncertainty in determining the
related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, measuring the tax uncertainty
based on either the most likely amount or the expected value. In making the assessment it is assumed that a taxation
authority will examine amounts it has a right to examine and have full knowledge of all related information when making
those examinations. Interpretation 23 was adopted using the modified retrospective approach and as such comparatives
have not been restated. There was no impact of adoption on opening accumulated losses as at 1 January 2019.
25
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
AASB 16 Leases (modified retrospective approach)
The Group has adopted AASB 16 from 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees
eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value
assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-
line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in
operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier
periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease
expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results
improve as the operating expense is now replaced by interest expense and depreciation in profit or loss. For classification
within the statement of cash flows, the interest portion is disclosed in operating activities and the principal portion of the
lease payments are separately disclosed in financing activities. For lessor accounting, the standard does not substantially
change how a lessor accounts for leases.
Impact of adoption
AASB 16 is adopted using the modified retrospective approach and as such comparatives have not been restated. The
impact of adoption on opening accumulated losses as at 1 January 2019 was as follows:
Right-of-use assets as at 1 January 2019 (AASB 117)
Accumulated depreciation as at 1 January 2019 (AASB 16)
Lease Liability - Current (AASB 16)
Lease Liability - Non-Current (AASB 16)
Increase in opening accumulated losses as at 1 January 2019
1 January
2019
US$'000
93
(80)
(18)
(9)
(14)
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as
appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board ('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention, modified where appropriate, by the
measurement at fair value of selected non-current assets, financial assets and financial liabilities.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a
higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial
statements, are disclosed in note 3.
Going concern
As at 31 December 2019 the Group had net current liabilities of US$39,706,000 (31 December 2018: net current assets of
US$26,000). The directors’ have evaluated the Group’s principal operations and expected events and conditions and
concluded that the Group will be able to continue as a going concern. The Group does not hold significant cash reserves.
However, the directors’ assessment of the significant judgments made by management, including expected cash
collections from the medical lien funding business; expected cash collections from the disbursement funding business; and
expected case completions from the litigation funding portfolio, as part of the Group’s financial planning processes, has
formed part of this assessment.
The directors’ have also noted that the Group’s facility providers have historically provided repayment extensions to the
Group as required, due to the lumpy nature of the Group’s litigation funding receipts. Although facilities are due to be
repaid within 12 months, the litigation portfolio is also expected to mature in that time frame, which is expected to generate
sufficient returns to meet these obligations. Should there be delays in receiving settlement proceeds from the litigation
funding business, the directors expect to be able to secure favourable extension terms from the Group’s financiers in
relation to these maturing facilities.
26
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
If, which is not expected, the completions of the litigation funding cases do not resolve favourably, the Group will be
required to seek additional capital, either by way of additional facilities or equity. Again given the historical ability of the
Group to raise such funds, the directors expect to be able to raise this additional capital if it is required.
On 11 March 2020 Coronavirus was declared a pandemic by the World Health Organisation, with resulting significant
impacts on local and world economies. At this point in time given the rapidly evolving situation, the Group is unable to
quantify the impact the Coronavirus pandemic will have on the future financial performance of its businesses. However,
both cash collections and originations are likely to slow down as both the USA and Australian governments implement
quarantine initiatives.
Whilst the Group continues to actively monitor the situation and its impacts, it is likely that cash collection covenants in the
Group’s financial facilities will not be met over the next few months. The Group is working with its financiers in advance of
these potential challenges in order to obtain standstill and/or forbearance agreements during this time. At the date of this
report none of the Group’s lenders have demanded repayment of their loans and all have indicated a willingness to work
with the Group during the Coronavirus pandemic. These discussions are on-going.
No adjustment has been made to the carrying value of the assets or liabilities of the Group to reflect the situation if the
Group was not a going concern.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the Group only.
Supplementary information about the parent entity is disclosed in note 33.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of LawFinance Limited as at
31 December 2019 and the results of all subsidiaries for the period then ended.
Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest,
without the loss of control, is accounted for as an equity transaction, where the difference between the consideration
transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity
attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and
other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses
incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance.
Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-
controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group
recognises the fair value of the consideration received and the fair value of any investment retained together with any gain
or loss in profit or loss.
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the same
basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the
allocation of resources to operating segments and assessing their performance.
27
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Foreign currency translation
The financial statements are presented in United States dollars, which is LawFinance Limited's presentation currency. The
functional currency of the Group's Australian operations is Australian dollars and that of its United States operations is
United States dollars.
Foreign currency transactions
Foreign currency transactions are translated into United States dollars using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at financial period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into United States dollars using the exchange rates at the
reporting date. The revenues and expenses of foreign operations are translated into United States dollars using the
average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign
exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.
Revenue recognition
The Group recognises revenue as follows:
Australian disbursement funding business
In the Australian disbursement funding business, the Group enters into contracts with law firms to pay, on the law firms’
behalf, legal disbursements to progress their clients’ claims. These disbursements include independent expert reports and
medico-legal reports relating to the client’s injuries.
The Group enters into a contract with the law firm to provide financing for legal disbursements in relation to their clients’
legal matters ('Australian disbursement receivables'). As the contract with the law firm does not involve the provision of any
good or service to the law firm, the Group concluded that the arrangement is not a contract with a customer under AASB
15 'Revenue from Contracts with Customers'.
Rather, as the contract is the provision of loan financing to the law firm it creates a financial asset that is within the scope of
AASB 9 'Financial Instruments'.
Classification
The Group holds Australian disbursement receivables to collect their contractual cash flows. The contractual cash flows
that arise from the arrangement with the legal firm do not solely relate to the repayment of principal and interest, primarily
as they do not vary with time. Accordingly, Australian disbursement receivables are classified as at fair value through profit
and loss.
Initial recognition and measurement
Australian disbursement receivables are recognised initially at fair value.
The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price (i.e. the fair
value of the consideration given or received). The transaction price of Australian disbursement receivables is the amount of
cash paid to fund the legal disbursement costs.
The calculated fair value of the financial asset represents the invoice amount (where the final amount to be received by the
Australian disbursement funding is subject to change and conditional upon the outcome of decisions made by the relevant
Court or the Insurer), adjusted for such factors as time value of money, discounts and write offs, and credit risk. In the case
of a legal disbursement funding arrangement or medical lien funding arrangement, the calculated fair value of the loan
receivable at initial recognition may differ from the transaction price.
No active market exists for these loans. Any difference between the calculated fair value and the transaction price (also
known as a day 1 margin) is deferred and the Group recognises the deferred difference as a gain or loss only to the extent
that it arises from a change in a factor (including time) that market participants would take into account when pricing the
asset.
28
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Subsequent measurement
Any subsequent changes in fair value on Australian disbursement receivables is recognised in the profit or loss statement
and presented as net gains or losses on loan receivables at fair value. The net gains or losses are calculated based on
actuarial assumptions including information on changes to actual and expected write offs, discounts and collections of loan
receivables, as well as interest margin, taking into account the time value of money, credit risk, and the amortisation of any
day 1 margins.
The deferred day 1 margin is recognised in the profit or loss on a systematic basis over the term of the arrangement using
actuarial methodologies. It is based on the profile of cash collections and the subsequent weighted average calculation of
these collections applied to the recognition of the day 1 margin.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the Group’s consolidated statement of financial position) when the contractual rights to
receive cash flows from the loan receivables have either occurred or expired. Additional impairment gains or losses can
arise if the amount or timing of cash flows differ from the expectation set at the previous period end.
US medical lien funding business
The US medical lien funding business (NHF) was acquired in September 2018 (see note 34 for further details). In this
business, the Group purchases a lien or obtains a letter of protection over receivables of health care providers and
hospitals associated with personal injury legal cases ('medical lien receivables').
The Group does not take primary responsibility for the actual medical treatment in the United States nor is it obliged to
purchase any medical lien. The Group solely enters into a contract with the medical provider to take a lien over a specific
invoice and notifies the law firm of the patient (who is the party ultimately responsible for paying the invoice) of that medical
lien. Considering this arrangement does not involve the provision of any good or service to the law firm, the Group had
concluded that the arrangement is not a contract with a customer under AASB 15. As the transaction involves a payment
for a right to future cash flows arising from an existing receivable, the Group has concluded that medical lien receivables
are financial assets in the scope of AASB 9.
Classification
The Group holds medical lien receivables to collect their contractual cash flows. The contractual cash flows that arise from
the lien arise from payments of the original invoice’s face value and are therefore the repayment of its principal. Payments
under the lien are required to be classified in line with the nature of the underlying payment. Accordingly, medical lien
receivables are classified as at amortised cost. In addition, because it is expected that less than the full amount of the
invoice will be received in settlement the medical lien receivables are considered to be 'purchased or originated credit
impaired' ('POCI').
Initial recognition and measurement
Medical lien receivables are recognised initially at fair value.
The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price (i.e. the fair
value of the consideration given or received). The transaction price of medical lien receivables is the amount of cash paid
to the medical practitioner for the lien and is considered to represent fair value. The initial fair value of medical lien
receivables acquired in the NHF acquisition has been determined through valuation techniques that are consistent in
approach to those used for Australian disbursement receivables (but with inputs appropriate for the nature of the medical
lien receivables). The acquisition date fair value allocated from the overall purchase price of NHF is shown in note 34.
Subsequent measurement
Financial assets at amortised cost are adjusted from their initial fair value by accruing interest using the effective interest
rate method. This is the interest rate that discounts expected future cash flows arising from the asset to its fair value on
inception. At initial recognition, POCI assets do not carry a separate impairment allowance; instead, lifetime expected
credit losses are incorporated into the calculation of the effective interest rate.
At each period end, the future expected cash flows now expected to arise from the asset are discounted at the original
effective interest rate. Any changes in value arising from changes in the amount or timing of expected cash flows are
recognised as an impairment change (gain or loss).
29
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated statement of financial position) when the contractual rights to
receive cash flows from the loan receivables have either occurred or expired. Additional impairment gains or losses can
arise if the amount or timing of cash flows differ from the expectation set at the previous period end.
Rent
Rent revenue is recognised on a straight-line basis over the lease term.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest
rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the
applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to
temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when
the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted,
except for:
● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting
nor taxable profits; or
● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and
the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred
tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for
the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is
probable that there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the
Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months
after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle
a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held
primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no
unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities
are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
30
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
Loan receivables at fair value through profit or loss – Australian disbursement funding business
Initial recognition and measurement
The Group’s financial assets at fair value through profit or loss relates to the loan receivables arising from its disbursement
funding business. The Group’s loan receivables from this funding business are classified, at initial recognition, as financial
assets at fair value through profit or loss. The determination is made at initial recognition based on the Australian
disbursement funding business model for managing its financial instruments and the non-contractual cash flow
characteristics of its instruments.
The Australian disbursement funding financial asset at fair value through profit or loss is recognised initially at fair value.
The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price (i.e. the fair
value of the consideration given or received). In the case of a legal disbursement funding arrangement, the fair value of the
loan receivable at initial recognition may differ from the transaction price.
The fair value of the financial asset represents the invoice amount (where the final amount to be received by the Australian
disbursement funding is subject to change and conditional upon the outcome of decisions made by the relevant Court or
the Insurer), adjusted for such factors as time value of money, discounts and write offs, and credit risk. The transaction
price of the financial asset is the amount of cash paid to fund the legal disbursement costs.
No active market exists for these loans. The difference between the fair value and the transaction price (also known as day
1 margin) is deferred and the Group recognises the deferred difference as a gain or loss only to the extent that it arises
from a change in a factor (including time) that market participants would take into account when pricing the asset.
Subsequent measurement
Loan receivables for the Australian disbursement funding are carried in the statement of financial position at fair value, with
changes in fair value presented in the statement of profit or loss as net gains or losses on loan receivables at fair value.
The net gains or losses are calculated based on actuarial assumptions including information on changes to actual and
expected write offs, discounts and collections of loan receivables, as well as interest margin, taking into account the time
value of money, credit risk, and the amortisation of day 1 margins.
The deferred day 1 margin is recognised in the profit or loss on a systematic basis over the term of the arrangement using
actuarial methodologies. It is based on the profile of cash collections and the subsequent weighted average calculation of
these collections applied to the recognition of the day 1 margin.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated statement of financial position) when the contractual rights to
receive cash flows from the loan receivables have expired.
Loan receivables at amortised cost – US medical lien receivables funding business
Initial recognition and measurement
Medical lien receivables are recognised initially at fair value.
31
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price (i.e. the fair
value of the consideration given or received). The transaction price of medical lien receivables is the amount of cash paid
to the medical practitioner for the lien and is considered to represent fair value. The initial fair value of medical lien
receivables acquired in the NHF acquisition has been determined through valuation techniques that are consistent in
approach to those used for Australian disbursement receivables (but with inputs appropriate for the nature of the medical
lien receivables). The acquisition date fair value allocated from the overall purchase price of NHF is shown in note 34.
Subsequent measurement
Financial assets at amortised cost are adjusted from their initial fair value by accruing interest using the effective interest
rate method. This is the interest rate that discounts expected future cash flows arising from the asset to its fair value on
inception. At initial recognition, POCI assets do not carry a separate impairment allowance; instead, lifetime expected
credit losses are incorporated into the calculation of the effective interest rate.
At each period end, the future expected cash flows now expected to arise from the asset are discounted at the original
effective interest rate. Any changes in value arising from changes in the amount or timing expected cash flows are
recognised as an impairment change (gain or loss).
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated statement of financial position) when the contractual rights to
receive cash flows from the loan receivables have either occurred or expired. Additional impairment gains or losses can
arise if the amount or timing of cash flows differ from the expectation set at the previous period end.
Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
When a Group entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to
its interest in a joint operation:
●
●
●
●
●
its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output arising from the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.
The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with the relevant Accounting Standard applicable to the particular assets, liabilities, revenues and expenses.
Investments and other financial assets
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income include equity investments which the Group intends to
hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at
amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon
the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has
increased significantly since initial recognition, based on reasonable and supportable information that is available, without
undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected
credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable
to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where
it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected
credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present
value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
32
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
For financial assets mandatorily measured at fair value through other comprehensive income, the loss allowance is
recognised in other comprehensive income with a corresponding expense through profit or loss. In all other cases, the loss
allowance reduces the asset’s carrying value with a corresponding expense through profit or loss.
Trade and other receivables
Trade receivables, other than loan receivables from its disbursement funding business and medical lien funding business
mentioned previously in the Financial instruments note, are initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method, less any allowance for expected credit losses.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment
over their expected useful lives as follows:
Plant and equipment
3-7 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting
date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the
Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which
comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the
commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in
the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset,
and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful
life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of
the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted
for any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with
terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss
as incurred.
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value
at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible
assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are
subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss
arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the
carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually.
Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation
method or period.
33
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at
cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not
subsequently reversed.
Customer relationships
As part of the acquisition of NHF a portion of the business consideration was applied to the value of existing long-standing
customer relationships. This value will be amortised over a 10-year period.
