Annual
Report
2020
ABN 72 088 749 008
LawFinance Limited
Contents
31 December 2020
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
2
3
20
21
23
25
27
28
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1
LawFinance Limited
Corporate directory
31 December 2020
Directors
Tim Storey - Non-Executive Chairman
Daniel Kleijn - Executive Director, Managing Director
Anthony Murphy - Non-Executive Director
David Wattel - Non-Executive Director
Company secretary
Andrew Palfreyman
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
Level 36, Gateway
1 Macquarie Place
Sydney NSW 2000
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 (Fourth 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/
2
LawFinance Limited
Directors' report
31 December 2020
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 2020.
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
David Wattel
Daniel Kleijn (appointed on 8 December 2020)
Diane Jones (resigned on 8 December 2020)
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, now classified as discontinued operations, and is being sold (subject to shareholder approval).
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 22 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
medical 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 48%
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.
3
LawFinance Limited
Directors' report
31 December 2020
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 28 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 has 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.
On 29 January 2021, as announced to the market, the Company entered into a definitive conditional agreement to sell
JustKapital Litigation Pty Ltd (and its subsidiaries) for A$1 to Legal Equity Partners Pty Limited (‘LEP’), plus conditional
proceeds equal to:
●
●
50% of the net proceeds received from one of the funded cases; and
50% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has assumed the value of the conditional component of the sales
proceeds to have nil value. Management is in the process of satisfying conditions precedent under the sale agreement
including holding an Extraordinary General Meeting ('EGM') for shareholders to approve the transaction. Grant Thornton
had prepared an Independent Expert's Report which has concluded the transaction to be fair and reasonable.
As announced to the market on 24 March 2021, the EGM which had been convened for 29 March 2021, for Shareholders
to consider their approval of the transaction, was postponed. The decision to postpone the EGM was made following the
Group being informed that one of the litigation cases where JustKapital Litigation Pty Ltd is a co-funder has had a material
positive development, after a US federal jury decided that the plaintiff should be paid a sum higher than initially
anticipated. The defendant has made statements to the media that it is disappointed with the ruling and that it would
appeal.
The Directors and Grant Thornton are assessing whether the development affects their recommendation that the sale
transaction is fair and reasonable. The Group and LEP have extended the deadline for completing the sale (following
satisfaction of conditions precedent) until 30 April 2021. The Group is currently in discussions with LEP regarding potential
variations to the commercial terms of the sale agreement, in light of the developments. Once this process is concluded the
Directors will circulate updated materials to shareholders (if required) and advise the new date for the EGM.
Given that the Company has previously indicated that the Litigation Funding business was in run-off (since late 2017), it
has been deemed appropriate to reclassify this business as discontinued operations.
Management has made provisions to the carrying value of litigation funding assets to reflect the terms of the sale
agreement with LEP.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
4
LawFinance Limited
Directors' report
31 December 2020
Review of operations
At the commencement of this financial year, the Group was well positioned to execute its strategic plan. The foundation of
the plan was the completion of its financial restructuring through various capital raising initiatives and through the
conversion of debt to equity. The restructuring had been announced on 24 December 2019. The financial restructuring
initiatives were approved by shareholders at an extraordinary general meeting held on 10 March 2020. The initiatives
resulted in the issuance of a total of 404,869,578 new shares and the reduction of $50,481,000 in debt in the period. These
initiatives were undertaken to reduce the overall debt levels and to enable the Group to take advantage of growth
opportunities, particularly for the NHF business.
On 11 March 2020, Coronavirus was declared a pandemic by the World Health Organisation ('COVID-19 pandemic'). At
the onset of the pandemic the Directors took immediate and decisive action. The Directors agreed to a full salary deferral
for a minimum of three months, key management personnel agreed to salary deferments of between 25% and 50%, a third
of the workforce was dismissed, deferred payment arrangements were structured with creditors and standstill
arrangements were negotiated with the Group’s financiers. This decisive action has ensured that the Group could continue
to operate during the pandemic, albeit on a smaller scale.
National Health Finance ('NHF')
In the United States ('U.S.') court activity has slowed dramatically since the COVID-19 outbreak, and cases have not been
able to move through the system in the normal manner, thereby extending case settlement timeframes. Motor vehicle
insurers have taken advantage of the situation to delay settlement discussions and make payments unless the victim is
willing to accept discounts. This has had a material impact on cash collections. As a result, our cash flow from collections
in the U.S. are down from our expectations for 2020.
JustKapital Finance ('JKF')
JKF, the Australian disbursement funding business, collected on receivables throughout the year consistently with
expectations. However, JKF issued significantly fewer loans during 2020 as a result of the COVID-19 pandemic and debt
funding challenges.
Significant changes in the state of affairs
Strategic review, management changes and turnaround plans
Despite the actions taken by the Directors in response to the impacts of the COVID-19 pandemic they were insufficient to
ensure that the cashflows generated by the business could fund operations of the business and meet the financing
obligations of the Group, particularly in respect of its Corporate Debt facilities.
The Directors’ commenced a strategic review of the Group in September 2020, and engaged Deloitte Financial Advisory
Pty Ltd ('Deloitte') to support management in this review and to work closely with its Lenders under the defaulted secured
Syndicated Acquisition Facility ('SAF').
On 9 December 2020, the Directors announced to the market the appointment of new executives Daniel Kleijn (CEO) and
Phil Smith (CFO), who would be responsible for developing and delivering the Group’s turnaround. The Group’s turnaround
plans are comprised of its Restructuring and Recapitalisation plan ('RP'), and strategic Value Creation Plans ('VCP').
Simultaneously with the changes to the executive management team, the Group undertook and completed a A$5 million
Share Placement which was announced to the market on 11 December 2020. This placement was strongly supported by
existing shareholders and new investors which included the largest lenders under the Syndicated Acquisition Facility. This
A$5m capital injection provided the required liquidity funding to develop Turnaround Plans and implement the RP.
The Group is in the process of implementing its RP, which has three key components. The RP is designed to reset the
Group’s capital and funding structures to provide the Group the required platform to pursue its VCP. The following three
components of the RP are inter-related, and as such are being negotiated and pursued simultaneously on an inter-
conditional basis
(1) Obtain a new NHF Front Book finance facility in order to refinance Atalaya and support strategic growth plans for the
NHF business;
(2) Restructure Corporate Debt Facilities including the conversion of a substantial portion of corporate debt to the equity
(shares) of the Group; and
(3) Raising sufficient new equity capital to fund operations and support the implementation of the VCP.
There were no other significant changes in the state of affairs of the Group during the financial year.
5
LawFinance Limited
Directors' report
31 December 2020
Matters subsequent to the end of the financial year
(i) On 29 January 2021, as announced to the market, the Company entered into a definitive conditional agreement to sell
JustKapital Litigation Pty Ltd (and its subsidiaries) for A$1, plus conditional proceeds equal to:
● 50% of the net proceeds received from one of the funded cases; and
● 50% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has assumed the value of the conditional component of the
sales proceeds to have nil value. Management is in the process of satisfying conditions precedent under the sale
agreement including holding an Extraordinary General Meeting for shareholders to approve the transaction. Grant
Thornton have prepared an Independent Expert’s Report (‘IER’) which had concluded the transaction to be fair and
reasonable and in the best interest of shareholders. This IER is currently being updated based on recent positive
developments, as announced to the market on 24 March 2021. The terms of the agreement are being reconsidered in
parallel with Grant Thornton’s work. The Extraordinary General Meeting to obtain shareholder approval for the
transaction has been postponed until further notice.
(ii)
In February 2021 AssetSecure Pty Ltd, being the asset-backed lender to JustKapital Financing Pty Ltd, formally
agreed to amend terms of the facility to allow originations to recommence albeit in a reduced capacity of A$2-3 million
subject to their own internal periodic reviews. AssetSecure Pty Ltd’s internal lending mandate has changed and the
Directors envisage refinancing this facility with a new lender by the end of June 2021. There are continuing defaults
under the Receivables Purchase Agreement which the borrower is seeking to resolve.
No other matter or circumstance has arisen since 31 December 2020 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.
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
5,636,250 ordinary shares
Nil options/warrants over ordinary shares
Nil performance rights over ordinary shares
Interests in shares:
Interests in options:
Interests in rights:
6
LawFinance Limited
Directors' report
31 December 2020
Name:
Title:
Experience and expertise:
David Wattel
Non-Executive Director (resigned as Executive Director 1 December 2020)
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; 35,750,000 options over ordinary shares
Interests in options:
Nil performance rights over ordinary shares
Interests in rights:
Name:
Title:
Experience and expertise:
Daniel Kleijn (appointed on 8 December 2020)
Chief Executive Officer, Managing Director
Prior to joining LawFinance Limited, Daniel was a Managing Director at Lazard and
UBS. Daniel has a Master of Economics from the University of Groningen in the
Netherlands and is a mentor to CEOs of charities.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
Nil ordinary shares
Interests in shares:
Nil options/warrants over ordinary shares
Interests in options:
Nil performance rights over ordinary shares
Interests in rights:
Name:
Title:
Experience and expertise:
Diane Jones (resigned on 8 December 2020)
Former Chief Executive Officer and 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
None
Special responsibilities:
'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
Andrew Palfreyman was appointed Company Secretary on 18 February 2021. Andrew is a corporate lawyer and company
secretary within the Automic Group, a professional services company providing company secretarial, legal, registry and
accounting services to Australian entities. He provides legal counsel, company secretarial and corporate compliance
advice to listed and private companies. He was admitted to the Supreme Court of NSW as a practising solicitor in 2018.
The previous Company Secretary was Dean Jagger who resigned from the position on 18 February 2021.
7
LawFinance Limited
Directors' report
31 December 2020
Meetings of directors
The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2020,
and the number of meetings attended by each director were:
Tim Storey
Anthony Murphy
David Wattel
Daniel Kleijn
Diane Jones
Full Board
Attended
Held
4
4
4
-
4
4
4
4
-
4
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.
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
David Wattel
Executive Directors
Daniel Kleijn
Diane Jones
Senior Executives
Anthony Hersch
Phil Smith
Craig Beatton
Sarika Merchant
Richard Cruz
Non-Executive Chairman, Non-Executive Director
Non-Executive Director
Non-Executive Director (Former Chief Executive Officer – NHF and Executive Director –
resigned 1 December 2020)
Chief Executive Officer, Managing Director (appointed 8 December 2020)
Former Chief Executive Officer and Executive Director (resigned 8 December 2020)
Chief Operating Officer
Chief Financial Officer (appointed 8 December 2020)
Head of Reporting and Compliance, Former Chief Financial Officer
Former Chief Financial Officer – NHF (resigned 31 July 2020)
Chief Operating Officer - NHF
8
LawFinance Limited
Directors' report
31 December 2020
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 2020. Therefore, during the financial year ended 31 December 2020 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 2020, 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 2020. 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.
●
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
Chairman
Non-executive director
US$
80,630
57,593
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$230,370 (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.
9
LawFinance Limited
Directors' report
31 December 2020
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 2020, 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.
Use of remuneration consultants
During the financial year ended 31 December 2020, 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 2020 Annual General Meeting ('AGM')
At the 2020 AGM held on 29 July 2020, 96.44% of the votes received supported the adoption of the remuneration report for
the financial period ended 31 December 2019.
10
LawFinance Limited
Directors' report
31 December 2020
Details of remuneration
Amounts of remuneration
Remuneration for the year 1 January 2020 to 31 December 2020.
31 Dec 2020
Executive Directors:
David Wattel (i)
Daniel Kleijn (ii)
Diane Jones (iii)
Non-Executive Directors:
Tim Storey (iv)
Anthony Murphy (v)
Other KMP:
Anthony Hersch
Phil Smith (vi)
Craig Beatton
Sarika Merchant (vii)
Richard Cruz
Salary and
fees
US$
201,266
22,447
365,070
72,462
47,268
251,201
11,182
156,210
284,454
263,215
1,674,775
Short-term
benefits
EIP and
bonuses monetary
Non-
Post-
employme-
nt benefits
Super-
Long ser-
annuation vice leave
Long-term
benefits
US$
US$
US$
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,021
14,494
-
4,491
14,494
1,062
14,594
-
-
50,156
-
-
-
-
-
-
-
-
-
-
-
Share-
based
payments
Equity-
settled
US$
-
-
-
-
-
-
-
-
-
-
-
Total
US$
201,266
23,468
379,564
72,462
51,759
265,695
12,244
170,804
284,454
263,215
1,724,931
(i) Represents remuneration from 1 January 2020 to 1 December 2020. David resigned as an Executive Director on 1
December 2020 but continues as a Non-Executive Director. He was not paid any Directors Fees as a Non-Executive
Director during the current year.
(ii) Represents remuneration from 8 December 2020 to 31 December 2020.
(iii) Represents remuneration from 1 January 2020 to 31 December 2020. Diane resigned as Chief Executive Officer and
Executive Director on 8 December 2020 and is currently serving out her Notice Period to 30 June 2021.
(iv) Prolex Limited, an entity associated with Tim Storey, was paid US$72,462 (A$105,000) for directors’ fees. A$50,000
of these directors’ fees have been accrued and are yet to be paid.
(v) Of the total of US$51,759 (A$75,000), A$56,250 has been accrued and is yet to be paid.
(vi) Represents remuneration from 8 December 2020 to 31 December 2020.
(vii) Represents remuneration as Chief Financial Officer – NHF from 1 January 2020 to 31 July 2020 of US$217,977 and
remuneration as a consultant (charged on an hourly basis) from 1 August 2020 to 31 December 2020 of US$66,477.
11
LawFinance Limited
Directors' report
31 December 2020
Remuneration for the year 1 January 2019 to 31 December 2019.
31 Dec 2019
Executive Directors:
David Wattel
Diane Jones
Non-Executive Directors:
Tim Storey (i)
Anthony Murphy
Other KMP:
Anthony Hersch
Craig Beatton
Sarika Merchant
Richard Cruz
Short-term
benefits
EIP and
bonuses monetary
Non-
Post-
employme-
nt benefits
Super-
Long ser-
annuation vice leave
Long-term
benefits
US$
US$
US$
US$
Salary and
fees
US$
400,000
368,421
1,882
122,869
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
-
-
-
-
-
-
-
-
-
Share-
based
payments
Equity-
settled
US$
-
-
-
-
-
-
-
-
-
Total
US$
401,882
505,747
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.
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Executive Directors:
David Wattel
Daniel Kleijn
Diane Jones
Non-executive Directors:
Tim Storey
Anthony Murphy
Other KMP:
Anthony Hersch
Phil Smith
Craig Beatton
Sarika Merchant
Richard Cruz
Fixed remuneration
Performance related - STIP Performance related - LTIP
31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99%
-
76%
100%
100%
83%
-
88%
88%
82%
-
-
-
-
-
-
-
-
-
-
1%
-
24%
-
-
17%
-
12%
12%
18%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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:
Tim Storey
Non-Executive Chairman, Non-Executive Director
1 April 2015
Ongoing
Tim is paid a gross salary of US$80,600 (A$105,000) per annum.
12
LawFinance Limited
Directors' report
31 December 2020
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:
Anthony Murphy
Non-Executive Director
31 October 2017
Ongoing
Anthony is paid a gross salary of US$57,593 (A$75,000) per annum inclusive of
superannuation.
David Wattel
Non-Executive Director (resigned as Executive Director 1 December 2020)
28 September 2018
Ongoing
David was paid a gross salary of US$400,000 per annum until 1 May 2020, reduced
to $240,000 per annum until 1 December 2020. During the current year, David was
not paid a salary from 10 March 2020 to 30 June 2020. Notice period is 1 month by
NHF, or 3 months by the employee. David’s remuneration structure from 1 January
2021 is yet to be finalised, but will be linked exclusively to performance metrics, as
outlined in the Company’s market announcement on 9 December 2020.
Daniel Kleijn
Chief Executive Officer, Managing Director
8 December 2020
Ongoing
Daniel is paid a gross salary of US$441,543 (A$575,000) per annum inclusive of
superannuation. Notice period is 6 months by either party.
Daniel will be eligible to participate in STI arrangements offered by LAW from time to
time commencing in the 2021 Financial (calendar) year. Daniel will be entitled to up to
75% of his fixed remuneration in the 2021 financial year.
Daniel will be eligible to participate in LTI arrangements offered by LAW from time to
time. Upon joining LAW, Daniel will be offered a grant of options to acquire
45,833,333 LAW shares with a strike price of A$0.049. The options will vest 3 years
from the date of grant and be exercisable for a 1 year period after they vest. These
options have an approximate value of A$412,500. In the 2021 financial year, Daniel
will be offered a grant of options to acquire LAW shares, with a minimum value of
A$412,500. Further details regarding these awards will be determined in the future by
LAW, but the terms relating to vesting and exercise of these options will be consistent
with those granted to other LAW executives.
Diane Jones
Former Chief Executive Officer and Executive Director (resigned 8 December 2020)
15 March 2016
Not applicable
Diane is paid a gross salary of US$422,345 (A$550,000) per annum inclusive of
superannuation. She is currently serving her Notice Period, which expires 30 June
2021.
Anthony Hersch
Chief Operating Officer
18 April 2016
Ongoing
Anthony
is paid a gross salary of US$230,370 (A$300,000) (US$295,642
(A$385,000) to 31 December 2020) per annum inclusive of superannuation. Notice
period is 3 months.