Website
Significant costs associated with the development of the revenue generating aspects of the website, including the capacity
of placing orders, are deferred and amortised on a straight-line basis over the period of their expected benefit, being their
useful life of 3 years.
Litigation contracts in progress
Litigation contracts in progress represent future economic benefits controlled by the Group. As litigation contracts in
progress may be exchanged or sold, the Group is able to control the expected future economic benefit flowing from the
litigation contracts in progress. Accordingly, litigation contracts in progress meet the definition of intangible assets. The
carrying value of litigation contracts in progress includes the capitalisation of external costs of funding the litigation, such as
solicitors’ fees, counsels’ fees and experts’ fees, the capitalisation of certain directly attributable internal costs of managing
the litigation, such as certain wages and other out of pocket expenses. Litigation contracts in progress are not amortised as
the assets are not available-for-use until the determination of a successful judgment or settlement, at which point the
assets are realised, and revenue is recognised.
The following specific asset recognition rules have been applied to litigation contracts in progress:
Actions still outstanding: When funded litigation is outstanding and pending a determination, litigation contracts in progress
are carried at cost. Subsequent expenditure is capitalised when it meets all of the following criteria:
●
demonstration of ability of the Group to complete the litigation so that the asset will be available-for-use and the
benefits embodied in the asset will be realised;
demonstration that the asset will generate future economic benefits;
demonstration that the Group intends to complete the litigation;
demonstration of the availability of adequate technical, financial and other resources to complete the litigation; and
ability to measure reliably the expenditure attributable to the asset during the litigation contract in progress.
●
●
●
●
Successful judgments: Where the litigation has been determined in favour of the Group or a positive settlement has been
agreed, this constitutes a derecognition of the intangible asset and accordingly a gain or loss is recognised in profit or loss
statement. Any future costs relating to the defence of an appeal by the defendant are expensed as incurred.
Unsuccessful judgments: Where the litigation is unsuccessful at trial, this is a trigger for impairment of the intangible asset
and the asset is written down to its recoverable amount. If the claimant, having been unsuccessful at trial appeals against
the judgment, then future costs incurred by the Group on appeal are expensed as incurred.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at
amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon
the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has
increased significantly since initial recognition, based on reasonable and supportable information that is available, without
undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected
credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable
to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where
it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected
credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present
value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
34
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to
form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial period
and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The
amounts are unsecured and are usually paid within 30 days of recognition.
Borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They
are subsequently measured at amortised cost using the effective interest method.
Convertible bonds are redeemable at the discretion of the Group and are classified as a liability in the statement of
financial position due to the operability of the convertible bond’s anti-dilution clauses. As the convertible bonds include a
conversion feature the convertible bonds are considered to represent a liability with an equity conversion option derivative.
The conversion feature has been fair valued separately and on initial recognition and deducted from the value of the
convertible bonds. The derivative is subsequently measured at fair valued at each reporting date and any movement in fair
value is accounted for in profit or loss. The convertible bonds liability is recorded at amortised cost and interest is accreted
to the face value of the convertible bonds over the term of the convertible bond.
The NHF Founder Promissory Notes and Vendor Loan – NHF Founders have been booked at fair value. Refer to note 27.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts
expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option
is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend
on an index or a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured
if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual
guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an
adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use
asset is fully written down.
Finance costs
All other finance costs are expensed in the period in which they are incurred.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities
are settled.
35
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are
measured at the present value of expected future payments to be made in respect of services provided by employees up to
the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures
and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality
corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Equity-settled share-based compensation benefits are provided to employees and directors.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees and directors in
exchange for the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined
using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact
of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield
and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether
the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting
conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the
vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the
best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount
recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already
recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions
are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are
satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made.
An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair
value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a
cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting
period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, they are treated as if they had vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and
new award is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes that the transaction will take place either: in the
principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and
transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair
value measurement.
36
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either
not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge
and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an
analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison,
where applicable, with external sources of data.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments
issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest
in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value
or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to
profit or loss.
On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or
accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the
acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is
recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent
changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling
interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment
in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair
value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a
gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and
measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred
and the acquirer's previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based
on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement
period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the
information possible to determine fair value.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of LawFinance Limited, excluding
any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding
during the financial period, adjusted for bonus elements in ordinary shares issued during the financial period.
37
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
Rounding of amounts
The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that
Corporations Instrument to the nearest thousand dollars or, in certain cases, the nearest dollar.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the Group for the annual reporting year ended 31 December 2019. The
Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to
the Group, are set out below.
AASB revised Conceptual Framework for Financial Reporting
A revised Conceptual Framework for Financial Reporting has been issued by the AASB and is applicable for annual
reporting periods beginning on or after 1 January 2020. This release impacts for-profit private sector entities that have
public accountability that are required by legislation to comply with Australian Accounting Standards and other for-profit
entities that voluntarily elect to apply the Conceptual Framework. Phase 2 of the framework is yet to be released which will
impact for-profit private sector entities. The application of new definition and recognition criteria as well as new guidance on
measurement will result in amendments to several accounting standards. The issue of AASB 2019-1 Amendments to
Australian Accounting Standards – References to the Conceptual Framework, also applicable from 1 January 2020,
includes such amendments. Where the Group has relied on the conceptual framework in determining its accounting
policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards, the
Group may need to revisit such policies. The Group will apply the revised conceptual framework from 1 January 2020 and
is yet to assess its impact.
Note 3. Critical accounting judgments, estimates and assumptions
The preparation of the financial statements requires management to make judgments, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in
relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments, estimates and
assumptions on historical experience and on other various factors, including expectations of future events, management
believes to be reasonable under the circumstances. The resulting accounting judgments and estimates will seldom equal
the related actual results. The judgments, estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are
discussed below.
38
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 3. Critical accounting judgments, estimates and assumptions (continued)
Key judgments and estimates - Australian disbursement receivables
The key judgments applied in determining the accounting treatment for Australian disbursement receivables are:
●
●
That the contract is a financing arrangement, not the provision of goods or services; and
That cashflows arising from the contract are not solely principal and interest. This is on the ground that the quantum of
payment does not vary with the passage of time.
Fair value measurement and carrying value measurement of loan receivables for JustKapital Finance
The key estimates applied are those used to determine the fair value of the Australian disbursement receivables. The fair
values cannot be measured based on quoted prices in active markets. Instead, their fair value is measured using actuarial
valuation techniques that take into account discount rates, credit risk and analysis of discounts and write offs (a Level 3 fair
value measurement). The inputs to these models are taken from observable markets where possible, but where this is not
feasible, a degree of judgment is required in establishing fair values and the deferred day 1 margin. Changes in
assumptions relating to these factors could affect the reported fair value and carrying value of loan receivables and its fair
value movement through profit or loss.
The key assumptions used to determine the fair value of the loan receivables are provided in note 27.
Key judgments and estimates - medical lien receivables
The key judgment applied in determining the accounting treatment for medical lien receivables is that the cash flows arising
from the arrangement are solely repayment of the original invoiced amount.
The key estimates involved in determining the amortised cost of the medical lien receivables are:
●
The fair value estimate applied in determining the allocation of the purchase price to acquired medical lien receivables
for the NHF acquisition;
The estimation of the expected amount and timing of cash flows arising from the medical lien receivables at their
inception; and
The re-estimation of the expected amount and timing of cash flows arising from the medical lien receivables at 31
December 2019 and 31 December 2018.
●
●
Carrying value measurement of loan receivables for NHF
Classifying loan receivables at amortised cost and the use of the credit-adjusted effective interest rate method requires the
Group to estimate future cash flows from medical lien receivables at acquisition date and at each balance sheet date.
Estimating the timing and amount of cash flows for both the calculation of credit-adjusted effective interest rates ('CAEIRs')
and subsequent re-measurement of the carrying amount of medical lien receivables requires significant management
judgment regarding key assumptions.
The key underlying estimates that form the basis for amortised cost accounting are the quantum of the expected cash
receipt from the lien and its expected timing, as the vast majority of medical liens are settled through one-off payments.
Cash flow forecasts are generated using statistical models prepared by an external firm of actuaries incorporating a
number of factors including historical experience of the magnitude and timing of recoveries on accounts which have similar
key attributes, which is determined at an invoice level basis.
The Group uses the information and data obtained on acquisition of the lien to determine expected cash flow forecasts and
calculate the CAEIRs. The Group in later periods adjusts the carrying amount of the portfolios to reflect revised estimated
cash flows. Events or changes in assumptions and management’s judgment will affect the recognition of revenue in the
period. Changes that could have a material impact on the estimate of future cash flows include our experience of
recoveries from medical liens in the relevant jurisdiction, our success in negotiating levels of settlements and changes in
the timing of payments due to State legislation and/or changing market practice.
Management also review the model on a portfolio basis to take into account external factors, which have impacted
historical, or will impact future, performance and where necessary portfolios are calibrated to take into account these
known factors. The assumptions and estimates made are specific to the particular characteristics of each State based
portfolio.
39
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 3. Critical accounting judgments, estimates and assumptions (continued)
If resolution of any uncertainty results in an increase or decrease in the carrying value of loan receivables, this is
recognised in the income statement at that point in time. The estimated future cash flows are most sensitive to observed
payment history, as well as timing of future cash flow receipt.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking
into account the terms and conditions upon which the instruments were granted. The accounting estimates and
assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and
liabilities within the next annual reporting period but may impact profit or loss and equity.
Allowance for expected credit losses
The allowance for expected credit losses assessment requires a degree of estimation and judgment. It is based on the
lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected
credit loss rate for each group. These assumptions include recent sales experience and historical collection rates.
Goodwill
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill
has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-
generating units have been determined based on value-in-use calculations. These calculations require the use of
assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated
future cash flows (refer to note 19).
Impairment of non-financial assets other than goodwill
The Group assesses impairment of non-financial assets other than goodwill at each reporting date by evaluating conditions
specific to the Group and to the particular asset that may lead to impairment. This includes an assessment of each
individual litigation contract in progress as to whether the underlying litigation is likely to be successful, the cost and timing
of future expected cash flows to completion and the ability of the defendant(s) to pay upon a successful completion. If an
impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal
or value-in-use calculations, which incorporate a number of key estimates and assumptions (refer to note 20).
Provision for adverse costs
In the event that litigation funded by the Group is unsuccessful, the Group raises a provision which is based upon the
Group’s best estimate of the amount of the adverse costs it will have to remit following consultation with external advisors
and taking into account any adverse costs order insurance in respect of the liability.
Income tax
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in
determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary
course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax
audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is
different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in
which such determination is made.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
Note 4. Restatement of comparatives
Prior period restatement
In the period from acquisition in September 2018 to 31 December 2018, medical lien receivables were previously
accounted for at fair value through profit or loss. However, the directors have reviewed the interpretations of AASB 9 and
have changed accounting policy for these medical lien receivables, and they are now accounted for at amortised cost.
40
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 4. Restatement of comparatives (continued)
Statement of profit or loss and other comprehensive income
Extract
Consolidated
6 months
31 December
2018
US$'000
Reported
US$'000
Adjustment
6 months
31 December
2018
US$'000
Restated
Revenue
Net income from disbursement funding/medical lien funding
2,149
(121)
2,028
Loss before income tax benefit
(13,831)
(121)
(13,952)
Income tax benefit
2,404
-
2,404
Loss after income tax benefit for the period
(11,427)
(121)
(11,548)
Other comprehensive income for the period, net of tax
559
-
559
Total comprehensive loss for the period
(10,868)
(121)
(10,989)
Loss for the period is attributable to:
Non-controlling interest
Owners of LawFinance Limited
Total comprehensive loss for the period is attributable to:
Non-controlling interest
Owners of LawFinance Limited
Basic loss per share
Diluted loss per share
(200)
(11,227)
(8)
(113)
(208)
(11,340)
(11,427)
(121)
(11,548)
(200)
(10,668)
(8)
(113)
(208)
(10,781)
(10,868)
(121)
(10,989)
Cents
Reported
Cents
Adjustment
Cents
Restated
(4.56)
(4.56)
(0.04)
(0.04)
(4.60)
(4.60)
Statement of financial position at the beginning of the earliest comparative period
When there is a restatement of comparatives, it is mandatory to provide a third statement of financial position at the
beginning of the earliest comparative period, being 1 July 2018. However, as there were no adjustments made as at 1 July
2018, the Group has elected not to show the 1 July 2018 statement of financial position.
41
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 4. Restatement of comparatives (continued)
Statement of financial position at the end of the earliest comparative period
Extract
Assets
Current assets
Loans and other receivables
Financial assets at fair value through profit or loss
Financial assets at amortised cost
Other loans and receivables
Total current assets
Non-current assets
Financial assets at fair value through profit or loss
Financial assets at amortised cost
Loans and other receivables
Total non-current assets
Total assets
Net assets
Equity
Accumulated losses
Equity attributable to the owners of LawFinance Limited
Non-controlling interest
Total equity
Note 5. Operating segments
Consolidated
31 December
2018
US$'000
Reported
US$'000
Adjustment
31 December
2018
US$'000
Restated
29,883
-
-
-
33,646
-
-
69,438
126,914
(29,883)
8,846
16,460
2,423
(2,154)
12,418
59,053
(69,438)
2,033
-
8,846
16,460
2,423
31,492
12,418
59,053
-
128,947
160,560
(121)
160,439
17,974
(121)
17,853
(26,197)
17,450
524
17,974
(113)
(113)
(8)
(121)
(26,310)
17,337
516
17,853
Identification of reportable operating segments
The Group is organised into three operating segments: (i) JustKapital Finance, comprising the Australian disbursement
funding business and short-term funding, (ii) National Health Finance, comprising the US medical lien funding business
and (iii) all other operations including litigation funding and head office costs.
These operating segments are based on the internal reports that are reviewed and used by the Board (who are identified
as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of
resources.
42
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 5. Operating segments (continued)
Operating segment information
Consolidated - 12 months 31 December 2019
Revenue
Net income from disbursement funding/medical lien funding
Other revenue
Other income
Total revenue
Segment result
Depreciation and amortisation
Finance costs
Profit/(loss) before income tax benefit
Income tax benefit
Loss after income tax benefit
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Consolidated - 6 months 31 December 2018
Revenue
Net income from disbursement funding/medical lien funding
Other revenue
Total revenue
Other income
Total revenue
Segment result
Depreciation and amortisation
Finance costs
Profit/(loss) before income tax benefit
Income tax benefit
Loss after income tax benefit
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
JustKapital
Finance
US$'000
National
Health
Finance
US$'000
Other
US$'000
Total
US$'000
3,252
30
3,282
-
3,282
2,127
(129)
(2,135)
(137)
(4,177)
181
(3,996)
-
(3,996)
(404)
(456)
(8,867)
(9,727)
-
450
450
587
1,037
10,206
(6)
(6,247)
3,953
27,039
121,661
15,867
22,546
72,767
51,515
(925)
661
(264)
587
323
11,929
(591)
(17,249)
(5,911)
2,811
(3,100)
164,567
164,567
146,828
146,828
JustKapital
Finance
US$'000
National
Health
Finance
US$'000
Other
US$'000
Total
US$'000
2,008
94
2,102
-
2,102
1,185
(25)
(1,064)
96
20
-
20
600
620
(1,065)
(6)
(1,914)
(2,985)
-
98
98
1,734
1,832
(8,657)
(51)
(2,355)
(11,063)
26,477
118,054
15,908
21,253
61,158
60,175
2,028
192
2,220
2,334
4,554
(8,537)
(82)
(5,333)
(13,952)
2,404
(11,548)
160,439
160,439
142,586
142,586
43
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 5. Operating segments (continued)
Segment assets
Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of
economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their
nature and physical location.