13
LawFinance Limited
Directors' report
31 December 2020
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Phil Smith
Chief Financial Officer
8 December 2020
Ongoing
Phil is paid a gross salary of US$230,370 (A$300,000) per annum inclusive of
superannuation. Notice period is 3 months by the Company or 6 months by the
employee.
Phil will be eligible to participate in STI arrangements offered by LAW from time to
time commencing in the 2021 Financial (calendar) year. Phil will be entitled to up to
75% of his fixed remuneration in the 2021 financial year.
Phil will be eligible to participate in LTI arrangements offered by LAW from time to
time. Upon joining LAW, Phil will be offered a grant of options to acquire 25,000,000
LAW shares with a strike price of A$0.049. The options will vest 3 years from the date
of grant and be exercisable for a 1 year period after they vest. These options have an
approximate value of A$225,000. In the 2021 financial year, Phil will be offered a
grant of options to acquire LAW shares, with a minimum value of A$225,000. Further
details regarding these awards will be determined in the future by LAW, but the terms
relating to vesting and exercise of these options will be consistent with those granted
to other LAW executives.
Craig Beatton
Head of Reporting & Compliance (Chief Financial Officer until 8 December 2020)
9 September 2016
Ongoing
Craig is paid a gross salary of US$153,580 (A$200,000) (US$190,055 (A$247,500) to
31 December 2020) per annum inclusive of superannuation. Notice period is 1 month.
Sarika Merchant
Former Chief Financial Officer – NHF (resigned 31 July 2020)
11 April 2018
Not applicable
Sarika was paid an annual base salary of US$300,000 per annum. No notice period.
From 1 August 2020 to 31 December 2020 Sarika was retained as a consultant on an
hourly basis to assist with the transitioning of her role.
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Richard Cruz
Chief Operating Officer - NHF
No signed agreement in place, commenced employment 25 April 2016.
No agreement in place and employment relationship is governed by general Arizonan
law.
Richard is paid an annual salary of US$230,000 per annum. No notice period.
KMPs have no entitlement to termination payments in the event of removal for misconduct.
Share-based compensation
Issue of shares
There were no shares issued to directors and other KMP as part of compensation during the year ended 31 December
2020.
Options
There were no options over ordinary shares issued to directors and other KMP as part of compensation that were
outstanding as at 31 December 2020.
Performance rights
There were no performance rights over ordinary shares issued to directors and other KMP as part of compensation that
were outstanding as at 31 December 2020.
14
LawFinance Limited
Directors' report
31 December 2020
General performance and link to remuneration policy
The earnings of the Group for the five years to 31 December 2020 are summarised below:
31 Dec 2020 31 Dec 2019
31 Dec 2018 30 Jun 2018 30 Jun 2017
US$'000
(restated)
US$'000
US$'000
US$'000
US$'000
Total revenue and other income
EBITDA (excluding the litigation funding
business)
Loss after income tax
(7,519)
(656)
4,554
5,918
3,570
(57,154)
(78,136)
(28,324)
(23,256)
120
(11,548)
2,857
(5,142)
1,929
(4,279)
The factors that are considered to affect TSR are summarised below:
31 Dec 2020 31 Dec 2019 31 Dec 2018 30 Jun 2018 30 Jun 2017
Share price at financial year end (A$)
Basic loss per share (cents per share)
Diluted loss per share (cents per share)
0.03
(8.68)
(8.68)
0.06
(4.70)
(4.70)
0.07
(4.60)
(4.60)
0.07
(3.68)
(3.68)
0.20
(3.53)
(3.53)
The basic loss per share and diluted loss per share for the year ended 31 December 2019 is restated (refer to note 4).
Short-Term Incentive Plan
Financial year ended 31 December 2020 - STIP
There were no bonuses paid to KMPs during the current financial period.
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.
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%
Long-Term Incentive Plan
There were no grants of equity under the LTIP during the financial period ended 31 December 2020 and 31 December
2019.
15
LawFinance Limited
Directors' report
31 December 2020
Additional disclosures relating to KMPs
Shareholding
The number of ordinary shares in the Company held during the financial year by each director and other KMP of the
Group, including their personally related parties, is set out below:
Tim Storey
Anthony Murphy
David Wattel
Diane Jones*
Anthony Hersch
Craig Beatton
Balance at Received as
part of rem-
the start of
uneration
the year
6,603,014
3,865,000
107,548,701
3,911,831
957,227
50,000
122,935,773
-
-
-
-
-
-
-
Additions
660,301
1,771,250
-
1,210,273
-
50,000
3,691,824
Disposals/
other
-
-
-
-
-
-
-
Balance at
the end of
the year
7,263,315
5,636,250
107,548,701
5,122,104
957,227
100,000
126,627,597
*
shares held at the date of resignation
During the financial year ended 31 December 2020, there were no shares in the Company held by directors and other
KMPs other than those disclosed in the table above.
Options granted
The number of options over ordinary shares in the Company held during the financial year by each director and other KMP
of the Group, including their personally related parties, is set out below:
Options over ordinary shares
David Wattel
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
-
-
35,750,000
35,750,000
-
-
-
-
35,750,000
35,750,000
The details of the options granted during the financial year is set out below:
Grant date
13/03/2020
13/03/2020
13/03/2020
Expiry date
28/09/2021
28/09/2022
28/09/2023
*
Exercise price - A$0.25, A$0.40 and A$0.60 respectively.
Exercise
price*
US$0.192
US$0.307
US$0.461
Number
12,000,000
11,250,000
12,500,000
35,750,000
The options were granted as full payment for David's 50% portion of a promissory note (US$4,500,000) and vendor loans
(A$8,600,000).
During the financial year ended 31 December 2020, there were no options over ordinary shares in the Company held by
directors and KMP’s other than those disclosed in the table above.
Performance rights
During the financial year ended 31 December 2020, there were no performance rights over ordinary shares in the
Company held by directors and other KMPs.
16
LawFinance Limited
Directors' report
31 December 2020
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:
Balance at Received as
the start of part of rem-
uneration
the year
Additions
Disposals/
Other
Balance at
the end of
the year
Diane Jones
500
-
-
(500)
-
During the financial year ended 31 December 2020, 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
KMP of the Group, including their personally related parties, is set out below:
David Wattel
Balance at
the start of
the year
61,431,818
61,431,818
Granted
Vested
-
-
Expired/
forfeited/
other
Balance at
the end of
the year
61,431,818
61,431,818
-
-
-
-
The grant date and expiry date of the warrants is 28 September 2018 and 28 September 2022 respectively.
The exercise price of the warrants is A$0.135 (31 December 2019: A$0.135). 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.
During the financial year ended 31 December 2020, 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 34 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 34 for further details.
This concludes the remuneration report, which has been audited.
Shares under option
Unissued ordinary shares of LawFinance Limited under option at the date of this report are as follows:
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$0.192
US$0.307
US$0.461
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.
17
LawFinance Limited
Directors' report
31 December 2020
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 (31 December 2019: A$0.135). 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 2020 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 2020 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 year, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
During the financial year, 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 year by the auditor
are outlined in note 31 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, 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 2020
The directors are of the opinion that the services as disclosed in note 31 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 (including Independence Standards) 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 2021
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 2021
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 2020, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii)
any applicable code of professional conduct in relation to the audit.
Yours sincerely
STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD
(Trading as Stantons International)
(An Authorised Audit Company)
Samir Tirokdar
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 year ended 31 December 2020
Revenue
Net loss from disbursement funding/medical lien funding
Other revenue
Total revenue
Non-supplier related cost of sales
Gross loss
Other income
Foreign exchange gain
Expenses
Impairment gain on financial liabilities
Employee benefits expense
Depreciation and amortisation expense
Impairment of assets
Administration and other expenses
Finance costs
Note
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
Restated*
US$'000
6
7
8
9
9
9
9
9
9
(9,444)
1,916
(7,528)
(51)
(7,579)
2
7
19,602
(4,951)
(666)
(42,866)
(3,872)
(16,831)
(925)
261
(664)
206
(458)
3
5
-
(5,760)
(591)
-
(3,109)
(18,414)
(Loss) before income tax (expense)/benefit from continuing operations
(57,154)
(28,324)
Income tax (expense)/benefit
10
(13,542)
5,245
(Loss) after income tax (expense)/benefit from continuing operations
(70,696)
(23,079)
(Loss) after income tax expense from discontinued operations
11
(7,440)
(177)
(Loss) after income tax (expense)/benefit for the year
(78,136)
(23,256)
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive loss for the year
(Loss) for the year is attributable to:
Non-controlling interest
Owners of LawFinance Limited
Total comprehensive loss for the year is attributable to:
Continuing operations
Discontinued operations
Non-controlling interest
Continuing operations
Discontinued operations
Owners of LawFinance Limited
(1,680)
(1,680)
780
780
(79,816)
(22,476)
338
(78,474)
(494)
(22,762)
(78,136)
(23,256)
338
-
338
(494)
-
(494)
(72,714)
(7,440)
(80,154)
(21,805)
(177)
(21,982)
(79,816)
(22,476)
11
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 profit or loss and other comprehensive income
For the year ended 31 December 2020
Earnings per share for loss from continuing operations attributable to the
owners of LawFinance Limited
Basic loss per share
Diluted loss per share
Earnings per share for loss from discontinued operations attributable to the
owners of LawFinance Limited
Basic loss per share
Diluted loss per share
Earnings per share for loss attributable to the owners of LawFinance Limited
Basic loss per share
Diluted loss per share
*Refer to note 4 for detailed information on the restatement of comparatives.
12
12
12
12
12
12
Cents
Cents
Restated*
(7.82)
(7.82)
(4.77)
(4.77)
(0.82)
(0.82)
(8.68)
(8.68)
(0.04)
(0.04)
(4.70)
(4.70)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
22
LawFinance Limited
Consolidated statement of financial position
As at 31 December 2020
Assets
Current assets
Cash and cash equivalents
Financial assets at fair value through profit or loss - Australia
Financial assets at amortised cost - USA
Other loans and receivables
Prepayments
Assets held for sale
Total current assets
Non-current assets
Financial assets at fair value through profit or loss - Australia
Financial assets at amortised cost - USA
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
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provision for withholding tax
Total non-current liabilities
Total liabilities
Net liabilities
Consolidated
31 Dec 2020 31 Dec 2019
Note
US$'000
US$'000
Restated*
13
14
15
16
11
14
15
16
17
18
19
20
21
10
22
23
11
23
4,900
7,194
15,239
677
118
28,128
10,248
38,376
8,929
38,014
5
-
91
1,074
-
10
-
48,123
5,777
12,260
17,236
1,654
165
37,092
-
37,092
9,923
55,895
5
1,157
168
1,443
40,504
8,040
12,579
129,714
86,499
166,806
6,789
113,514
461
287
121,051
10,248
131,299
416
784
1,559
2,759
9,322
117,375
369
213
127,279
-
127,279
40,073
1,162
804
42,039
134,058
169,318
(47,559)
(2,512)
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
23
LawFinance Limited
Consolidated statement of financial position
As at 31 December 2020
Equity
Issued capital
Capitalising converting notes
Reserves
Accumulated losses
(Deficiency) attributable to the owners of LawFinance Limited
Non-controlling interest
Total (deficiency)
*Refer to note 4 for detailed information on the restatement of comparatives.
Consolidated
31 Dec 2020 31 Dec 2019
Note
US$'000
US$'000
Restated*
24
25
26
61,310
13,933
5,220
(127,560)
(47,097)
(462)
40,924
-
6,778
(49,086)
(1,384)
(1,128)
(47,559)
(2,512)
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
24
LawFinance Limited
Consolidated statement of changes in equity
For the year ended 31 December 2020
Consolidated
Issued
capital
US$'000
Capitalising
converting
notes
US$'000
Reserves
US$'000
Accumulated
losses
US$'000
Non-
controlling
interest
US$'000
5,998
(26,310)
516
Total
(deficiency)
US$'000
Restated*
17,853
Balance at 1 January 2019
37,649
Adjustment for change in
accounting policy (AASB 16
Leases)
Balance at 1 January 2019 -
restated
(Loss) after income tax benefit
for the year
Other comprehensive income
for the year, net of tax
Total comprehensive
(loss)/income for the year
Transactions with owners in
their capacity as owners:
Distributions to non-controlling
interest
Issue of shares - placement
(note 24)
Share issue costs
-
37,649
-
-
-
-
3,499
(224)
Balance at 31 December 2019
40,924
-
-
-
-
-
-
-
-
-
-
-
(14)
-
(14)
5,998
(26,324)
516
17,839
-
(22,762)
(494)
(23,256)
780
-
-
780
780
(22,762)
(494)
(22,476)
-
-
-
-
-
-
(1,150)
(1,150)
-
-
3,499
(224)
6,778
(49,086)
(1,128)
(2,512)
*Refer to note 4 for detailed information on the restatement of comparatives.
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
25
LawFinance Limited
Consolidated statement of changes in equity
For the year ended 31 December 2020
Consolidated
Issued
capital
US$'000
Capitalising
converting
notes
US$'000
Reserves
US$'000
Accumulated
losses
US$'000
Non-
controlling
interest
US$'000
Total
(deficiency)
US$'000
Balance at 1 January 2020
40,924
(Loss)/profit after income tax
expense for the year
Other comprehensive loss for
the year, net of tax
Total comprehensive
(loss)/income for the year
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transaction costs (note 24)
Distribution to non-controlling
interest
Share-based payments
Capitalising converting notes
(note 25)
-
-
-
20,386
-
-
-
-
-
-
-
-
-
-
13,933
6,778
(49,086)
(1,128)
(2,512)
-
(78,474)
338
(78,136)
(1,680)
-
-
(1,680)
(1,680)
(78,474)
338
(79,816)
-
-
122
-
-
-
-
-
-
328
-
-
20,386
328
122
13,933
Balance at 31 December 2020
61,310
13,933
5,220
(127,560)
(462)
(47,559)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
26
LawFinance Limited
Consolidated statement of cash flows
For the year ended 31 December 2020
Cash flows from operating activities
Cash collections from customers (inclusive of GST)
Payments to suppliers and employees
Payments for disbursement reports and medical liens
Drawdowns from working capital facilities - disbursement funding division
Drawdowns from working capital facilities - medical lien funding division
Repayment of working capital facilities - disbursement funding division
Repayment of working capital facilities - medical lien funding division
Interest and fees related to working capital facilities
Interest received
Interest paid
Note
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
28,179
(8,398)
(11,506)
3,526
6,083
(9,379)
(12,950)
(7,006)
2
(18)
33,060
(11,772)
(30,015)
9,903
17,625
(8,326)
(15,925)
(8,476)
7
(70)
Net cash (outflow) from operating activities
37
(11,467)
(13,989)
Cash flows from investing activities
Payments for purchase of non-controlling interest
Payments for property, plant and equipment
Payments for litigation case funding (net of co-funders contributions)
Net proceeds from realisation of investments (case settlements)
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share issue transaction costs
Proceeds from borrowings - corporate
Repayment of borrowings - corporate
Repayment of lease liabilities
Interest and fees related to loans and borrowings
Net cash inflow from financing activities
24
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
13
-
(16)
(222)
1,855
1,617
9,058
(409)
28,689
(25,391)
(245)
(1,320)
(5)
(156)
(799)
632
(328)
3,499
-
18,468
(1,186)
(159)
(4,116)
10,382
16,506
532
5,777
(958)
5,351
2,189
3,696
(108)
5,777
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
27
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 1. General information
The financial statements cover LawFinance Limited as a Group consisting of LawFinance Limited ('Company' or 'parent
entity') and the entities it controlled ('the Group') at the end of, or during, the period.
The financial statements are presented in United States dollars ('US$' 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.
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 2021.
Note 2. Significant accounting policies
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:
Conceptual Framework for Financial Reporting (Conceptual Framework)
The Group has adopted the revised Conceptual Framework from 1 January 2020. The Conceptual Framework contains
new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards,
but it has not had a material impact on the Group's financial statements.
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 - material uncertainty
The consolidated financial statements of the Group have been prepared on a going concern basis, which indicates
continuity of business activities and the realisation of assets and settlement of liabilities in the normal course of business.
The Group made an after-tax loss of $78,136,000 for the year ended 31 December 2020 after realising net impairments of
$27,438,000, additional provisioning against Financial assets at fair value through profit or loss of $3,044,000 and
derecognising Group deferred tax assets of $12,579,000.
28
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
As at 31 December 2020 the Group had net a net asset deficiency of US$47,559,000 (31 December 2019: net asset
deficiency: US$2,512,000). It had net current liabilities of US$92,923,000 (31 December 2019: US$90,187,000). Corporate
Debt facilities of the Group were broadly in default of their payment obligations. The Group was working constructively with
all its corporate lenders to restructure these facilities. The Lenders of the largest corporate debt facility being the Syndicate
Acquisition Facility, which had outstanding principal and interest, including side loans, of US$41,342,000 (31 December
2019: US$32,923,000) had agreed a formal standstill agreement until the end of April 2021, while they continued to work
towards a consensual restructuring agreement.
As at 31 December 2020, NHF’s receivables-backed lending facilities were in technical breach of their facility terms (refer
to note 23). Lenders, including Atalaya, Assetsecure and EFI, were working cooperatively with the Group to rectify this
position. The Group is in the process of refinancing NHF’s Atalaya facility, which is secured over NHF’s Front Book of
receivables, with a new funder.
The ability of the Group to continue as a going concern is dependent upon the successful restructuring of the Group’s
liabilities and recapitalisation plans ('RP') and the continued support of the Group’s receivables-backed lenders.