Segment liabilities
Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations
of the segment. Accordingly, all liabilities are allocated based on the operations of the segment.
Geographical information
Australia
United States
Revenue from external
customers
Geographical non-current
assets
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
31 December
2019
US$'000
31 December
2018
US$'000
3,732
(3,996)
(264)
2,200
20
2,220
12,078
39,235
12,279
38,408
51,313
50,687
The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets,
post-employment benefits assets and rights under insurance contracts.
Note 6. Net income from disbursement funding/medical lien funding
Disbursement funding - Australia:
Fair value gain on financial assets at fair value through profit or loss
Medical lien funding - USA:
Interest income at amortised cost
Net impairment losses on financial assets at amortised cost
Net settlement gains on financial assets at amortised cost
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
Restated
US$'000
3,252
3,252
2,008
2,008
2,687
(8,402)
1,538
(4,177)
67
(124)
77
20
(925)
2,028
Due to the portfolio calculation approach used for the medical lien funding receivables acquired as part of the business
combination with NHF (refer to note 34) ($46,956,000 as at 31 December 2019), it is not possible to accurately separate
impairment gains/losses from gains/losses arising on settlement of those receivables. The net total of these losses was
$2,172,000 (The net total of these gains for the 6 months ending 31 December 2018: $29,000).
44
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 7. Other revenue
Interest received – short-term lending
Brokerage commission received – insurance
Rental income - office sub-leases
Rebates received - medical lien funding
Non-case related settlements
Administration fees
Interest adjustment - vendor loan
Other revenue
Note 8. Other income
Litigation contracts in progress – settlements and judgments
Litigation contracts in progress – expenses
Interest income
Other income
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
30
14
144
11
60
2
400
661
94
33
65
-
-
-
-
192
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
636
(57)
3
582
4,475
(2,744)
13
1,744
45
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 9. Expenses
Loss before income tax includes the following specific expenses:
Fair value gain on financial liabilities
Fair value adjustment – vendor loan
Fair value adjustment – notes payable
Employee benefits expense
Defined contribution superannuation expense
Share-based payments expense
Employee benefits expense excluding superannuation
Depreciation and amortisation expense
Depreciation - property, plant and equipment
Depreciation - right-of-use assets
Amortisation - other intangibles
Administration and other expenses
ASIC, ASX and share registry fees
Insurance
Legal and professional fees
Write-off of acquisition costs of litigation assets
Rent and office costs
Travel and accommodation
Short-term lease payments
Low-value assets lease payments
Other
Finance costs
Interest expense and line fees
Interest - right-of-use assets
Business purchase/selling expenses
Legal and professional fees
Warrant costs
46
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
(11,828)
(9,000)
(20,828)
72
-
5,688
5,760
117
232
242
591
90
107
1,881
-
298
204
55
44
531
-
-
-
34
27
1,666
1,727
80
-
2
82
135
98
752
925
273
119
-
-
251
3,210
2,553
17,183
66
5,333
-
17,249
5,333
-
-
-
2,612
3,156
5,768
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 10. Income tax
Numerical reconciliation of income tax benefit and tax at the statutory rate
Loss before income tax benefit
Tax at the statutory tax rate of 27.5%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Expenses not deductible
Share-based payments
Income not assessible
Bad debts
Adjustment recognised for prior periods
Difference in overseas tax rates
Exchange differences
Income tax benefit
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Tax losses
Other temporary differences
Loans and other receivables
Set off deferred tax liability
Deferred tax asset
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Property, plant and equipment
Intangibles
Prepayments
Work in progress
Other temporary differences
Set off deferred tax asset
Deferred tax liability
47
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
(5,911)
(13,952)
(1,626)
(3,837)
841
-
(3,297)
49
-
(4,033)
1,033
189
481
855
-
80
1
(2,420)
16
-
(2,811)
(2,404)
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
7,957
2,519
2,570
(2,706)
4,866
1,317
2,559
(1,953)
10,340
6,789
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
111
-
1
1,688
906
(2,706)
2
124
2
1,825
-
(1,953)
-
-
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 10. Income tax (continued)
The deferred tax assets will only be obtained if:
future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;
i)
ii)
the conditions for deductibility imposed by tax legislation continue to be complied with; and
iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit.
Note 11. Earnings per share
Loss after income tax
Non-controlling interest
Loss after income tax attributable to the owners of LawFinance Limited
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
(3,100)
494
(11,548)
208
(2,606)
(11,340)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
483,849,508
246,301,947
Weighted average number of ordinary shares used in calculating diluted earnings per share
483,849,508
246,301,947
Basic loss per share
Diluted loss per share
Cents
Cents
(0.54)
(0.54)
(4.60)
(4.60)
The Company excluded, nil options on issue (31 December 2018: 1,500,000), 50,000 convertible bonds (31 December
2018: 50,000) and 452,743,636 warrants (31 December 2018: 452,743,636), from the diluted earnings calculations as they
are anti-dilutive for the financial period.
Note 12. Cash and cash equivalents
Current assets
Cash at bank and on hand
Short-term cash deposits are used as bank guarantee security. Refer to note 30.
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
5,777
3,696
48
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 13. Financial assets at fair value through profit or loss
Current assets
Loan receivables - disbursement funding - Australia (gross)
Fair value movement
Unrecognised day 1 margin
Allowance for expected credit losses
Non-current assets
Loan receivables - disbursement funding - Australia (gross)
Fair value movement
Unrecognised day 1 margin
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
16,877
(3,198)
(719)
(700)
12,599
(2,634)
(1,119)
-
12,260
8,846
14,733
(2,791)
(2,019)
18,125
(3,789)
(1,918)
9,923
12,418
22,183
21,264
Loan receivables are dependent upon a decision in the related matter by the Court or the insurance company if a case is
settled. The loan receivables disclosed above include US$nil (31 December 2018: US$nil) which are past due but not
impaired. The Company believes the amounts are fully recoverable.
Note 14. Financial assets at amortised cost
Consolidated
31 December
2019
31 December
2018
Restated
US$'000
US$'000
Current assets
Loan receivables - medical lien funding - USA (gross)
Allowance for expected credit losses
Non-current assets
Loan receivables - medical lien funding - USA (gross)
Allowance for expected credit losses
46,043
(28,807)
17,236
38,041
(21,581)
16,460
149,310
(93,415)
55,895
136,481
(77,428)
59,053
73,131
75,513
Medical lien funding receivables are considered purchased credit impaired assets under accounting standards. They are
initially recognised with an allowance for expected credit losses reflecting estimated lifetime credit losses. This reflects an
estimate of both the probability that a settlement will not recover the entire face value of the underlying receivable and the
probability that no settlement is obtained.
49
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 15. Other loans and receivables
Current assets
Other trade receivables
Short-term loans
Other receivables
Non-current assets
Other receivables
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
70
283
353
1,301
1,654
180
488
668
1,755
2,423
5
-
1,659
2,423
Other receivables include amounts due to the Group from its joint venture partner for its share of investments made in co-
funded cases.
Note 16. Investment held in joint operations
Non-current assets
Investment held in joint operation
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
1,157
1,166
The Group has a material joint operation with Longford Capital Management LP ('Longford Capital') where the Group
coinvests with Longford Capital in one case in the United States on a 50:50 basis. The Group is entitled to its proportionate
share of the litigation contracts in progress income received and bears a proportionate share of the joint operation’s
investment in the case.
Note 17. Property, plant and equipment
Non-current assets
Leasehold improvements - at cost
Less: Accumulated depreciation
Plant and equipment - at cost
Less: Accumulated depreciation
50
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
57
(57)
-
433
(265)
168
168
57
(57)
-
345
(147)
198
198
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 17. Property, plant and equipment (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial period are set out
below:
Consolidated
Balance at 1 July 2018
Additions
Additions through business combinations (note 34)
Exchange differences
Depreciation expense
Balance at 31 December 2018
Additions
Exchange differences
Depreciation expense
Balance at 31 December 2019
Note 18. Right-of-use assets
Non-current assets
Land and buildings - right-of-use
Less: Accumulated depreciation
Leasehold
improve-
ments
US$'000
Plant and
equipment
US$'000
Total
US$'000
28
17
-
(1)
(44)
-
-
-
-
-
77
3
157
(3)
(36)
198
90
(3)
(117)
168
105
20
157
(4)
(80)
198
90
(3)
(117)
168
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
1,755
(312)
1,443
-
-
-
Additions to the right-of-use assets during the period were US$1,755,000.
The Group leases land and buildings for its offices under agreements of between two and seven years, with, in some
cases, options to extend.
Note 19. Goodwill
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
4,159
36,345
4,194
36,345
40,504
40,539
Non-current assets
Goodwill - Australian disbursement funding business
Goodwill - US medical lien funding business
51
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 19. Goodwill (continued)
Movements in Goodwill during the current financial year are set out below:
Balance at 1 January 2019
Foreign currency translation
Balance as at 31 December 2019
Goodwill - Australian disbursement funding business
Australian
disburse-
ment funding
business
US$'000
US medical
lien funding
business
US$'000
4,194
(35)
36,345
-
4,159
36,345
Goodwill arose from the acquisition of the Macquarie Medico Legal business in 2016 and is allocated to the Australian
operating division ('AOD'). The Group performed its annual impairment test at the reporting date. The Group considers the
relationship between its market value, among other factors when assessing impairment. The recoverable amount of the
Australian disbursement funding business has been determined based upon a value-in-use calculation using cash flow
projections from financial budgets approved by management covering a five-year period. The pre-tax discount rate applied
to the cash flow projections was 15% (31 December 2018: 15%) and cash flows beyond the five-year period are
extrapolated using a 1% (31 December 2018: 1%) growth rate. It was concluded that the recoverable amount did not
exceed its value-in-use.
Key assumptions used in value-in-use calculations and sensitivity to changes in assumptions
The calculation of value-in-use for the Australian disbursement funding business is most sensitive to the following
assumptions:
●
●
Discount rates; and
Growth rate estimates.
Discount rates
Discount rates represent the current market assessment of the risks specific to the business unit, taking into consideration
the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments
and is derived from its weighted average cost of capital ('WACC'). The WACC takes into account both debt and equity. The
cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the
interest-bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual
beta factors. The beta factors are evaluated annually based on publicly available market data. Adjustments to the discount
rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. A
rise in the pre-tax discount rate to 19% (31 December 2018: 20%) would result in goodwill being impaired.
Growth rate estimates
Rates are based on management’s estimates. Management recognises that the possibility of new entrants can have a
significant impact on growth rate assumptions, however, given this is a relatively new industry, the effect of new entrants is
not expected to have an adverse impact on the forecasts. A reduction to negative 9% (31 December 2018: negative 4%) in
the long-term growth rate would result in goodwill being impaired.
Goodwill – US medical lien funding business
Goodwill arose from the acquisition of the National Health Finance business in September 2018 with an effective date of
control of 1 October 2018 and is allocated to the US operating division ('USOD'). The Group performed its annual
impairment test at the reporting date. The Group considers the relationship between its market value, among other factors
when assessing impairment. The recoverable amount of the US medical lien funding business has been determined based
upon a value-in-use calculation using cash flow projections from financial budgets approved by management covering a
five-year period. The pre-tax discount rate applied to the cash flow projections was 11% (31 December 2018: 15%) and
cash flows beyond the five-year period are extrapolated using a 1% (31 December 2018: 1%) growth rate. It was
concluded that the recoverable amount did not exceed its value-in-use.
52
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 19. Goodwill (continued)
Key assumptions used in value-in-use calculations and sensitivity to changes in assumptions
The calculation of value-in-use for the National Health Finance business is most sensitive to the following assumptions:
●
●
Discount rates; and
Growth rate estimates.
Discount rates
Discount rates represent the current market assessment of the risks specific to the business unit, taking into consideration
the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments
and is derived from its weighted average cost of capital ('WACC'). The WACC takes into account both debt and equity. The
cost of equity is derived from the expected return on investment by the Group's investors. The cost of the debt is based on
the interest-bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual
beta factors. The beta factors are evaluated annually based on publicly available market data. Adjustments to the discount
rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. A
rise in the pre-tax discount rate to 20% (31 December 2018: 24%) would result in goodwill being impaired.
Growth rate estimates
Rates are based on management's estimates. Management recognises that the possibility of new entrants can have a
significant impact on growth rate assumptions, however, given this is a relatively new industry, the effect of new entrants is
not expected to have an adverse impact on the forecasts.
Note 20. Other intangibles
Non-current assets
Website - at cost
Less: Accumulated amortisation
Customer relationships – US medical lien funding business
Less: Accumulated amortisation
Litigation contracts in progress - capitalised external costs
Litigation contracts in progress - capitalised internal costs
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
17
(13)
4
1,913
(239)
1,674
5,594
768
6,362
8,040
17
(10)
7
1,913
-
1,913
6,314
550
6,864
8,784
53
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 20. Other intangibles (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial period are set out
below:
Consolidated
Balance at 1 July 2018
Additions*
Disposals
Exchange differences
Amortisation expense
Balance at 31 December 2018
Additions*
Exchange differences
Amortisation expense
Balance at 31 December 2019
Website
US$'000
Customer
relationships
US$'000
Litigation
contracts in
progress
US$'000
Total
US$'000
5
4
-
-
(2)
7
-
-
(3)
4
-
1,913
-
-
-
1,913
-
-
(239)
1,674
10,994
3,429
(5,914)
(1,645)
-
6,864
(448)
(54)
-
6,362
10,999
5,346
(5,914)
(1,645)
(2)
8,784
(448)
(54)
(242)
8,040
*
These additions are net of any co-funder contributions, and include impairments.
The recoverable amount of each Litigation contract in progress is determined based upon a value-in-use calculation using
cash flow projections based upon financial budgets approved by management.
Key assumptions used in value in use calculations and sensitivity to changes in assumptions
The following describes each key assumption on which management has based its cash flow projections when determining
the value-in-use of Litigation contracts in progress:
(i)
The estimated cost to complete the Litigation contracts in progress is budgeted, based upon estimates provided by
the external legal advisor in charge of the litigation;
The value of the Litigation contracts in progress, once completed, is estimated based upon the expected settlement
or judgement amount of the litigation and the fees due to the Group under the litigation funding contract; and
The discount rate applied to the cash flow projections is based on the Group’s WACC; and other factors relevant to
the particular Litigation contract in progress. The discount rate applied was 15% (31 December 2018: 15%).