The Group’s RP focuses on five key components which, its Directors believe, if achieved, would ensure that the Group
remains a going concern.
The following five key components of the RP are inter-related and as such are being pursued simultaneously;
(1) Complete the sale of the ligation portfolio (refer note 11);
(2) Restructure and/or obtain waivers of breaches under the Group’s EFI and Assetsecure receivables-backed facilities
(referred to above and in note 23);
(3) Obtaining a new NHF Front Book finance facility in order to refinance Atalaya $17,012,000 (note 23), and support
strategic growth plans for the NHF business;
(4) Restructuring the Corporate Debt Facilities including the conversion of a substantial portion of corporate debt
recorded on the balance sheet as at 31 December 2020, into the equity (shares) of LawFinance Limited; and
(5) Raising sufficient new equity capital to fund operations and support the implementation of strategic growth plans.
Each of these 5 key components of the RP are in advanced stages of planning, negotiation, and implementation with the
support of the Group’s financial and legal advisors. These events or conditions, along with uncertainty related to the
successful completion of the restructuring of liabilities and recapitalisation plans indicate that a material uncertainty exists
which may cast significant doubt over the company's ability to continue as a going concern. Therefore, the Group may be
unable to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the
financial report. In particular we draw your attention to notes 14 (Financial assets at fair value through profit or loss –
Australia) and 15 (Financial assets at amortised cost – USA) of the financial report which discloses the carrying value of
financial assets at fair value through profit or loss of $16,123,000 (2019: US$22,183,000) and the carrying value of the
financial assets at amortised cost of $53,253,000 (2019: US$73,131,000). These financial assets may be significantly
impaired if the restructure of the Group is not successfully completed.
At the date of this report, the Directors of the Company are of the opinion that there are reasonable grounds to expect that
the Group will be successful in implementing its RP and therefore able to continue as a going concern. In arriving at this
conclusion, the Directors have assessed the likelihood of successfully implementing each of the three key components of
the RP as well as their likely impacts on the financial position of the Group. In undertaking this assessment, the Directors’
have considered the status of each key process, the level of support/position of relevant stakeholders, and advice from the
Group’s legal and financial advisors. The Directors also engaged Wexted Advisors ('Wexted') to provide independent
advice on, upon amongst other things the likelihood of the RP being achieved. Wexted advised the Directors, in March
2021, that in Wexted’s opinion there was a reasonable likelihood that the RP would be successfully implemented.
At this time, the Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at
which it is recorded in the financial report at 31 December 2020. Accordingly, no adjustments have been made to the
financial report relating to the recoverability and classification of the asset carrying amounts or the amounts and
classifications of liabilities that might be necessary should the Group not continue as 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 35.
29
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of LawFinance Limited as at
31 December 2020 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.
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 the Group's relevant functional currency 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 year-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.
30
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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
or 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.
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 using
assumptions based on historical performance, for 31 December 2020 the directors have used the data for the last 12
months to include any impact for the COVID-19 pandemic (the 31 December 2019 assumptions were based on actuarial
assumptions). These assumptions include 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
the same assumptions and 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.
31
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
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, or where there is an obligation to transfer the
cash flows from those receivables and that transfer qualifies for derecognition. 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
In this business, the Group purchases a lien or obtains a letter of protection over receivables of medical 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 provider 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).
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).
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, or where there is an obligation to transfer the
cash flows from those receivables and that transfer qualifies for derecognition. 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.
32
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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.
Government grants
Grants from the government are recognised at their fair value when there is reasonable assurance that the grant will be
received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and
recognised in profit or loss as other income over the periods necessary to match them with the costs that they are intended
to compensate.
Income tax
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.
An income tax benefit will arise for the financial year where an income tax loss is incurred and, where the permitted to do
so, is carried-back against a qualifying prior period’s tax payable to generate a refundable tax offset.
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.
Discontinued operations
A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that
represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to
dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The
results of discontinued operations are presented separately on the face of the statement of profit or loss and other
comprehensive income.
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.
33
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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.
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 using assumptions based on historical performance, for 31 December 2020 the
directors have used the data for the last 12 months to include any impact for the COVID-19 pandemic (the 31 December
2019 assumptions were based on actuarial assumptions). These assumptions include 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
the same assumptions and 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, or where there is an obligation to transfer the
cash flows from those receivables and that transfer qualifies for derecognition. 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.
34
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
Loan receivables at amortised cost – US medical lien receivables funding business
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 provider 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).
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, or where there is an obligation to transfer the
cash flows from those receivables and that transfer qualifies for derecognition. 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.
Non-current assets or disposal groups classified as held for sale
Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying
amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held
for sale, they must be available for immediate sale in their present condition and their sale must be highly probable.
An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal
groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of
disposal of a non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss
previously recognised.
Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses
attributable to the liabilities of assets held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented
separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as
held for sale are presented separately on the face of the statement of financial position, in current liabilities.
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 in relation to the following:
●
●
●
●
●
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.
35
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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.
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.
36
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
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.
37
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
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.
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 year 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.
The liability arising from the facility agreement entered into with Efficient Frontier Investing (see note 23) accrues interest at
12% per annum. Additionally, following the full repayment of the loan the agreement requires that a share of any further
proceeds from the medical lien receivables are transferred to the lenders. An estimate of the amount of future proceeds to
be transferred to the lenders has been included in the determining the expected cash flows when measuring this liability at
amortised cost as they are an integral part of the effective interest rate.
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.
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.
38
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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.
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.
39
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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.
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.
40
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 2. Significant accounting policies (continued)
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 year, adjusted for bonus elements in ordinary shares issued during the financial year.
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 period ended 31 December 2020. The
Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations.
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.
41
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
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 Australian Disbursement Funding
business
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
assumptions that are based on historical performance, for 31 December 2020 the directors have used the data for the last
12 months to include any impact for the COVID-19 pandemic (the 31 December 2019 assumptions were based on
actuarial assumptions). These assumptions 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 29.
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 2020 and 31 December 2019.
●
●
Key judgements and estimates - EFI Facility Agreement liability
The key estimates applied in determining the amortised cost of the liability arising from the new facility agreement (see
note 23) are primarily based on the assumptions underlying the expected recovery of the medical lien receivables,
specifically:
●
The estimation of the expected amount and timing of future cash flows arising from the medical lien receivables that
will be used to repay the principal and accrued interest under the facility; and
● Where the estimate indicates that loan and accrued interest will be repaid in full, the estimation of the lender’s share
of any further cash flows under the facility agreement.
Changes in the timing and magnitude of the estimated cash flows from those assessed at inception of the loan will impact
the income statement. A reduction in the amount of proceeds or those proceeds arising later than expected will have a
negative impact. Increases in the amount of proceeds or those proceeds arising earlier than anticipated will have a positive
impact.
The assumptions used in determining the amortised cost of the liability are the same as those that have been used to
assess the amortised cost of the related assets.
Carrying value measurement of loan receivables for Medical Lien Receivables
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.
42
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 3. Critical accounting judgments, estimates and assumptions (continued)
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 models 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 medical 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 the Group's
experience of recoveries from medical liens in the relevant jurisdiction, the Group's 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.
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.
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.
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.
43
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 3. Critical accounting judgments, estimates and assumptions (continued)
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. Refer to note 10 for further
details.
Valuation of contingent proceeds
For the purposes of financial reporting, the Directors have made an internal management assessment that the value of the
conditional component of the sales proceeds of the Litigation Funding business has a nil value – refer to note 11.
44
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 4. Restatement of comparatives
Prior period restatement
Statement of profit or loss and other comprehensive income
Extract
Revenue
Other revenue
Other income
Expenses
Impairment gain on financial liabilities
Impairment of assets
Administration and other expenses
Finance costs
31 Dec 2019
US$'000
Reported
Consolidated
US$'000
Adjustment
(ii) & (iii)
31 Dec 2019
US$'000
Restated
661
582
(400)
(579)
261
3
20,828
(458)
(3,210)
(17,249)
(20,828)
458
101
(1,165)
-
-
(3,109)
(18,414)
(Loss) before income tax benefit from continuing operations
(5,911)
(22,413)
(28,324)
Income tax benefit
2,811
2,434
5,245
(Loss) after income tax benefit from continuing operations
(3,100)
(19,979)
(23,079)
(Loss) after income tax expense from discontinued operations
-
(177)
(177)
(Loss) after income tax (expense)/benefit for the year
(3,100)
(20,156)
(23,256)
Other comprehensive income
Foreign currency translation
Other comprehensive income for the year, net of tax
875
875
(95)
(95)
780
780
Total comprehensive loss for the year
(2,225)
(20,251)
(22,476)
(Loss) for the year is attributable to:
Non-controlling interest
Owners of LawFinance Limited
Total comprehensive loss for the year is attributable to:
Continuing operations
Discontinued operations
Non-controlling interest
Continuing operations
Discontinued operations
Owners of LawFinance Limited
(494)
(2,606)
-
(20,156)
(494)
(22,762)
(3,100)
(20,156)
(23,256)
(494)
-
(494)
(1,731)
-
(1,731)
-
-
-
(20,074)
(177)
(20,251)
(494)
-
(494)
(21,805)
(177)
(21,982)
(2,225)
(20,251)
(22,476)
45
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 4. Restatement of comparatives (continued)
Earnings per share for loss from continuing operations attributable to
the owners of LawFinance Limited
Basic loss per share
Diluted loss per share
Earnings per share for loss from discontinued operations attributable to
the owners of LawFinance Limited
Basic loss per share
Diluted loss per share
Earnings per share for loss attributable to the owners of LawFinance
Limited
Basic loss per share
Diluted loss per share
Cents
Reported
Cents
Adjustment
(ii) & (iii)
Cents
Restated
-
-
-
-
(4.77)
(4.77)
(4.77)
(4.77)
(0.04)
(0.04)
(0.04)
(0.04)
(0.54)
(0.54)
(4.16)
(4.16)
(4.70)
(4.70)
(i)
The reclassification of the Atalaya Capital Management borrowings from non-current to current for the year ended 31
December 2019. The Company had received a conditional waiver subject to one final condition outstanding that was
fulfilled shortly after year end and as such considered a current liability for the year ended 31 December 2019. There
is no impact to the comparative statement of profit or loss for the year ended 31 December 2019.
(ii) The write down of the Vendor loan - NHF Founders and NHF Founder Promissory Notes totalling US$22,612,000
were subject to shareholder approval, which was obtained at the Extraordinary General Meeting held on 10 March
2020. At the time of the signing of the 31 December 2019 financial statements on 31 March 2020, the Board were
satisfied that all the conditions concerning the write down were met and therefore that the write downs should be
included in 31 December 2019 results as an adjusting event.
The directors have subsequently sought third party advice on this classification and the procedures undertaken to
form this view. In particular, the Board considered whether the liabilities could be assessed as being extinguished as
at 31 December 2019 and whether the subsequent shareholder vote was confirmation of circumstances that existed
at balance date or a new circumstance occurring in the 2020 financial year.
As a result of this advice, the Board concluded that, as shareholder approval was obtained after 31 December 2019,
the write down of these liabilities was incorrectly recorded at 31 December 2019. Accordingly, the restatement has de-
recognised the write down in the statement of financial position for the year ended 31 December 2019. These loans
have now been fully impaired (or written-off) in the year ended 31 December 2020. The reported impairment gain on
financial liabilities of 20,828,000 was reversed at 31 December 2019 and subsequently disclosed in the current year.
There was also an interest expense adjustment in relation to these Vendor loans and Founder Promissory Notes of
1,167,000, where the interest that had been written back at 31 December 2019 was reversed, and subsequently
written back in the current year. Refer to the table above for the impact on total comprehensive loss.
(iii) Discontinued operations - On 29 January 2021, as announced to the market, the Company entered into a definitive
conditional agreement to sell JustKapital Litigation Pty Ltd (and its subsidiaries) for A$1, plus conditional proceeds
equal to:
● 50% of the net proceeds received from one of the funded cases; and
● 50% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has assumed the value of the conditional component of the
sales proceeds to have $nil value. Management is in the process of satisfying conditions precedent under the sale
agreement including holding an Extraordinary General Meeting for shareholders to approve the transaction. Grant
Thornton have prepared an Independent Expert’s Report ('IER') which had concluded the transaction to be fair and
reasonable. This IER is currently being updated based on recent positive developments, as announced to the market
on 24 March 2021. The terms of the agreement are being reconsidered in parallel with Grant Thornton’s work. The
Extraordinary General Meeting to obtain shareholder approval for the transaction has been postponed until further
notice.
Given that the Company has previously indicated that the Litigation Funding business was in run-off (since late 2017),
it has been deemed appropriate for the prior year profit or loss amounts to be restated as discontinued operations.
46
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 4. Restatement of comparatives (continued)
The impact on each line item of the statement of financial position as at 31 December 2019 is as follows:
Consolidated
Assets
Non-current assets:
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities:
Borrowings
Total current liabilities
Non-current liabilities:
Borrowings
31 Dec 2019
US$'000
Reported
US$'000
Adjustment
(i)
US$'000
Adjustment
(ii)
31 Dec 2019
US$'000
Restated
10,340
127,475
164,567
-
-
-
2,239
12,579
2,239
129,714
2,239
166,806
66,894
41,603
8,878
117,375
76,798
41,603
8,878
127,279
68,064
(41,603)
13,612
40,073
Total non-current liabilities
70,030
(41,603)
13,612
42,039
Total liabilities
146,828
-
22,490
169,318
Consolidated
Net assets/(liabilities) and equity
Net assets/(liabilities)
Equity:
Reserves
Accumulated losses
Total equity/(deficit)
Note 5. Operating segments
31 Dec 2019
US$'000
Reported
US$'000
Adjustment
(i)
US$'000
Adjustment
(ii)
31 Dec 2019
US$'000
Restated
17,739
6,873
(28,930)
17,739
-
-
-
-
(20,251)
(2,512)
(95)
6,778
(20,156)
(49,086)
(20,251)
(2,512)
Identification of reportable operating segments
The Group is organised into three operating segments: (i) JustKapital Finance, comprising the Australian disbursement
funding business and short-term funding, (ii) National Health Finance, comprising the US medical lien funding business
and (iii) all other operations including litigation funding (discontinued operations) and head office costs.
These operating segments are based on the internal reports that are reviewed and used by the Board (who are identified
as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of
resources.
47
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 5. Operating segments (continued)
Operating segment information
Consolidated - 31 Dec 2020
Revenue
Net (loss)/income from disbursement funding/medical lien
funding
Other revenue
Other income
Total revenue
Segment result
Depreciation and amortisation
Finance costs
(Loss)/profit before income tax expense
Income tax expense
(Loss) after income tax expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Consolidated - 31 Dec 2019
Revenue
Net income/(loss) from disbursement funding/medical lien
funding
Other revenue
Other income
Total revenue
Segment result
Depreciation and amortisation
Finance costs
(Loss) before income tax benefit
Income tax benefit
(Loss) after income tax benefit
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
JustKapital
Finance
US$'000
National
Health
Finance
US$'000
Other
US$'000
Total
US$'000
(133)
22
(111)
-
(111)
(5,593)
(196)
(1,840)
(7,629)
(9,311)
118
(9,193)
-
(9,193)
(50,507)
(467)
(8,463)
(59,437)
-
1,918
1,918
2
1,920
12,334
(921)
(8,883)
2,530
16,516
56,473
13,510
17,849
56,575
59,634
(9,444)
2,058
(7,386)
2
(7,384)
(43,766)
(1,584)
(19,186)
(64,536)
(13,600)
(78,136)
86,499
86,499
134,058
134,058
JustKapital
Finance
US$'000
National
Health
Finance
US$'000
Other
US$'000
Total
US$'000
3,252
30
3,282
-
3,282
2,127
(129)
(2,135)
(137)
(4,177)
181
(3,996)
-
(3,996)
(9,404)
(456)
(8,867)
(18,727)
-
50
50
587
637
(2,022)
(6)
(7,413)
(9,441)
27,039
121,661
18,106
22,546
81,767
65,005
(925)
261
(664)
587
(77)
(9,299)
(591)
(18,415)
(28,305)
5,049
(23,256)
166,806
166,806
169,318
169,318
48
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 5. Operating segments (continued)
Segment information for the comparative period has been restated. Refer to note 4.
Segment assets
Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of
economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their
nature and physical location.
Segment liabilities
Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations
of the segment. Accordingly, all liabilities are allocated based on the operations of the segment.
Geographical information
Australia
United States
Revenue from external
customers
Geographical non-current
assets
31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019
US$'000
US$'000
US$'000
US$'000
1,807
(9,193)
(7,386)
3,332
(3,996)
232
943
12,077
39,235
(664)
1,175
51,312
The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets,
post-employment benefits assets and rights under insurance contracts.
Note 6. Net loss from disbursement funding/medical lien funding
Disbursement funding - Australia:
Fair value (loss)/gain on financial assets at fair value through profit or loss
Medical lien funding - USA:
Interest income at amortised cost
Net impairment losses on financial assets at amortised cost
Net settlement gains on financial assets at amortised cost
Consolidated Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(133)
(133)
3,252
3,252
8,550
(18,275)
414
(9,311)
2,687
(8,402)
1,538
(4,177)
(9,444)
(925)
Due to the portfolio calculation approach used for the medical lien funding receivables acquired as part of the business
combination with LawFinance Limited, it was not possible to accurately separate impairment gains/losses arising on
settlement of those receivables as at 31 December 2019. This portfolio calculation was enhanced to report the appropriate
disclosure as at 31 December 2020.