(ii)
(iii)
As a result of the impairment testing performed an amount of $458,000 (31 December 2018: $2,528,000) was determined
to be impaired and was written off during the period. No significant change in the key assumptions would result in any
additional impairment charge.
54
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 21. Trade and other payables
Current liabilities
Trade and other payables
Accruals
Goods and services tax payable
Trade and other payables are paid within the agreed credit terms.
Refer to note 26 for further information on financial instruments.
Note 22. Borrowings
Current liabilities
Vendor loan - Australian disbursement funding business (i)
Convertible bonds payable (ii)
Lucerne Group combined loan (iii)
Lucerne Group facility - US medical lien funding business (iv)
Paradise Diversified Holdings Limited Partnership (v)
Vendor loan - NHF Founders (vi)
Other NHF subordinated debt (viii)
Other NHF subordinated debt (ix)
Other NHF subordinated debt (x)
Insurance financing - Australia
Pitt Capital Partners Limited (xi)
Washington H. Soul Pattinson & Company Limited (xii)
Syndicated acquisition facility (xv)
Insurance financing - USA
Credit cards
Non-current liabilities
Assetsecure Pty Limited loan (xiii)
Atalaya Capital Management (xiv)
NHF Founder Promissory Notes (vii)
Lucerne Group facility - US medical lien funding business (iv)
Syndicated acquisition facility (xv)
Vendor loan - NHF Founders (vi)
Other NHF subordinated debt (x)
Refer to note 26 for further information on financial instruments.
55
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
6,603
2,650
69
7,556
3,992
101
9,322
11,649
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
315
3,500
11,642
8,858
4,163
122
1,180
1,000
3,000
33
1,252
2,275
29,396
55
103
824
3,529
8,548
5,238
-
-
-
1,000
-
-
-
-
-
49
414
66,894
19,602
21,447
41,603
-
3,264
-
-
1,750
20,028
39,902
9,000
-
29,644
12,546
-
68,064
111,120
134,958
130,722
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 22. Borrowings (continued)
(i) Vendor loan - Australian disbursement funding business
The loan due to the vendor of the Australian disbursement funding business is repayable on 15 March 2020. Interest is
payable at 11% (31 December 2018: 7.5%) per annum. The Group signed a variation agreement on 2 July 2019, with a
monthly repayment schedule. The loan is unsecured. The Vendor may convert the outstanding loan amount to ordinary
shares of the Company at a conversion price of A$0.14 per share.
(ii) Convertible bonds payable
On 15 July 2016, the Company issued 50,000 convertible bonds, each with a face value of A$100. The total consideration
received from the convertible bonds was $3,695,500 (A$5,000,000). Interest payments are cumulative and payable at
11.5% per annum (31 December 2018: 11.5%), quarterly in arrears. The bonds are convertible into ordinary shares of the
Company at the option of the holder prior to their maturity. The holder can elect to convert prior to maturity date by
providing notice only after the Company’s next general meeting. The conversion price, if such an election is made, is
A$0.30 per ordinary share, or 80% of the issue price of any future equity issued should the issue price be lower than
A$0.30 per ordinary share. The Company undertook a capital raising in November 2018 at A$0.08 per share. As a result of
that capital raising the conversion price of the convertible bonds is now A$0.064 per ordinary share. The bonds maturity
date was extended to 15 March 2020 to enable shareholder approval to be obtained at the upcoming extraordinary general
meeting to allow the bonds to be converted into ordinary shares in the Company (see note 40).
The Company has a right to redeem the bonds earlier than their maturity date at a 10% premium to face value. With the
agreement of the Company, the bond holders may partially or fully apply the redemption amount to subscribe for ordinary
shares at a price that represents a 10% discount to a 5-day volume weighted average price ('VWAP') determined by the
holder within the previous 90 days.
The convertible bonds are categorised as a liability in the statement of financial position due to the terms of the anti-dilution
clauses. Due to the conversion feature the convertible bonds are considered to include a derivative liability. As such the
convertible bonds are considered to represent a liability with an equity conversion option derivative with the entire
instrument being accounted for at fair value through profit or loss.
The facility is subject to a number of covenants. A breach of a covenant may require the Group to repay the bond earlier.
No covenants have been breached as at 31 December 2019.
(iii) Lucerne Group combined loan
The Lucerne Finance Pty Limited short-term loan facility and the Lucerne Composite Master Fund loan facility were
amalgamated during the year ended 30 June 2018 to become the Lucerne Group combined loan. $8,843,000 was
repayable on 15 March 2020 and $2,799,000 is repayable on 31 Dec 2020 . Ongoing interest payable was 13.5% per
annum (31 December 2018: 13.5% per annum (including establishment fees)) on $8,843,000 (31 December 2018:
$8,548,000). Ongoing interest payable is 15% per annum (31 December 2018: $nil) on $2,799,000 (31 December 2018:
$nil).The loan is unsecured.
The facility is subject to a number of covenants. A breach of a covenant may require the Group to repay the loan earlier.
No covenants have been breached as at 31 December 2019.
Post 31 December 2019, the Company either repaid this loan from the Entitlement Offer by issue of equity or the loan will
be converted into the Capitalising Converting Note (see note 40).
(iv) Lucerne Group facility - US medical lien funding business
Lucerne Finance Pty Limited and the Principis Master Fund have jointly provided facilities totalling $12,122,000 (31
December 2018: $5,238,000) to the medical lien funding business as at 31 December 2019. $8,858,000 of this facility is
repayable on 28 September 2020 with an interest rate of 19% per annum (31 December 2018: 15% per annum),
$2,550,000 of this facility is repayable on 9 August 2021 with an interest rate of 9.95% per annum (31 December 2018:
$nil) and $714,000 of this facility is repayable on 13 September 2021 with an interest rate of 15.50% per annum (31
December 2018: $nil).
56
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 22. Borrowings (continued)
Post 31 December 2019, the Company either repaid this loan from the Entitlement Offer by issue of equity or the loan will
be converted into the Capitalising Converting Note (see note 40).
(v) Paradise Diversified Holdings Limited Partnership
This facility of $4,163,000 (31 December 2018: $nil) has been provided to fund the investment in specific accounts
receivable in the US. This facility is repayable on 1 August 2020 and can be repaid by the Company earlier without penalty.
Interest payable under this facility is 30% per annum (31 December 2018: $nil). The loan is guaranteed by NHF and
LawFinance.
(vi) Vendor loan - NHF Founders
The Vendor Loan - NHF Founders was forgiven during the year, if the Company issues various options to the Vendors by
31 December 2020 (see note 40). The options to be issued were approved by shareholders at the extraordinary general
meeting on 10 March 2020, and the options were issued on 13 March 2020. The balance due as at 31 December 2019 of
$122,000 (31 December 2018: $12,546,000) represents the value of the options issued to the Vendors. The loan is interest
free (31 December 2018: 13% per annum) and is unsecured.
(vii) NHF Founder Promissory Notes
The NHF Founder Promissory Notes were forgiven during the year, if the Company issues various options to the Vendors
by 31 December 2020 (see note 40). The options to be issued were approved by shareholders at the extraordinary general
meeting on 10 March 2020, and the options were issued on 13 March 2020. The balance due as at 31 December 2019
was $nil (31 December 2018: $9,000,000). The loan is interest free and is unsecured.
(viii) Other NHF subordinated debt
A third party has provided a $1,180,000 facility (31 December 2018: $nil) to fund working capital of the business which
remains payable as at 31 December 2019. This facility is repayable on 31 May 2020. Interest payable under this facility is
24% per annum and can be repaid early without penalty (31 December 2018: $nil). The loan is guaranteed by NHF and
LawFinance.
(ix) Other NHF subordinated debt
A third party has provided a $1,000,000 facility to NHF which remains payable as at 31 December 2019 (31 December
2018: $1,000,000). The facilities are repayable on demand. Interest is payable at 12% per annum (31 December 2018:
12% per annum). The loan is unsecured.
(x) Other NHF subordinated debt
Three third parties have provided facilities totalling $4,750,000 (31 December 2018: $nil) to the medical lien funding
business to fund working capital as at 31 December 2019. $3,000,000 of this facility is repayable on 31 December 2020
with an interest rate of 13.50% per annum (31 December 2018: $nil), $250,000 of this facility is repayable on 30 June 2021
with an interest rate of 13% per annum (31 December 2018: $nil) and $1,500,000 of this facility is repayable on 31 July
2021 with an interest rate of 13.50% per annum (31 December 2018: $nil). These loans are guaranteed by NHF and
LawFinance.
(xi) Pitt Capital Partners Limited
Pitt Capital Partners Limited have provided a $1,252,000 (A$1,789,000) (31 December 2018: $nil) loan to the Group. The
loan is repayable on 30 June 2020. Interest payable under this loan is 15% per annum (31 December 2018: nil) on
$1,132,000 (A$1,618,000) and 18% per annum (31 December 2018: nil) on $120,000 (A$171,000). The loan is secured
over all of the assets of the Group, with second ranking security provided behind the assets secured to Assetsecure and
Atalaya (noted below).
(xii) Washington H. Soul Pattinson & Company Limited
Washington H Soul Pattinson & Company Limited have provided a $2,275,000 (A$3,250,000) (31 December 2018: $nil)
deferred financing arrangement, giving the Group the ability to defer interest payments payable under the Syndicated
Acquisition Facility. The deferred financing arrangement is repayable on 30 June 2020. Interest payable under this
arrangement is 15% per annum (31 December 2018: $nil). The loan is secured over all of the assets of the Group, with
second ranking security provided behind the assets secured to Assetsecure and Atalaya (noted below).
57
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 22. Borrowings (continued)
(xiii) Assetsecure Pty Limited ('Assetsecure')
On 2 August 2019 the Group executed a Variation letter increasing the loan facility to $27,996,000 (A$40,000,000) (31
December 2018: $24,703,000) (A$35,000,000), which is available to fund the Australian disbursement funding business
operated by JustKapital Financing Pty Limited. This loan facility expires on 30 September 2022. This loan is classified as
non-current in the current financial period. However, it is repayable on demand if loan covenants are breached and not
rectified. Interest and management fees payable total 7.70% per annum (31 December 2018: 7.95% per annum) on the
drawn down amounts and the facility line fee is 1% per annum (31 December 2018: 1% per annum).
The loan is secured by a general security agreement over the assets of JustKapital Financing Pty Limited. The parent
entity and other entities within the Group have guaranteed the facility.
The facility is subject to a number of covenants. A breach of a covenants may require the Group to repay the loan earlier.
No covenants have been breached as at 31 December 2019.
(xiv) Atalaya Capital Management ('Atalaya')
The loan facility of $80,000,000 (31 December 2018: $80,000,000) is available to fund the US medical lien funding
business. The facility is repayable on 25 April 2022. However, it is repayable on demand if loan covenants are breached
and not rectified. The facility is secured by a first-ranking charge over the assets of NHF SPV I, LLC (being the company
which owns the accounts receivables in the US). The interest and fees payable under the drawn down facility total 13.25%
per annum (31 December 2018: 13.45% per annum) and the undrawn line fees are 1% (31 December 2018: 1%).
The facility is subject to a number of covenants. A breach of a covenant may require the Group to repay the loan earlier.
Certain covenants were breached during the year ended 31 December 2019. Atalaya and the Group entered into a
forbearance arrangement on 17 October 2019. That forbearance arrangement provided that all prior covenant breaches
will be waived if the Group complied with the forbearance arrangement by 31 January 2020. The Group received
confirmation of the waiver on 28 February 2020.
(xv) Syndicated acquisition facility
The Syndicated acquisition facility of $29,396,000 (A$42,000,000) (31 December 2018: $29,644,000 (A$42,000,000)) was
provided by leading Australian institutions and family offices. The facility is repayable on 28 September 2022 but may be
repaid at any time after 28 September 2021. Interest payable under this facility is 13% per annum (31 December 2018:
13% per annum). The loan is secured over all of the assets of the Group, with second ranking security provided behind the
assets secured to Assetsecure and Atalaya (noted above).
The facility is subject to a number of covenants. A breach of a covenant may require the Group to repay the loan earlier.
Several covenants were breached during the year ended 31 December 2019. The Group continues to negotiate a
forbearance agreement with the Majority Lender of the Syndicated acquisition facility. Despite the fact that the facility is
repayable on 28 September 2022, and no facility members have demanded it be repaid, as several covenants were
breached during the current reporting period, it has been reclassified as a current liability.
58
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 22. Borrowings (continued)
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Total facilities
Assetsecure Pty Limited loan*
Atalaya Capital Management**
NHF founder promissory notes
Syndicated acquisition facility
Vendor loan - NHF Founders
Used at the reporting date
Assetsecure Pty Limited loan*
Atalaya Capital Management**
NHF founder promissory notes
Syndicated acquisition facility
Vendor loan - NHF Founders
Unused at the reporting date
Assetsecure Pty Limited loan*
Atalaya Capital Management**
NHF founder promissory notes
Syndicated acquisition facility
Vendor loan - NHF Founders
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
27,996
80,000
-
29,396
-
137,392
21,447
41,603
-
29,396
-
92,446
6,549
38,397
-
-
-
44,946
24,703
80,000
9,000
29,644
12,546
155,893
20,028
39,902
9,000
29,644
12,546
111,120
4,675
40,098
-
-
-
44,773
*
**
The facility can be drawn-down based upon various calculations relating to the underlying disbursement funding
receivables. As at 31 December 2019, $nil could be drawn down as a result of these calculations (31 December 2018:
$20,863).
The facility can be drawn-down based upon various calculations relating to the underlying medical lien funding
receivables. As at 31 December 2019, $nil could be drawn down as a result of these calculations (31 December 2018:
$238,530).
Note 23. Issued capital
Ordinary shares - fully paid
561,760,467
483,635,467
40,924
37,649
Consolidated
31 December
2019
Shares
31 December
2018
Shares
31 December
2019
US$'000
31 December
2018
US$'000
59
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 23. Issued capital (continued)
Movements in ordinary share capital
Details
Date
Shares
Issue price
US$'000
1 July 2018
Balance
7 November 2018
Issue of shares - 1:1 rights issue
Issue of shares - founder shares - acquisition of NHF 7 November 2018
7 November 2018
Issue of shares - placement
7 November 2018
Issue of shares - performance rights
21 November 2018
Issue of shares - performance rights
21 November 2018
Issue of shares - employee incentive plan
26 November 2018
Issue of shares - rights issue shortfall
Issue of shares - cleansing prospectus
13 December 2018
Share issue costs
Balance
Issue of shares - placement *
Share issue costs
31 December 2018
31 December 2019
147,933,598
24,514,797
215,097,403
93,750,000
545,203
719,366
475,000
600,000
100
-
483,635,467
78,125,000
-
US$0.058
US$0.058
US$0.058
US$0.000
US$0.000
US$0.000
US$0.058
US$0.058
-
US$0.045
-
Balance
31 December 2019
561,760,467
18,421
1,425
12,500
5,448
-
-
-
35
-
(180)
37,649
3,499
(224)
40,924
*
These shares were issued by the share registry on 2 January 2020.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the
Company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
There are 215,097,403 (31 Dec 2018: 222,430,736) ordinary shares escrowed at 31 December 2019.