49
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 7. Other revenue
Interest received – short-term lending
Brokerage commission received – insurance
Rebates received - medical lien funding
Rental income
Government grants
Administration fees
Non-case related settlements - NHF
Interest adjustment - vendor loan
Other revenue
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
22
-
-
64
263
-
44
1,523
1,916
30
14
11
144
-
2
60
-
261
Government grants
During the year the Group received payments from the Australian Government amounting to $253,000 as part of its
‘Boosting Cash Flow for Employers’ scheme in response to the COVID-19 pandemic and $10,000 from the City of
Chandler, Phoenix, Arizona USA in response to the COVID-19 pandemic. These non-tax amounts have been recognised
as government grants and recognised as other revenue once there is reasonable assurance that the Group will comply
with any conditions attached. The Group received one final payment from the Australian Government in January 2021
which will be included as other revenue next year. No further payments were received in the USA.
Interest adjustment – vendor loan
As a result of the write-off of the vendor loan the Group reversed the interest that had previously been capitalised to this
vendor loan during the period.
Note 8. Other income
Interest income
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
2
3
50
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 9. Expenses
(Loss) before income tax from continuing operations includes the following specific
expenses:
Impairment gain on financial liabilities*
Adjustment – vendor loan
Adjustment – promissory notes payable
Employee benefits expense
Defined contribution superannuation expense
Employee benefits expense excluding superannuation
Depreciation and amortisation expense
Depreciation - property, plant and equipment
Depreciation - right-of-use assets
Amortisation - other intangibles
Impairment of assets
Goodwill
Customer relationships
Impairment of short-term loans
Administration and other expenses
ASIC, ASX and share registry fees
Insurance
Legal and professional fees**
Rent and office costs
Travel and accommodation
Short-term lease payments
Low-value assets lease payments
Other
Finance costs
Interest expense and line fees
Interest - right-of-use assets
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(10,602)
(9,000)
(19,602)
154
4,797
4,951
77
394
195
666
40,906
1,481
479
42,866
41
191
3,091
23
99
15
57
355
3,872
-
-
-
72
5,688
5,760
117
232
242
591
-
-
-
-
90
107
1,781
298
204
55
44
530
3,109
16,740
91
18,348
66
16,831
18,414
*
**
As a result of the write-off of the vendor loan the Group reversed the interest that had previously been capitalised to
this vendor loan during the period.
This amount includes legal and professional fees of $1,454,000 (2019: $nil) associated with the Efficient Frontier
Investing refinance and in addressing defaults under the Syndicated acquisition facility and the ongoing process to
restructure it.
51
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 10. Income tax
Income tax expense/(benefit) is attributable to:
(Loss) from continuing operations
(Loss)/profit from discontinued operations
Aggregate income tax expense/(benefit)
Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate
(Loss) before income tax (expense)/benefit from continuing operations
(Loss)/profit before income tax expense from discontinued operations
Tax at the statutory tax rate of 27.5%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Expenses not deductible
Income not assessable
Bad debts
Difference in overseas tax rates
Exchange differences
Adjustment for derecognition of deferred tax asset
Income tax expense/(benefit)
Non-current assets
Deferred tax asset
Attributable to:
- USA
- Australia
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
13,542
58
(5,245)
196
13,600
(5,049)
(57,154)
(7,382)
(28,324)
19
(64,536)
(28,305)
(17,747)
(7,784)
4,367
(14,714)
-
(28,094)
16,364
12,751
12,579
841
-
49
(6,894)
1,033
812
-
13,600
(5,049)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
-
-
-
12,579
7,044
5,535
12,579
The Group assessed the recoverable amount of the deferred tax asset based on future expected profits over the next three
years, taking into account the challenging trading conditions caused by the COVID-19 pandemic. As a result of this
assessment, the deferred tax asset attributable to USA and Australia have been derecognised.
Despite the derecognition of the Deferred Tax Assets, the Group will seek to utilise its carried forward tax losses in future
years. In Australia, these tax losses will be utilised subject to satisfying either the ‘Continuity of Ownership’ test or
‘Continuity of Business’ test. The Group monitors this situation regularly and currently satisfies at least one of these tests.
Currently the Group has $23,876,000 (A$$31,093,000) of income tax losses to utilise in Australia and $54,976,000 of
income tax losses to utilise in the USA.
52
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 10. Income tax (continued)
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Tax losses
Other temporary differences
Loans and other receivables
Set off deferred tax liability
Deferred tax asset
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Property, plant and equipment
Prepayments
Work in progress
Other temporary differences
Set off deferred tax asset
Deferred tax liability
Note 11. Discontinued operations
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
-
-
-
-
7,957
2,519
4,809
(2,706)
12,579
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
-
-
-
-
-
111
1
1,688
906
(2,706)
-
Description
On 29 January 2021, as announced to the market, the Company entered into a definitive conditional agreement to sell
JustKapital Litigation Pty Ltd (and its subsidiaries) for A$1, plus conditional proceeds equal to:
●
●
50% of the net proceeds received from one of the funded cases; and
50% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has assumed the value of the conditional component of the sales
proceeds to have nil value. Management is in the process of satisfying conditions precedent under the sale agreement
including holding an Extraordinary General Meeting for shareholders to approve the transaction. Grant Thornton have
prepared an Independent Expert’s Report (‘IER’) which had concluded the transaction to be fair and reasonable. This IER
is currently being updated based on recent positive developments, as announced to the market on 24 March 2021. The
terms of the agreement are being reconsidered in parallel with Grant Thornton’s work. The Extraordinary General Meeting
to obtain shareholder approval for the transaction has been postponed until further notice.
Given that the Company has previously indicated that the Litigation Funding business was in run-off (since late 2017), it
has been deemed appropriate to reclassify this business as discontinued operations.
Provisions to the carrying value of litigation funding assets have been made to reflect the terms of the sale agreement with
Legal Equity partners Pty Limited.
53
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 11. Discontinued operations (continued)
Financial performance information
Litigation contracts in progress – settlements and judgments
Litigation contracts in progress – expenses
Total revenue
Depreciation and amortisation
Impairment of assets (note 21)
Administration and other expenses
Finance costs*
Total expenses
(Loss)/profit before income tax expense
Income tax expense
(Loss) after income tax expense from discontinued operations
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
1,892
(1,750)
142
(918)
(4,174)
(77)
(2,355)
(7,524)
(7,382)
(58)
(7,440)
636
(57)
579
-
(458)
(101)
(1)
(560)
19
(196)
(177)
*
A Minimum Return of $2,304,000 (A$3,000,000) under the Loan Facility with Principis Master Fund SPC, which is due
for payment by 17 July 2021, has been expensed in the current year.
Cash flow information
Net cash (outflow) from operating activities
Net cash inflow/(outflow) from investing activities
Net cash (outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents from discontinued operations
Carrying amounts of assets and liabilities classified as held for sale
Cash and cash equivalents (note 13)
Prepayments
Litigation contracts in progress - capitalised external costs* (note 21)
Investment held in joint operation
Total assets
Trade and other payables
Accruals
Borrowings
Total liabilities
Net assets
*
Net of provision for case impairment of $4,174,000
54
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(77)
1,633
(54)
1,502
(101)
(167)
(1)
(269)
Consolidated
31 Dec 2020
US$'000
451
38
8,070
1,689
10,248
2,316
215
7,717
10,248
-
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 12. Earnings per share
Earnings per share for loss from continuing operations
(Loss) after income tax attributable to the owners of LawFinance Limited
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(70,696)
(23,079)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
904,189,005
483,849,508
Weighted average number of ordinary shares used in calculating diluted earnings per share
904,189,005
483,849,508
Basic loss per share
Diluted loss per share
Earnings per share for loss from discontinued operations
(Loss) after income tax attributable to the owners of LawFinance Limited
Cents
Cents
(7.82)
(7.82)
(4.77)
(4.77)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(7,440)
(177)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
904,189,005
483,849,508
Weighted average number of ordinary shares used in calculating diluted earnings per share
904,189,005
483,849,508
Basic loss per share
Diluted loss per share
Earnings per share for loss
(Loss) after income tax
Non-controlling interest
Cents
Cents
(0.82)
(0.82)
(0.04)
(0.04)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(78,136)
(338)
(23,256)
494
(Loss) after income tax attributable to the owners of LawFinance Limited
(78,474)
(22,762)
Weighted average number of ordinary shares used in calculating basic earnings per share
904,189,005
483,849,508
Weighted average number of ordinary shares used in calculating diluted earnings per share
904,189,005
483,849,508
Number
Number
Basic loss per share
Diluted loss per share
55
Cents
Cents
(8.68)
(8.68)
(4.70)
(4.70)
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 12. Earnings per share (continued)
The Company excluded 71,500,000 options on issue (2019: nil), 14,000 convertible bonds (2019: 50,000), 452,743,636
warrants (2019: 452,743,636) and 223,414,026 shares attached to the Capitalising converting notes (note 25) (2019: nil)
from the diluted earnings calculations as they are anti-dilutive for the financial period.