Options
Options do not entitle the holder to participate in dividends or to vote at a meeting of the Company.
Performance rights
Performance rights do not entitle the holder to participate in dividends or to vote at a meeting of the Company.
Convertible bonds
Convertible bonds do not entitle the holder to participate in dividends or to vote at a meeting of the Company.
Warrants
Warrants issued on acquisition of NHF do not entitle the holder to participate in dividends or to vote at a meeting of the
Company.
Share buy-back
There is no current on-market share buy-back.
Capital risk management
Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term
shareholder value and ensure that the Group can fund its operations and continue as a going concern.
The Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets.
The Group is not subject to any externally imposed capital requirements. Management effectively manages the Group’s
capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and
in the market. These responses include the management of debt levels, distributions to shareholders and share issues.
60
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 23. Issued capital (continued)
The capital risk management policy remains unchanged from the 31 December 2018 Annual Report.
Note 24. Reserves
Foreign currency reserve
Share-based payments reserve
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
877
5,996
6,873
2
5,996
5,998
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of Australian
operations to United States dollars.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their
remuneration, and other parties as part of their compensation for services.
Movements in reserves
Movements in reserves during the current and previous financial period are set out below:
Consolidated
Balance at 1 July 2018
Foreign currency translation
Share-based payments
Balance at 31 December 2018
Foreign currency translation
Balance at 31 December 2019
Note 25. Dividends
Foreign
currency
US$'000
Share-based
payments
US$'000
Total
US$'000
(557)
559
-
2
875
877
1,741
-
4,255
5,996
-
5,996
1,184
559
4,255
5,998
875
6,873
There were no dividends paid, recommended or declared during the current or previous financial period.
Note 26. Financial instruments
Financial risk management objectives
The Group’s principal financial instruments comprise cash and short-term deposits, receivables and payables and its
finance facilities.
The Group manages its exposure to key financial risks in accordance with the Group’s financial risk management policy.
The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting its future financial
security.
61
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 26. Financial instruments (continued)
The main risks arising from the Group’s financial instruments are market risk (foreign currency risk and interest rate risk),
credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is
exposed. These include monitoring levels of exposure to interest rates and currencies and assessments of market
forecasts for interest rates and foreign currencies. Ageing analyses and monitoring of receivables using an expected credit
loss matrix are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash
flow forecasts.
Market risk
Foreign currency risk
Foreign currency risk arises from investments and borrowings that are denominated in a currency other than the functional
currencies of the entities within the Group. These are Australian dollars and United States dollars based on country of
operation of the entities within the Group.
In addition, the Group is exposed to non-financial instrument risk on the translation of these entities from their functional
currency to the presentation currency of United States dollars. This presentation risk is separate to the foreign currency risk
dealt with here.
The Group does not hedge any foreign currency risks as those currency positions are considered to be long-term in nature.
The carrying amount of the Group's foreign currency denominated financial assets at the reporting date was as follows:
Consolidated
Australian dollars
United States dollars
Assets
Liabilities
31 December
2019
US$'000
31 December
2018
US$'000
31 December
2019
US$'000
31 December
2018
US$'000
25,207
77,539
17,195
78,810
(74,064)
(72,767)
(79,492)
(61,056)
102,746
96,005
(146,831)
(140,548)
The Group had net liabilities denominated in foreign currencies of US$44,085,000 (US$102,746,000 less liabilities of
US$146,831,000) as at 31 December 2019 (31 December 2018: net liabilities of US$44,543,000 (US$96,005,000 less
liabilities of US$140,548,000)).
Consolidated - 31 December
2019
USD strengthened
Effect on
profit before
tax
% change
US$'000
Effect on
equity
US$'000
USD weakened
Effect on
profit before
tax
% change
US$'000
Effect on
equity
US$'000
Australian dollars
10%
4,886
4,886
10%
(4,886)
(4,886)
Consolidated - 31 December
2018
USD strengthened
Effect on
profit before
tax
% change
US$'000
Effect on
equity
US$'000
USD weakened
Effect on
profit before
tax
% change
US$'000
Effect on
equity
US$'000
Australian dollars
10%
6,230
6,230
10%
(6,230)
(6,230)
The percentage change is the expected overall volatility of the significant currencies, which is based on management's
assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year
and the spot rate at each reporting date.
62
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 26. Financial instruments (continued)
Price risk
The Group is not exposed to any significant price risk.
Interest rate risk
The Group's main interest rate risk arises from borrowings and cash and cash equivalents. The Group’s exposure to
interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market rates and
the effective weighted average interest rates on financial liabilities, is as follows:
Consolidated
Vendor loan - Australian disbursement funding business
Convertible bonds payable
Lucerne Group combined loan
Lucerne Group facility - US medical lien funding business
Paradise Diversified Holdings Limited Partnership
Vendor loan - NHF Founders
Other NHF subordinated debt
Other NHF subordinated debt
Other NHF subordinated debt
Hunter Premium - Insurance financing
Pitt Capital Partners Limited
Washington H. Soul Pattinson & Company Limited
Insurance financing
Credit cards
Assetsecure Pty Limited loan
Atalaya Capital Management
NHF Founder Promissory Notes
Syndicated acquisition facility
Cash and cash equivalents
31 December
2019
Weighted
average
interest rate
%
31 December
2019
Balance
US$'000
31 December
2018
Weighted
average
interest rate
%
31 December
2018
Balance
US$'000
11.00%
11.50%
13.44%
16.89%
30.00%
-
24.00%
12.00%
13.47%
6.21%
15.00%
13.00%
6.58%
17.04%
8.79%
14.25%
-
13.00%
0.04%
315
3,500
11,642
12,122
4,163
122
1,180
1,000
4,750
33
1,252
2,275
55
103
21,447
41,603
-
29,396
(5,777)
7.50%
11.50%
13.50%
15.00%
-
13.00%
-
12.00%
-
-
-
-
10.00%
17.86%
8.95%
14.25%
-
13.00%
0.04%
824
3,529
8,548
5,238
-
12,546
-
1,000
-
-
-
-
49
414
20,028
39,902
9,000
29,644
(3,696)
Net exposure to cash flow interest rate risk
129,181
127,026
The weighted average interest rate for the period ended 31 December 2019 was 14.29% (31 December 2018: 11.93%).
The Group has net interest-bearing liabilities and therefore income and operating cash flows are subject to changes in the
market rates. The Group regularly analyses its interest rate exposure. Within this analysis consideration is given to
expected interest rate movements and the Group’s future cash requirements, potential renewals of existing positions,
alternative financing, and the mix of fixed and variable interest rates. A movement in interest rates of +/-100 basis points
will result in less than a +/-US$1,317,000 (2018: US$1,243,000) impact on the Group’s results and operating cash flows.
Credit risk
The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables
through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered
representative across all customers of the Group based on recent sales experience, historical collection rates and forward-
looking information that is available.
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include
the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual
payments for a period greater than 1 year.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s cash and cash equivalents and receivables.
63
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 26. Financial instruments (continued)
Cash and cash equivalents comprise of cash on hand and demand deposits. The Group limits its credit risk by holding
cash balances and demand deposits with reputable counterparties with acceptable credit ratings.
Receivables for the disbursement funding division are with licensed solicitors as the counterparty. The Group transacts
with in excess of 130 law firms and limits its credit risk by ensuring that there is a credit limit applied to any law firm and
that settlement funds are deposited into the law firms' trust accounts (which are periodically audited by the Law Society).
Receivables for the short-term loans division are with licensed solicitors as the counterparty. The Group limits its credit risk
by ensuring that there is a credit limit applied to any law firm. Personal guarantees are obtained from the principals of the
firm and the loans are monitored on a monthly basis.
Receivables relating to the litigation funding division are as a result of a funded case successfully concluding. The Group
assesses the Defendants' capacity to pay in the matters funded by the Group prior to entering into any agreement to
provide funding and continues this assessment during the course of funding. The Group’s continual monitoring of the
defendants’ financial capacity mitigates this risk.
Receivables for the US medical lien funding division are held with licensed lawyers who have a fiduciary duty to protect the
receivable. The Group transacts with in excess of 2,000 law firms and limits its credit risk by ensuring that the lawyer has a
valid and active license to practice law in their respective State. Settlement funds are required to be deposited into the law
firms' trust accounts where State Bar rules and regulations apply, protecting the funds from mismanagement.
Liquidity risk
The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet the Group’s expected
financial commitments in a timely and cost effective manner and taking into account the undrawn amounts available from
the Group financing facilities.
Management continually reviews the Group’s liquidity position, including the preparation of cash flow forecasts, to
determine the forecast liquidity position and to maintain appropriate liquidity levels.
The liquidity risk for the Group is the ability to raise equity or debt financing in the future. This risk is mitigated by the
headroom available from the following facilities:
Assetsecure Pty Limited loan (subject to certain calculations, see note 22)
Atalaya Capital Management (subject to certain calculations, see note 22)
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
6,549
38,397
4,675
40,098
44,946
44,773
64
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 26. Financial instruments (continued)
Remaining contractual maturities
The following are the remaining contractual maturities as at the reporting date. The amounts are gross, undiscounted and
include contractual interest payments and exclude the impact of netting agreements.
Consolidated - 31 December
2019
Weighted
average
interest rate
%
1 year or
less
US$'000
Between 1
and 2 years
US$'000
Between 2
and 5 years Over 5 years
US$'000
US$'000
Remaining
contractual
maturities
US$'000
Non-interest bearing:
Trade and other payables
-
6,672
Interest bearing:
Vendor loan - Australian
disbursement funding business
Convertible bonds payable
Lucerne Group combined loan
Lucerne Group facility - US
medical lien funding business
Paradise Diversified Holdings
Limited Partnership
Vendor loan - NHF Founders
Other NHF subordinated debt
Other NHF subordinated debt
Other NHF subordinated debt
Hunter Premium - Insurance
financing
Pitt Capital Partners Limited
Washington H. Soul Pattinson &
Company Limited
Insurance financing
Credit cards
Assetsecure Pty Limited loan
Atalaya Capital Management
Syndicated acquisition facility
Lease liabilities
11.00%
11.50%
13.44%
315
3,588
12,064
16.89%
10,279
30.00%
-
24.00%
12.00%
13.47%
6.21%
15.00%
13.00%
6.58%
17.04%
8.79%
14.25%
13.00%
6.76%
4,895
122
1,298
120
3,642
33
1,346
2,422
56
123
1,871
5,945
3,832
104
-
-
-
-
3,495
-
-
-
120
1,884
-
-
-
-
-
1,866
5,928
3,821
513
-
-
-
-
-
-
-
-
1,360
-
-
-
-
-
-
22,842
43,471
32,233
401
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,046
6,672
315
3,588
12,064
13,774
4,895
122
1,298
1,600
5,526
33
1,346
2,422
56
123
26,579
55,344
39,886
2,064
58,727
17,627
100,307
1,046
177,707
65
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 26. Financial instruments (continued)
Consolidated - 31 December
2018
Weighted
average
interest rate
%
1 year or
less
US$'000
Between 1
and 2 years
US$'000
Between 2
and 5 years Over 5 years
US$'000
US$'000
Remaining
contractual
maturities
US$'000
Non-interest bearing:
Trade and other payables
NHF Founder Promissory Notes
-
-
7,657
-
-
9,000
Interest bearing:
Vendor loan - Australian
disbursement funding business
Convertible bonds payable
Lucerne Group combined loan
Lucerne Group facility - US
medical lien funding business
Other NHF subordinated debt
Assetsecure Pty Limited loan
Atalaya Capital Management
Syndicated acquisition facility
Vendor loan - NHF Founders
Insurance financing
Credit cards
7.50%
11.50%
13.50%
15.00%
12.00%
8.95%
14.25%
13.00%
13.00%
10.00%
17.86%
855
3,983
9,702
5,435
-
1,793
5,301
3,854
1,631
53
455
-
-
-
-
-
21,374
5,287
3,864
1,635
-
-
-
-
-
-
-
-
1,600
-
41,568
36,348
15,384
-
-
40,719
41,160
94,900
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,657
9,000
855
3,983
9,702
5,435
1,600
23,167
52,156
44,066
18,650
53
455
176,779
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
Note 27. Fair value measurement
Fair value measurement hierarchy for assets
The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Consolidated - 31 December 2019
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
Total assets
Liabilities measured at fair value:
Vendor Loan – NHF Founders
Total liabilities
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
-
-
-
-
-
-
-
24,921
24,921
24,921
24,921
122
122
122
122
66
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 27. Fair value measurement (continued)
Consolidated - 31 December 2018
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
Total assets
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
-
-
-
24,301
24,301
24,301
24,301
The above Loan receivables are shown excluding the adjustment for the unrecognised day 1 margin. There were no
transfers between levels during the financial period.
Description of significant unobservable inputs to valuation
The significant unobservable inputs used in the fair value measurements of loan receivables categorised within Level 3 of
the fair value hierarchy, performed by an actuarial firm as at 31 December 2019 and 31 December 2018 are as shown
below.
The actuarial valuation involves:
●
●
Analysis of historical collections data;
Setting assumptions based on the experience of historical collections data (including repayment patterns, proportion
of write-offs and discounts);
Application of assumptions to the open receivables in order to project the future repayments over the expected life of
the contracts;
Discounting the projected repayments for the open receivables using an appropriate discount rate to the valuation
date;
Calculation of the fair value of the invoices taking into account the discounted repayments which have allowed for
discounts and write-offs and credit risk; and
Calculation of the day 1 margin and its systematic recognition within profit and loss over the expected term of the
arrangement is based on the profile of cash collections and the subsequent weighted average calculation of these
collections applied to the recognition of the day 1 margin.
The key assumptions include:
●
The discount rate is calculated at a margin of 4% over the 3 year non-financial corporate A-rate bond. The discount
rate is 5.67% (2018: 6.89%); and
The write off assumption allows for cases closed without collection of any amounts on the invoices and the discount
assumption reflects discounts given to legal firms for reasons such as early settlements of invoices or the application
of discretion by Management. The overall write off/discount rate applied is 11.9% (2018: 11.4%).
●
●
●
●
●
Loan receivables fair value measurement – valuation process
Valuations are performed on a half-yearly basis by an approved external actuarial firm. For the purpose of the valuation,
Management provides the external actuarial firm with the inputs and data required to be applied in the valuations.
Management performs a reconciliation of the fair value based on the valuation results and as part of the reconciliation
process, discussions are conducted with the external actuarial firm if there are any unusual movements noted.
67
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 27. Fair value measurement (continued)
Reconciliation of fair value measurement of the Loan receivables and deferred day 1 margin
Consolidated
Balance at 1 July 2018
Change in assumption
Cash disbursements in relation to new loans
New day 1 margin
Cash collections - disbursement funding
Gains or losses recognised in profit or loss
Amortisation of day 1 margin
Exchange rate movement
Balance at 31 December 2018
Cash disbursements in relation to new loans
New day 1 margin
Cash collections - disbursement funding
Gains or losses recognised in profit or loss
Amortisation of day 1 margin
Exchange rate movement
Fair value
US$'000
Deferred day
1 margin
US$'000
Total
US$'000
23,391
-
4,762
-
(4,726)
1,928
-
(1,054)
24,301
8,007
-
(10,284)
3,210
-
(313)
(3,413)
106
-
(1,308)
-
-
1,432
146
(3,037)
-
(2,407)
-
-
2,681
25
19,978
106
4,762
(1,308)
(4,726)
1,928
1,432
(908)
21,264
8,007
(2,407)
(10,284)
3,210
2,681
(288)
Balance at 31 December 2019
24,921
(2,738)
22,183
This reconciliation excludes other receivables and short-term loans.
The Loan receivables - disbursement funding - Australia (gross) balance was US$31,610,000 as at 31 December 2019 (31
December 2018: US$30,724,000).
Fair value adjustment – NHF Vendor loan and Founder Promissory Notes
In connection with the Company’s acquisition of National Health Finance HoldCo, LLC ('NHF'), the Company entered into
various arrangements with David Wattel and Mark Siegel (jointly the NHF Vendors). As part of the acquisition, Mr Wattel
was appointed as an executive director of the Company.
On 24 October 2019, the Company executed a variation deed with the NHF Founders and they agreed, subject to
shareholder approval, to accept a combination of unlisted options as full payment for its promissory notes (under which
US$9 million is owed by the Company to the two NHF Vendors, split evenly between the two NHF Vendors) and vendor
loans (where the principal amount of A$17.2 million is owed by the Company to the NHF Vendors, split evenly between the
two NHF Vendors). Shareholder approval was received at the company’s EGM on 10 March 2020, with all resolutions
being voted in favour of.
Subsequently, the options were issued on 13 March 2020 as follows:
Number of options
Exercise price
Expiry date
24,000,000
22,500,000
25,000,000
A$0.25
A$0.40
A$0.60
28 September 2021
28 September 2022
28 September 2023
In addition, the NHF Vendors have agreed to vary their respective employment agreements so that a non-discretionary
bonus is no longer payable by the Company.
The value of the options issued, using the Black Scholes model, was US$122,000. This value was calculated using the
Company’s share price at the date of executing the variation deed (A$0.073), with an annualised volatility of 56% and a
risk-free interest rate of 0.75% p.a.
68
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 27. Fair value measurement (continued)
Loan
Vendor Loan – NHF Founders
NHF – Founder Promissory Notes
Total
Opening
Balance
US$'000
Fair value
movement
US$'000
Foreign
currency
translation
US$'000
Closing
balance
US$'000
12,546
9,000
(11,828)
(9,000)
21,546
(20,828)
(596)
-
(596)
122
-
122
Note 28. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel ('KMP') of the Group is
set out below:
Short-term employee benefits
Post-employment benefits
Consolidated
12 months
31 December
2019
US$
6 months
31 December
2018
US$
2,062,737
47,033
776,612
23,827
2,109,770
800,439
The above figures include amounts paid to companies related to directors for the service and/or director fees payable to
directors.
Note 29. Remuneration of auditors
During the financial period the following fees were paid or payable for services provided by Stantons International
('Stantons'), the auditor of the company, and Spielman Koenigsberg & Parker, LLP ('SKP'), the auditor of NHF:
Consolidated
12 months
31 December
2019
US$
6 months
31 December
2018
US$
133,350
125,580
-
-
-
41,559
6,547
48,106
133,350
173,686
124,710
100,965
Audit services - Stantons
Audit or review of the financial statements
Other services - Stantons
Preparation of the Investigating Accountant’s Report
Other accounting services
Audit services - SKP
Audit or review of the financial statements
69
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 30. Contingent liabilities
Bank guarantees
The Group has given bank guarantees as at 31 December 2019 of $104,000 (31 December 2018: $112,000) to various
landlords. The guarantees are secured by an offset arrangement with the short-term cash deposits.
Litigation funding agreements
In certain jurisdictions litigation funding agreements contain an undertaking from the Group that it will pay adverse costs
awarded to the successful party in respect of costs incurred during the period of funding, should the client’s litigation be
unsuccessful. It is not possible to predict in which cases such an award might be made or the quantum of such awards. In
general terms an award of adverse costs to a defendant will approximate 70% (31 December 2018: 70%) of the amount
paid by the plaintiff to pursue the litigation (although in some cases there may be more than one defendant). Accordingly,
an estimate of the total potential adverse costs exposure of the Group which has accumulated from time to time may be
made by assuming all cases are lost, that adverse costs equal 70% (31 December 2018: 70%) of the amount spent by the
plaintiff and that there is only one defendant per case.
At 31 December 2019 the total amount spent by the Group where undertakings to pay adverse costs have been provided
was $13,231,000 (31 December 2018: $5,750,000). The potential adverse costs orders using the above methodology
would amount to $9,262,000 (31 December 2018: $3,883,000). The Group does not currently expect that any of the
matters will be unsuccessful. The Group has obtained adverse costs order insurance for these matters which should
respond if any matter is unsuccessful and an adverse costs order is payable.
Earn out - Litigation funding portfolio
The seller of the Litigation funding portfolio, which was acquired by the Group on 11 July 2016, is entitled to receive 50% of
proceeds over A$4,000,000 from the "free carry" component of the litigation funding agreements. There was a dispute with
the seller in relation to the calculation of the "free carry" entitlement generated by four case settlements in the portfolio
(there is one on-going case from this portfolio). The seller of this portfolio claims that amounts are due to be paid by the
Company under the "free carry" entitlement.
This dispute was settled between the parties on 27 March 2020 with no admission as to liability. The Group has agreed to
issue the seller 14,000,000 shares at an agreed value of A$0.064 per share (A$896,000) and release claims to certain
amounts currently in a solicitor’s trust account. The Company will receive approximately A$750,000 from funds currently
held in trust.
Litigation against NHF
NHF remains in litigation on the two separate proceedings that were commenced in Florida in 2017. These proceedings
relate to a failed medical practice which sold various medical invoices to NHF. The proceedings are being defended as the
medical invoices purchased were on an arm’s length basis and are subject to a contract entered into with the now bankrupt
medical practice. As such, NHF believes there are no amounts payable to the medical practice or its creditors.
NHF is in litigation that was commenced in Oklahoma in 2019. The proceedings relate to a patient of a medical provider
that sold various receivables to NHF. The proceeding is being defended as the lien is a legal contract, binding upon the
patient. NHF also has an indemnity clause with the medical provider. As such, NHF believes there will be no amounts paid
to the plaintiff.
70
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 31. Commitments
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
Consolidated
31 December
2019
US$'000
31 December
2018
US$'000
-
-
-
312
209
521
Operating lease commitments includes contracted amounts for offices under non-cancellable operating leases expiring
within one year with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms
of the leases are renegotiated.
Note 32. Related party transactions
Parent entity
LawFinance Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 35.
Key management personnel
Disclosures relating to key management personnel are set out in note 28 and the remuneration report included in the
directors' report.
Transactions with related parties
The following transactions occurred with related parties:
Other related parties - expenses:
Lucerne Group - interest on borrowings
Lucerne Group - underwriting fees
Multus Medical LLC - cost of sales
David Wattel - interest on vendor loan
Mark Siegel - interest on vendor loan
Diane Jones - Convertible Bond Interest
Other related parties - income:
Multus Medical LLC - office rental
Multus Medical LLC - staff and administration costs
Wattel & York - staff costs
David Wattel - interest adjustment on vendor loan
Mark Siegel - interest adjustment on vendor loan
Consolidated
12 months
31 December
2019
US$
6 months
31 December
2018
US$
2,468,636
110,234
78,838
-
-
3,996
83,313
28,477
41,090
200,020
200,020
946,158
-
6,850
208,140
208,140
2,090
17,500
6,178
3,385
-
-
Lucerne Group manages funds on behalf of third parties. Anthony Murphy is the Chief Executive Officer of Lucerne
Investment Partners, part of the Lucerne Group.
71
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 32. Related party transactions (continued)
David Wattel is a director of Multus Medical LLC, a company that specialises in creating 3-Dimensional anatomical
schematics from standardised MRI data – this company provides services to patients to assist in their personal injury
insurance claims, and NHF fund the cost of these services. David is also a founding member of Wattel & York – Attorneys
at Law, a personal injury and property damage law firm.
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Current receivables from other related parties:
Multus Medical LLC
Wattel & York
Current payables to other related parties:
Lucerne Group
Wattel & York
David Wattel
Mark Siegel
Consolidated
31 December
2019
US$
31 December
2018
US$
18,995
3,413
44,955
-
275,404
4,400
-
-
225,813
3,704
208,140
208,140
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting date, except for the facilities with the
Lucerne Group and the NHF Vendors/Founders as detailed in note 22. Diane Jones is also a convertible note holder as
detailed in the Directors Report.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 33. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit/(loss) after income tax
Total comprehensive income/(loss)
Parent
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
10,155
(8,060)
10,155
(8,060)
72
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 33. Parent entity information (continued)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Foreign currency reserve
Share-based payments reserve
Accumulated losses
Total equity
Parent
31 December
2019
US$'000
31 December
2018
US$'000
2,577
519
85,461
78,087
50,035
15,222
51,411
57,412
34,050
20,675
40,924
(3,646)
5,996
(9,224)
37,649
(3,591)
5,996
(19,379)
34,050
20,675
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Except as described in note 22 and note 30, the parent entity had no guarantees in relation to the debts of its subsidiaries
as at 31 December 2019 and 31 December 2018.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2019 and 31 December 2018 other than those disclosed
in note 30.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2019 and 31
December 2018.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the
following:
●
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an
indicator of an impairment of the investment.
Note 34. Business combinations
On 28 September 2018, JustKapital NHF USA Holdings, LLC, a wholly owned subsidiary of LawFinance Limited, acquired
100% of the ordinary shares of National Health Finance HoldCo, LLC (NHF) for the total consideration transferred of
US$53,000,000. NHF is a US medical lien funding business with operations very similar to the Group's Australian
disbursement funding business. The acquisition expanded the Group's financing business into the much larger US market.
The goodwill paid on acquisition of US$36,345,000 represents the strong brand associated with NHF, reflected in its large
book of receivables (over 33,000 active matters). An amount of US$1,913,000 was attributed to existing long-term working
relationships with NHF’s network of attorneys and medical providers of over 3,000. The effective date of control of NHF
was 1 October 2018.
73
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 34. Business combinations (continued)
Details of the acquisition are as follows:
Cash and cash equivalents
Trade receivables - medical lien funding
Other assets
Plant and equipment
Customer relationships
Trade and other payables
Notes payables
Financing facility
Non-controlling interest
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
Cash paid or payable to vendor
Shares of the Company issued to vendor
NHF vendor loan
Acquisition costs expensed to profit or loss
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
Less: shares issued by Company as part of consideration
Less: NHF vendor loan
Exchange rate movement
Pre-acquisition loan provided to NHF at acquisition
Net cash used
Note 35. Interests in subsidiaries
Fair value
US$'000
5,081
76,003
180
157
1,913
(5,386)
(20,703)
(39,687)
(903)
16,655
36,345
53,000
26,500
13,250
13,250
53,000
5,768
53,000
(13,250)
(13,250)
498
5,603
32,601
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 2:
Name
JustKapital Financing Pty Limited
JustKapital Litigation Pty Limited
JustKapital Litigation Insurance Pty Limited
JustKapital Co-Funding No 1 Pty Limited
JustKapital Portfolio Pty Limited
JustKapital STL Pty Limited
JustKapital NHF USA Holdings, LLC
JustKapital NHF Holdings Pty Limited
Ownership interest
31 December
2019
31 December
2018
%
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Principal place of business /
Country of incorporation / (Date
of acquisition)
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
74
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 35. Interests in subsidiaries (continued)
Name
Principal place of business /
Country of incorporation / (Date
of acquisition)
Ownership interest
31 December
2019
31 December
2018
%
%
National Health Finance HoldCo, LLC
JustKapital Litigation Partners (NZ) Limited*
JustKapital Insolvency Services Pty Limited**
LongKapital Pty Limited**
JustKapital No 1 Pty Limited**
MML Services Pty Limited***
USA
New Zealand
Australia
Australia
Australia
Australia
Subsidiaries of National Health Finance HoldCo, LLC:
Accident Medical Funding, LLC
Apex Injury Network, LLC
Arizona Injury Medical Specialists, LLC
Ark-La-Tex Injury Network, LLC
Atlanta Health Funding, LLC
Auto Medical Funding, LLC
Bakersfield Injury Network, LLC
Balboa Medical Funding, LLC
Bay Area Medical Finance, LLC
Bayou Health Finance, LLC
California Health Finance, LLC
California Legal Medical Funding, LLC
Central Coast Injury Network, LLC
Classic City Injury Solutions, LLC
Coast Medical Finance, LLC
Complete Health Network, LLC
Cordova Injury Network, LLC
Desert Sky Medical Funding, LLC
DFW Medical Finance, LLC
East Bay Medical Finance, LLC
Florida Healthcare Finance, LLC
Fresno Injury Treatment Network, LLC
Georgia Injury Treatment Network, LLC
Great Salt Lake Medical Finance, LLC
Greater Houston Medical Funding, LLC
GTI Medical Funding, LLC
HALO Medical Funding, LLC
Healthcare Affiliates of Florida, LLC
Hospital Capital Partners, LLC
Illinois Injury Solutions, LLC
Injury Health Alliance, LLC
Injury Medical Network, LLC
Inland Empire Medical Funding, LLC
Kentucky Injury Network, LLC
Lone Star Lien Solutions, LLC
Louisiana HealthNet Solutions, LLC
Medical Financial Group, LLC
Metroplex Medical Finance, LLC
Monument Medical Funding, LLC
Mountain Medical Finance, LLC
Mountain West Medical Funding, LLC
MSP Payment Solutions, LLC
Nashville Injury Network, LLC
National Health Finance DM, LLC
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA / (08 February 2019)
USA / (25 January 2019)
USA
USA
USA
USA
USA
USA
USA / (13 March 2019)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
75
100.00%
100.00%
-
-
-
-
71.00%
75.00%
75.00%
75.00%
75.00%
75.00%
75.00%
75.00%
75.00%
99.00%
50.50%
68.00%
72.50%
72.50%
75.00%
48.50%
75.00%
75.00%
90.50%
72.50%
75.00%
75.00%
71.50%
89.00%
75.00%
75.00%
75.00%
75.00%
80.00%
87.00%
70.00%
67.00%
75.00%
75.00%
55.00%
73.00%
70.00%
70.00%
75.00%
78.00%
75.00%
70.00%
75.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
70.00%
75.00%
75.00%
75.00%
75.00%
75.00%
72.50%
75.00%
74.00%
99.00%
50.50%
68.00%
72.50%
72.50%
72.50%
48.50%
75.00%
75.00%
90.50%
-
-
72.50%
70.00%
88.00%
75.00%
75.00%
75.00%
-
75.00%
75.00%
70.00%
67.00%
72.50%
75.00%
55.00%
73.00%
70.00%
70.00%
72.50%
78.00%
72.50%
70.00%
75.00%
100.00%
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 35. Interests in subsidiaries (continued)
Name
National Health Finance of Florida, LLC
National Health Finance of Florida 2, LLC
National Health Finance WA, LLC
National Medical Finance & Assistance, LLC
Nevada Health Finance, LLC
Nevada Medical Concierge Services, LLC
Nevada Orthopedic and Spinal Financing, LLC
New Mexico Health Finance, LLC
New Mexico Medical Financing, LLC
North Carolina Health Finance, LLC
North Texas Medical Finance, LLC
Northern Florida Medical Finance, LLC
NW Health Network, LLC
Odessa Health Finance, LLC
Oklahoma Health Finance, LLC
Oklahoma Injury Network, LLC
Oklahoma Injury Solutions, LLC
Old Pueblo Medical Financing of Delaware, LLC
Old Pueblo Medical Financing, LLC
ONYX Medical Funding Group, LLC
Pennsylvania Healthcare Finance, LLC
Physicians Accident Injury Network, LLC
Pikes Peak Medical Funding, LLC
Premier Medical Review, LLC
Red River Medical Funding, LLC
Rocky Mountain Medical Finance, LLC
San Fernando Injury Network, LLC
Silver State Surgical Solutions, LLC
Smash Medical Funding, LLC
SMD Medical Finance, LLC
Southern California Injury Treatment Network, LLC
Southern Idaho Medical Funding, LLC
Southwest Injury Solutions, LLC
Southwest Medical Financing, LLC
Surgical Capital Partners, LLC
Top Tier Injury Solutions, LLC
Tri Cities Injury Solutions, LLC
Tristate Medical Finance, LLC
Waterleaf Medical Finance, LLC
West Coast Injury Solutions, LLC
Principal place of business /
Country of incorporation / (Date
of acquisition)
Ownership interest
31 December
2019
31 December
2018
%
%
USA
USA
USA
USA
USA
USA / (27 February 2019)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA / (25 April 2019)
USA
USA
USA
USA
USA
USA / (26 March 2019)
USA
USA / (11 January 2019)
USA
USA
USA
USA
USA
USA
USA / (01 March 2019)
USA
USA
USA
USA
100.00%
60.80%
75.00%
100.00%
60.00%
75.00%
75.00%
68.00%
49.00%
73.00%
70.00%
89.00%
66.00%
75.00%
83.00%
71.50%
75.00%
100.00%
50.00%
70.00%
70.00%
75.00%
75.00%
75.00%
75.00%
73.00%
75.00%
80.00%
75.00%
68.00%
99.00%
75.00%
73.00%
75.00%
100.00%
75.00%
75.00%
75.00%
73.00%
75.00%
100.00%
60.80%
75.00%
100.00%
60.00%
-
75.00%
68.00%
49.00%
70.50%
69.00%
88.00%
66.00%
72.50%
83.00%
70.00%
75.00%
100.00%
50.00%
70.00%
-
72.50%
72.50%
75.00%
75.00%
71.00%
-
80.00%
-
68.00%
99.00%
75.00%
73.00%
75.00%
100.00%
-
72.50%
75.00%
71.00%
75.00%
Application for voluntary liquidation on 28 November 2019
*
** Deregistered on 1 May 2019
*** Deregistered on 4 June 2019
76
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 36. Reconciliation of loss after income tax to net cash (used in) operating activities
Loss after income tax benefit for the period
Adjustments for:
Depreciation and amortisation
Share-based payments
Employee bonus provision
Employee leave provision
Interest income
Commissions payable
Interest expense
Write off of acquisition costs of litigation assets
Impairment of assets
Warrant costs
Net foreign exchange differences
Fair value gain on financial liabilities
Change in operating assets and liabilities:
Decrease/(increase) in other loans and receivables
Increase in deferred tax assets
Decrease/(increase) in prepayments
Increase/(decrease) in trade and other payables
Increase in tax provision
Increase/(decrease) in provisions or employee benefits
Increase in borrowings
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
(3,100)
(11,548)
591
-
305
29
(30)
(217)
8,602
-
458
-
477
(20,828)
1,777
(3,551)
(98)
(2,326)
804
(2)
3,120
82
27
-
21
(94)
71
2,727
925
2,765
3,156
636
-
(10,396)
(2,159)
15
8,457
-
118
1,399
Net cash (used in) operating activities
(13,989)
(3,798)
Note 37. Non-cash investing and financing activities
Additions to the right-of-use assets
Consolidated
12 months
31 December
2019
US$'000
6 months
31 December
2018
US$'000
1,663
-
77
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 38. Changes in liabilities arising from financing activities
Consolidated
Balance at 1 July
2018
Conversion to
shares
Loans received
Loans repaid
Changes through
business
combinations
(note 34)
Capitalised
interest
Exchange
differences
Balance at 31
December 2018
Loans received
Loans repaid
Fair value gain
Capitalised
interest
Exchange
differences
Other adjustment
Balance at 31
December 2019
Vendor
loan
US$'000
1,048
-
-
(181)
-
-
(43)
824
-
(525)
-
23
(7)
-
315
NHF
Founder
Promis -
Converti -
ble bonds
sory Notes payable
US$'000
US$'000
Lucerne
Group
combined
loan
US$'000
Lucerne
Group –
working
capital
facility
US$'000
Lucerne
Group
facility
US$'000
Other NHF
subordin-
ated debt
US$'000
Total
US$'000
-
-
-
-
9,000
-
-
9,000
-
-
(9,000)
-
-
-
-
3,696
9,868
2,217
-
-
-
-
-
(1,331)
438
-
(361)
-
(1,807)
-
-
-
-
(167)
(427)
(49)
3,529
-
-
-
-
(29)
-
8,548
2,785
-
-
367
(58)
-
3,500
11,642
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,829
(1,692)
438
(1,988)
5,100
1,000
15,100
138
-
5,238
5,660
-
-
732
-
492
-
-
1,000
-
-
-
-
-
-
138
(686)
28,139
8,445
(525)
(9,000)
1,122
(94)
492
12,122
1,000
28,579
78
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 38. Changes in liabilities arising from financing activities (continued)
Asset -
secure Pty
Limited
loan
US$'000
Atalaya
Capital
Man-
agement
US$'000
Syndicated
acquisition
facility
US$'000
Vendor
loan - NHF
Founders
US$'000
Other NHF
subordin-
ated debt
US$'000
Other NHF
subordin-
ated-debt
US$'000
Insurance
financing
and credit
cards
US$'000
Total
US$'000
18,844
5,919
(3,840)
-
4,912
(4,697)
-
30,546
-
-
12,434
-
-
-
(895)
39,687
-
-
-
-
-
416
(902)
(304)
20,028
39,902
29,644
12,546
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,903
(8,326)
-
17,625
(15,924)
-
-
(158)
-
-
-
-
-
-
-
-
(11,828)
-
(248)
(596)
1,150
-
-
30
-
4,750
-
-
-
-
-
518
(390)
18,844
54,329
(8,927)
335
40,022
-
-
416
(2,101)
463
102,583
389
(647)
-
33,817
(24,897)
(11,828)
-
30
(14)
(1,016)
21,447
41,603
29,396
122
1,180
4,750
191
98,689
Consolidated
Balance at 1 July
2018
Loans received
Loans repaid
Changes through
business
combinations
(note 34)
Capitalised
interest
Exchange
differences
Balance at 31
December 2018
Loans received
Loans repaid
Fair value gain
Capitalised
interest
Exchange
differences
Balance at 31
December 2019
Consolidated
Balance at 1 July 2018
Balance at 31 December 2018
Leases recognised on the adoption of AASB 16
Additions
Loans received
Loans repaid
Repayment of leases
Capitalised interest
Balance at 31 December 2019
Paradise
Diversified
Holdings
Limited
Partnership
US$'000
Washington
H. Soul
Pattinson &
Company
Limited
US$'000
Pitt Capital
Partners
Limited
US$'000
Lease
liabilities
US$'000
Total
US$'000
-
-
-
-
864
-
-
388
1,252
-
-
-
-
2,275
-
-
-
2,275
-
-
27
1,663
-
-
(159)
-
1,531
-
-
27
1,663
7,263
(11)
(159)
438
9,221
-
-
-
-
4,124
(11)
-
50
4,163
79
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 39. Share-based payments
Share options
At the 2016 Annual General Meeting held on 30 November 2016, shareholders approved for the Company to adopt the
JKL Incentive Plan ('Incentive Plan') and associated Non-Recourse Loan Agreements for directors, officers, employees
and consultants ('Participants'). The Incentive Plan, effective from 1 July 2016, replaced the previous Incentive Option Plan
and Executive Incentive Plans ('EIP').
The objectives of the Incentive Plan are to:
supplement Participant remuneration;
●
ensure that the Group's remuneration policy is competitive in retaining and motivating the Participants;
●
provide a mechanism for achieving the Group's overarching remuneration objective of aligning the interests of
●
Participants and shareholders; and
reward Participants based on the Group's overall performance including achieving successful judgements or
settlements of individual cases, growth of the disbursements funding business (JustKapital Finance) and other
businesses and high performance.
●
Set out below are summaries of options granted under the plans:
31 December
2019
Grant date
Expiry date
Exercise
price*
22/01/2016
22/01/2019
US$0.176
Balance at
the start of
the period
1,500,000
1,500,000
Granted
Exercised
Lapsed
Balance at
the end of
the period
-
-
-
-
(1,500,000)
(1,500,000)
-
-
Weighted average exercise price
US$0.176
US$0.000
US$0.000
US$0.000
US$0.000
*
Exercise price - A$0.25
31 December
2018
Grant date
Expiry date
Exercise
price*
22/01/2016
22/01/2019
US$0.176
Balance at
the start of
the period
1,500,000
1,500,000
Granted
Exercised
Lapsed
Balance at
the end of
the period
-
-
-
-
-
-
1,500,000
1,500,000
Weighted average exercise price
US$0.176
US$0.000
US$0.000
US$0.000
US$0.176
*
Exercise price - A$0.25
The weighted average share price during the financial period was US$0.050 (31 December 2018: US$0.052).
The weighted average remaining contractual life of options outstanding at 31 December 2019 was nil years (31 December
2018: 0.06 years).
Performance rights
Set out below are summaries of performance rights granted under the plan:
There we no performance rights outstanding at 31 December 2019.
80
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 39. Share-based payments (continued)
31 December
2018
Grant date
Vesting date
Exercise
price
30/11/2016
30/06/2018
US$0.000
Balance at
the start of
the period
1,264,569
1,264,569
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the period
-
-
(1,264,569)
(1,264,569)
-
-
-
-
The weighted average remaining contractual life of performance rights outstanding at 31 December 2018 was nil months.
Warrants
Set out below are summaries of warrants granted on acquisition of NHF:
31 December
2019
Grant date
Expiry date
28/09/2018
28/09/2022
31 December
2018
Exercise
price*
Balance at
the start of
the period
Granted
Exercised
US$0.099 452,743,636
452,743,636
-
-
Grant date
Expiry date
Exercise
price*
Balance at
the start of
the period
Granted**
Exercised
28/09/2018
28/09/2022
US$0.099
-
-
452,743,636
452,743,636
Expired/
forfeited/
other
Balance at
the end of
the period
-
-
452,743,636
452,743,636
Expired/
forfeited/
other
Balance at
the end of
the period
-
-
452,743,636
452,743,636
-
-
-
-
*
**
Exercise price - A$0.14
329,880,000 warrants issued to other Syndicated Acquisition Facility participants and 122,863,636 warrants issued to
NHF Founders.
The weighted average remaining contractual life of warrants outstanding at 31 December 2019 was 2.75 years (31
December 2018: 3.75 years).
Shares issued
There were no shares issued as share-based payments during the year ended 31 December 2019.
During the period ended 31 December 2018, the Company issued 1,250,000 shares to Diane Jones in lieu of part of her
short-term incentive granted during the period. The shares were issued at US$0.058 cents per share as part of the rights
issue undertaken by the Company on 7 November 2018 (Refer to note 23).
During the period ended 31 December 2018, the Company issued 29,266,700 to Lucerne at US$0.058 cents per share as
part of the share placement undertaken by the Company on 7 November 2018 (Refer to note 23).
Note 40. Events after the reporting period
1. Capital raise
On 24 December 2019, the Company announced that it had completed a US$3.4 million (A$5.0 million) equity placement
('Placement') with existing and new sophisticated investors at US$0.045 (A$0.064) per share. The funds raised and shares
issued have been included in these financial results.
81
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 40. Events after the reporting period (continued)
Also on 24 December 2019, the Company announced that all shareholders will be offered the opportunity to participate in a
further capital raising to be undertaken via a 1:1 Pro-Rata Non-Renounceable Entitlement Offer at US$0.045 (A$0.064) per
share ('Entitlement Offer'), representing a 16% discount to the 30-day VWAP.
The Entitlement Offer was partially underwritten to US$14.0 million (A$20.0 million) by Lucerne Australia Pty Ltd.
On 19 February 2020, the Company announced it had raised a total of US$14.8 million (A$21.2 million) under the
Entitlement Offer.
Of these funds raised under the Entitlement Offer, US$9.0 million (A$12.9 million) was used to repay existing debt. The
balance of US$5.8 million (A$8.3 million) was received in cash.
The issue of shares occurred on 21 February 2020. The total shares on issue are as follows:
Description
Original shares on issue
Shares issued under the Placement (completed 24 December 2019)
Shares issued under the Entitlement Offer (completed 21 February 2020)
Shares on issue as at 21 February 2020
Number of
shares
483,635,467
78,125,000
330,923,639
892,684,106
The proceeds from the Placement and the Entitlement Offer were used by the Company for the following purposes:
●
●
●
reduce existing debt totalling US$9.0 million (A$12.9 million);
provide working capital, particularly for new funding opportunities in the US medical lien funding business; and
pay the costs of the Entitlement Offer and the Placement.
2. Extraordinary General Meeting ('EGM')
On 10 March 2020, the Company held an EGM that proposed five resolutions to shareholders for approval. All of the
resolutions were approved. The Company will now be able to finalise the implementation of a number of the reorganisation
initiatives following on from the Placement and the Entitlement Offer. The overall outcome from all of these initiatives is a
significant reduction in total Group net debt with a corresponding material improvement in the balance sheet and an
immediate and significant reduction in interest costs.
The five resolutions approved at the EGM were as follows:
Resolution 1:
Resolution 2:
Resolution 3:
Resolution 4:
Resolution 5:
Approval of issue of shares on the conversion of the convertible bonds to non-related parties.
Approval of Issue of shares on the conversion of the convertible bonds to a related party.
Approval of issue of options to David Wattel.
Approval of issue of options to Mark Siegel.
Approval of issue of Capitalising Converting Note.
(a) Bondholder conversion: The Company has shareholder approval to permit the conversion of US$3.5 million (A$5.0
million) (plus outstanding interest) of convertible bonds into shares at an issue price of 4.5 US cents (US$0.045) (6.4
Australian cents (A$0.064)) per share. The projected number of shares to be issued if all Bondholders elect to convert
is 81,693,872 shares.
This conversion was approved under Resolutions 1 and 2 of the EGM.
(b) NHF Vendor Debt Conversion: In connection with the Company’s acquisition of NHF, the Company entered into
various arrangements with David Wattel and Mark Siegel (jointly 'the NHF Vendors'). As part of the acquisition, Mr
Wattel was appointed an executive director of the Company.
As part of the capital reorganisation arrangements announced by the Company, the NHF Vendors have agreed to
accept a combination of unlisted options as full payment for its promissory notes (under which US$9.0 million (A$12.9
million) is owed by the Company to the two NHF Vendors, split evenly between the two NHF Vendors) and vendor
loans (where the principal amount of US$12.0 million (A$17.2 million) is owed by the Company to the NHF Vendors,
split evenly between the two NHF Vendors).
82
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 40. Events after the reporting period (continued)
Subsequent to shareholder approval of Resolutions 3 and 4 of the EGM, the following options were issued on 13
March 2020:
Number of options
Exercise price
Expiry date
24,000,000
22,500,000
25,000,000
US$0.175 (A$0.25)
US$0.28 (A$0.40)
US$0.42 (A$0.60)
28 September 2021
28 September 2022
28 September 2023
In addition, the NHF Vendors have agreed to vary their respective employment agreements so that a non-
discretionary bonus is no longer payable by the Company.
(c)
Issue of new Capitalising Converting Note: A group of subordinated debtholders have agreed to convert their
subordinated debt into a new convertible note ('Capitalising Converting Note') which has the following material terms:
(i) Face value of US$19.9 million (A$28.4 million);
(ii) 6% per annum interest rate that is capitalised;
(iii) Convertible on or before 31 December 2022;
(iv) Conversion price of US$0.07 (A$0.10) per share; and
(v) Projected maximum number of shares the Capitalising Converting Note is convertible to is 335,048,088 shares
(based on fully capitalised sum as of 31 December 2022).
The issue of shares under the Capitalising Converting Note was approved by Shareholders under Resolution 5 of the
EGM.
3. Application for waiver of ASX Listing Rule 6.23.3
In connection with the Company’s acquisition of NHF, the Company issued 452,743,636 warrants. The warrants were
issued to various lenders, otherwise known as the 'Syndicated Acquisition Lenders', as well as the NHF Vendors, including
Mr Wattel.
In order to gain approval from this lender group for the capital reorganisation arrangements announced by the Company,
the Company has agreed to vary the warrants issued to the Syndicated Acquisition Lenders and the NHF Vendors as
follows:
(i)
(ii)
each warrant entitles the warrant holder to acquire one (1) fully paid ordinary share upon payment to the Company of
A$0.10 per warrant (‘Exercise Price’) (the previous Exercise Price was A$0.14 per warrant); and
the warrants may be exercised at any time prior to 8 November 2023 (previous expiry date was prior to 28 September
2022).
In order to put the above amendments to shareholders, the Company sought a waiver from ASX Listing Rule 6.23.3. The
ASX did not grant the waiver requested due to the level of warrants on issue when compared to the total number of shares
on issue. The Company has informed the Syndicated Acquisition Lenders of the decision of the ASX and continues to work
with these lenders to find a workable solution to finalise this aspect of its capital reorganisation.
83
LawFinance Limited
Notes to the consolidated financial statements
31 December 2019
Note 40. Events after the reporting period (continued)
4. COVID-19 (Coronavirus)
On 11 March 2020, Coronavirus was declared a pandemic by the World Health Organisation, with resulting significant
impacts on local and world economies. At this point in time given the rapidly evolving situation, the Group is unable to
quantify the impact the Coronavirus pandemic will have on the future financial performance of its businesses. However,
both cash collections and originations are likely to slow down as both the USA and Australian governments implement
quarantine initiatives and economic activity in general slows down.
Whilst the Group continues to actively monitor the situation and its impacts, it is likely that cash collection covenants in the
Group’s financial facilities will not be met over the next few months. In addition, other financial covenants contained within
the various loan arrangements the Group is party to may be breached. The Group is working with each of its financiers in
advance of these potential challenges in order to obtain standstill and/or forbearance agreements during this time. These
discussions are on-going and the Group will update the market as and when appropriate in accordance with its continuous
disclosure obligations.
5. Earn out - Litigation funding portfolio
The seller of the Litigation funding portfolio, which was acquired by the Group on 11 July 2016, is entitled to receive 50% of
proceeds over A$4,000,000 from the "free carry" component of the litigation funding agreements. There was a dispute with
the seller in relation to the calculation of the "free carry" entitlement generated by four case settlements in the portfolio
(there is one on-going case from this portfolio). The seller of this portfolio claims that amounts are due to be paid by the
Company under the "free carry" entitlement.
This dispute was settled between the parties on 27 March 2020 with no admission as to liability. The Group has agreed to
issue the seller 14,000,000 shares at an agreed value of A$0.064 per share (A$896,000) and release claims to certain
amounts currently in a solicitor’s trust account. The Company will receive approximately A$750,000 from funds currently
held in trust.
No other matter or circumstance has arisen since 31 December 2019 that has significantly affected, or may significantly
affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.
84
LawFinance Limited
Directors' declaration
31 December 2019
In the directors' opinion:
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the
Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 2 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group's financial position as at 31
December 2019 and of its performance for the financial period ended on that date; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
___________________________
Tim Storey
Chairman
31 March 2020
Sydney
85
Stantons International Audit and Consulting Pty Ltd
trading as
Chartered Accountants and Consultants
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF
LAWFINANCE LIMITED
Report on the Audit of the Financial Report
Opinion
PO Box 1908
West Perth WA 6872
Australia
Level 2, 1 Walker Avenue
West Perth WA 6005
Australia
Tel: +61 8 9481 3188
Fax: +61 8 9321 1204
ABN: 84 144 581 519
www.stantons.com.au
We have audited the financial report of LawFinance Limited the Company and its subsidiaries (“the Group”), which comprises the
consolidated statement of financial position as at 31 December 2019, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its financial performance for
the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the
Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements
of the Accounting Professional and Ethical Standards Board's APES 110: Code of Ethics for Professional Accountants (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Relating to Going Concern and Carrying Value of Non-Current Assets
We draw attention to the following matters.
Material Uncertainty regarding Going Concern
As stated in Note 2 to the financial statements, the consolidated financial statements have been prepared on a going concern
basis. At 31 December 2019 the Group had cash and cash equivalents of $5,777,000 (31 December 2018 $3,696,000), a working
capital deficiency of $39,706,000 (31 December 2018 working capital of $26,000) and incurred a loss after income tax of
$3,100,000 (31 December 2018 $11,548,000).
We also draw your attention to Note 22(xv) and the Syndicated acquisition facility of $29,396,000. This loan is classified current
due to a breach of a number of covenants. We also draw to your attention to Note 40 and the $14.8m (A$21.2M) raised by the
company under the entitlement offer.
The ability of the consolidated entity to continue as a going concern is subject to the consolidated entity realising cashflows from
the expected legal case completions, renegotiating its financing arrangements and collecting its outstanding disbursement
receivables books in accordance with its budgeted cashflows. In the event that the Board does not successfully collect its
outstanding disbursement books, renegotiates its financing arrangements and/or realising cashflows from the expected legal case
completions, the consolidated entity may not be able to meet its liabilities as and when they fall due.
Material Uncertainty regarding the recoverability of deferred tax assets and goodwill
The recoverability of the deferred tax assets of $10,340,000 and the carrying value of goodwill of $40,504,000 for the consolidated
entity, is dependent upon the entity earning sufficient tax profits in the future years to utilise the deferred tax assets and producing
cashflows in accordance with budgets (refer note 19). In the event that the consolidated entity does not generate enough taxable
profits, the tax assets will need to be expensed and the carrying value of Goodwill impaired. Furthermore, we also note the budgets
and financial models used to underpin the recoverability of the carrying value of goodwill and the deferred tax asset were prepared
by management prior to the recent market uncertainty arising from the spread of the COVID-19 virus and its effects on the business
Liability limited by a scheme approved
under Professional Standards Legislation
environments in Australia and the United States. Management are reviewing what impact, if any, this will have on their business,
and the stated balances.
Our opinion is not modified in respect of these matters.
Key Audit Matters
In addition to the matter described in the Material Uncertainty Related to Going Concern and Carrying Value of Non-Current Assets
section, we have determined the matter described below to be Key Audit Matter to be communicated in our report.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matters
How the matter was addressed in the audit
Classification and measurement of financial
assets
As at 31 December 2019, Financial Assets totalled
$95,314,000 (refer to Note 13 and 14).
Inter alia, our audit procedures included the following:
i. Obtained the independent experts accounting
advice, critically assessed this advice, challenged
management on its applicability to the NHF
business and concluded on its application;
ii. Audited the valuation model provided by the
valuation expert, assessed the qualifications of the
expert to prepare such models, assessing the
design of the model and audited its various inputs.
We have also critically assessed the actuarial
assumptions used in the valuation model which
were adopted by the same expert;
iii. We completed substantive testing on a sample
basis of the transactions within the adopted
valuation model;
iv. Obtained confirmations, tested on a sample basis,
of debtors within the financial model; and
v. Assessed whether the disclosures included in the
financial report were in accordance with the
requirements of AASB 9 and AASB 108
Accounting Policies, Changes
in Accounting
Estimates and Errors.
to
relation
the Group’s Medical
Included in the financial assets balance is $73,131,000
in
Lien
to as National Health
funding Business referred
Finance (“NHF”). In the prior financial period, the
and NHF was
Company
consolidated
from acquisition
three months
(effective 1 October 2018) to the 31 December 2018.
acquired NHF
for
At the time, due to the similarities of the Group’s other
disbursement funding business in Australia, it was
concluded that utilising the Fair Value through Profit
and Loss (FVTPL) method, was the most appropriate
application of (“AASB 9”) “Financial Instruments”
standard for the financial assets held by the NHF
medical lien funding business.
independent advice
In the current year, being the first full year since
acquisition,
the original
the appropriateness of
application of accounting under AASB 9 was reviewed
by Directors, particularly considering the emerging
this new accounting standard.
interpretations of
to
External
the
in relation
accounting application was sought, and
it was
concluded that due to the differences in the operations
of the NHF medical lien funding business compared to
the Australian disbursement business, that amortised
cost is considered the most appropriate accounting
treatment for the NHF business. The directors then
sought a separate external independent expert to
value the financial assets at amortised cost for both
the year ended 31 December 2019 and
the
comparative period 31 December 2018 (which has
been restated).
This is considered to be a key audit matter due to
significance of the impact and the pervasiveness of the
accounting policy applied.
The application and appropriateness of AASB 9 in
relation to the Australian disbursement business
remains unchanged.
Other Information
The directors are responsible for the other information. The other information comprises the information included in the Group’s
annual report for the year ended 31 December 2019, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance
opinion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance
with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is
necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain
professional scepticism throughout the audit. An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the financial report.
The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of
the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity's preparation of the financial report that gives a true and fair view in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the Directors, as well as evaluating the overall presentation of the financial report.
We conclude on the appropriateness of the Directors' use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor's report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the
financial report represents the underlying transactions and events in a manner that achieves fair presentation.
We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in Internal control that we identify during our audit.
The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements. We also provide
the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the
financial report of the current period and are therefore key audit matters. We describe these matters in our auditor's report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 9 to 17 of the directors’ report for the year ended 31 December
2019.
In our opinion, the Remuneration Report of LawFinance Limited for the year ended 31 December 2019 complies with section 300A
of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based
on our audit conducted in accordance with Australian Auditing Standards.
STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD
(Trading as Stantons International)
(An Authorised Audit Company)
Martin Michalik
Director
West Perth, Western Australia
31 March 2020
LawFinance Limited
Shareholder information
31 December 2019
The shareholder information set out below was applicable as at 25 March 2020.
Distribution of equity securities
Analysis of number of equity security holders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Citicorp Nominees Pty Limited
Mr Mark Siegel
Mr David Wattel
National Nominees Limited
Washington H Soul Pattinson & Company Limited
Australian Philanthropic Services Foundation Pty Ltd (APS Foundation A/c)
Barbright Australia Pty Ltd (Interquartz Super Fund A/c)
Mr John Herbert Bannister
Factotum Group Pty Ltd (Factotum Holdings A/c)
J F Byrnes Super Pty Ltd (Argoon Avenue S/F A/c)
BNP Paribas Nominees Pty Ltd (IB AU Noms RetailClient DRP)
Prolex Holdings Limited (The PHL A/c)
Mr Jason Maxwell Yu
Factotum Group Pty Ltd (Factotum Holdings A/c)
HSBC Custody Nominees (Australia) Limited
Hammond Royce Corporation Pty Ltd (Len David Super Fund A/c)
Mr Marinus Adrian Strybosch & Mrs Penelope K Strybosch (Strybosch Super Fund A/c)
Ratio Nominees Pty Ltd
Pick Management Pty Ltd (Pick Family Super Fund A/c)
Mr Ping Kin Yu & Mrs Wai Ying Elsa Yu (PK and Elsa Super Fund A/c)
Number
of holders
of options
over
ordinary
shares
Number
of holders
of ordinary
shares
36
17
60
298
294
705
149
-
-
-
-
2
2
-
Ordinary shares
Number held
% of total
shares
issued
145,513,561
107,548,702
107,548,701
80,000,000
43,750,000
20,000,001
17,672,933
16,263,146
13,987,542
8,268,182
7,947,192
7,263,315
6,500,000
6,012,458
5,955,429
5,850,346
5,340,693
5,230,006
5,220,009
5,200,000
621,072,216
16.30
12.05
12.05
8.96
4.90
2.24
1.98
1.82
1.57
0.93
0.89
0.81
0.73
0.67
0.67
0.66
0.60
0.59
0.58
0.58
69.58
90
LawFinance Limited
Shareholder information
31 December 2019
Unquoted equity securities (options)
Options – exercisable at $0.25 cent before 28 September 2021
Options – exercisable at $0.40 cent before 28 September 2022
Options – exercisable at $0.60 cent before 28 September 2023
Substantial holders
Substantial holders in the Company are set out below:
Citicorp Nominees Pty Limited
Mr Mark Siegel
Mr David Wattel
National Nominees Limited
Voting rights
The voting rights attached to ordinary shares are set out below:
Number
on issue
Number
of holders
24,000,000
22,500,000
25,000,000
2
2
2
Ordinary shares
Number held
145,513,561
107,548,702
107,548,701
80,000,000
% of total
shares
issued
16.30
12.05
12.05
8.96
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
Warrants
Details
Warrants issued to other Syndicated Acquisition
Facility participants
Warrants issued to NHF Founders
Securities subject to voluntary escrow
Details
Escrowed director and KMP shares related to the
purchase of NHF
Number
of warrants
329,880,000
122,863,636
452,743,636
Number
of shares
215,097,403
91