Note 13. Cash and cash equivalents
Current assets
Cash at bank*
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
4,900
5,777
Reconciliation to cash and cash equivalents at the end of the financial year
The above figures are reconciled to cash and cash equivalents at the end of the financial
year as shown in the statement of cash flows as follows:
Balances as above
Cash and cash equivalents - classified as held for sale
Balance as per statement of cash flows
4,900
451
5,351
5,777
-
5,777
*
Of the total cash at bank, $1,585,000 (2019: $2,287,000) was considered unavailable for operations as it was held
pending distribution to asset-backed lenders.
Short-term cash deposits are used as bank guarantee security. Refer to note 32.
Note 14. Financial assets at fair value through profit or loss - Australia
Current assets
Loan receivables - disbursement funding - Australia (gross)
Fair value movement
Unrecognised day 1 margin
Allowance for expected credit losses
Non-current assets
Loan receivables - disbursement funding - Australia (gross)
Fair value movement
Unrecognised day 1 margin
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
13,597
(2,827)
(532)
(3,044)
16,877
(3,198)
(719)
(700)
7,194
12,260
12,980
(2,700)
(1,351)
14,733
(2,791)
(2,019)
8,929
9,923
16,123
22,183
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 (gross) disclosed above include US$5,104,000 (2019: US$ nil) which are past due but not
impaired. The Company believes the amounts are fully recoverable.
56
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 15. Financial assets at amortised cost - USA
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
Consolidated Consolidated
31 Dec 2020 31 Dec 2019
US$'000
Restated
US$'000
48,161
(32,922)
15,239
46,043
(28,807)
17,236
120,132
(82,118)
38,014
149,310
(93,415)
55,895
53,253
73,131
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 and is based on historical loss rates.
Note 16. Other loans and receivables
Current assets
Other trade receivables
Short-term loans
Other receivables
Non-current assets
Other receivables
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
48
128
176
501
677
5
682
70
283
353
1,301
1,654
5
1,659
Other receivables (current) as at 31 December 2020 are the Mesh receivables. The associated Mesh liabilities of $717,000
are included in note 22 'Trade and other payables'.
Other receivables at 31 December 2019 include amounts due to the Group from its joint venture partner for its share of
investments made in co-funded cases. No such amounts are owing to the Group at 31 December 2020, and the cases are
now included in assets held for sale (note 11).
57
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 17. Investment held in joint operations
Non-current assets
Investment held in joint operation
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
1,157
The Group has a material joint operation with Longford Capital Management LP ('Longford Capital') where the Group
coinvests with Longford Capital in one case in the United States on a 50:50 basis. The Group is entitled to its proportionate
share of the litigation contracts in progress income received and bears a proportionate share of the joint operation’s
investment in the case. This joint operation now forms part of the discontinued operations as shown in note 11.
Note 18. Property, plant and equipment
Non-current assets
Plant and equipment - at cost
Less: Accumulated depreciation
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
459
(368)
91
433
(265)
168
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 January 2019
Additions
Exchange differences
Depreciation expense
Balance at 31 December 2019
Additions
Exchange differences
Depreciation expense
Balance at 31 December 2020
Note 19. Right-of-use assets
Non-current assets
Land and buildings - right-of-use
Less: Accumulated depreciation
Additions to the right-of-use assets during the period were US$nil.
58
Plant and
equipment
US$'000
198
90
(3)
(117)
168
13
(13)
(77)
91
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
1,780
(706)
1,074
1,755
(312)
1,443
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 19. Right-of-use assets (continued)
The Group leases land and buildings for its offices under agreements of between two and seven years, with, in some
cases, options to extend.
For other AASB 16 lease related disclosures refer to the following:
●
●
●
●
Refer note 9 for details of interest on lease liabilities and other lease payments;
Refer note 28 for undiscounted future lease commitments;
Refer consolidated statement of financial position for lease liabilities at the end of the reporting period; and
Refer consolidated statement of cash flows for repayment of lease liabilities.
Note 20. Goodwill
Non-current assets
Goodwill - Australian disbursement funding business
Goodwill - US medical lien funding business
Movements in Goodwill during the current financial year are set out below:
Balance at 1 January 2020
Foreign currency translation
Impairment
Balance as at 31 December 2020
Goodwill - Australian disbursement funding business
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
-
-
4,159
36,345
40,504
Australian
disburse-
ment
funding
business
US$'000
US medical
lien funding
business
US$'000
Total
US$'000
4,159
402
(4,561)
36,345
-
(36,345)
40,504
402
(40,906)
-
-
-
As at 31 December 2020, the AssetSecure Pty Ltd loan was in default and overdrawn. JustKapital Financing Pty Ltd ('JKF')
had no ability to originate new business at that point in time and significant uncertainty existed relating to continued
operations. As mentioned in note 39, AssetSecure agreed in February 2021 to vary facility terms which will allow for
originations/funding to recommence albeit on a restricted basis. Given the constrained funding facilities and uncertain
impacts of the COVID-19 pandemic on future cashflows, a decision was taken to fully impair the Goodwill associated with
the acquisition of the JKF Business of $4,561,000.
Goodwill – US medical lien funding business
Due to the terms of the refinancing of the underperforming back book announced to the market on 7 December 2020 (the
back book of claims was the main asset of the NHF business acquired in 2018), constrained funding facilities and uncertain
impacts of the COVID-19 pandemic on future cashflows, a decision was taken to fully impair the Goodwill associated with
the acquisition of the NHF Business of $36,345,000.
59
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 21. Other intangibles
Non-current assets
Website - at cost
Less: Accumulated amortisation
Customer relationships – US medical lien funding business
Less: Accumulated amortisation and impairment
Litigation contracts in progress - capitalised external costs
Litigation contracts in progress - capitalised internal costs
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
25
(15)
10
1,913
(1,913)
-
-
-
-
10
17
(13)
4
1,913
(239)
1,674
5,594
768
6,362
8,040
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 January 2019
Additions
Exchange differences
Amortisation expense
Balance at 31 December 2019
Additions
Classified as held for sale (note 11)
Disposals
Case funding adjustments
Impairment
Exchange differences
Amortisation expense
Balance at 31 December 2020
Website
US$'000
Customer
relationships
US$'000
Litigation
contracts in
progress
US$'000
Total
US$'000
7
-
-
(3)
4
8
-
-
-
-
-
(2)
10
1,913
-
-
(239)
1,674
-
-
-
-
(1,481)
-
(193)
6,864
(448)
(54)
-
6,362
3,042
(8,070)
(870)
4,295
(4,174)
333
(918)
8,784
(448)
(54)
(242)
8,040
3,050
(8,070)
(870)
4,295
(5,655)
333
(1,113)
-
-
10
Due to the terms of the refinancing of the underperforming back book announced to the market on 7 December 2020 (the
back book of claims was the main asset of the NHF business acquired in 2018), constrained funding facilities and uncertain
impacts of the COVID-19 pandemic on future cashflows, a decision was taken to fully impair the customer relationships
associated with the acquisition of the NHF Business of $1,481,000.
Litigation contracts in progress – these costs form part of the discontinued operations as set out in note 11.
60
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 22. Trade and other payables
Current liabilities
Trade and other payables
Accruals
Goods and services tax payable
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
5,031
1,673
85
6,789
6,603
2,650
69
9,322
Trade and other payables are paid within the agreed credit terms.
Refer to note 28 for further information on financial instruments.
The above Trade and other payables as at 31 December 2020 includes Mesh liabilities of $717,000 – see note 16 'Other
loans and receivables'.
61
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings
Current liabilities
Assetsecure Pty Limited loan (i)
Efficient Frontier Investing (ii)
Vendor loan - Australian disbursement funding business (iii)
Convertible bonds payable (iv)
Lucerne Group combined loan (v)
Lucerne Group facility - US medical lien funding business (vi)
Paradise Diversified Holdings Limited Partnership (vii)
Other NHF subordinated debt (viii)
Other NHF subordinated debt (ix)
Other NHF subordinated debt (x)
Insurance financing - Australia
Syndicated acquisition facility ('SAF') (xi)
SAF Side Loan 1 (xii)
SAF Side Loan 2 (xiii)
Paycheck Protection Program loan (xiv)
NHF Founder Promissory Notes (xv)
Atalaya Capital Management (xvi)
Economic Injury Disaster Relief loan (xvii)
Insurance financing - USA
Credit cards
Non-current liabilities
Assetsecure Pty Limited loan (i)
Lucerne Group facility - US medical lien funding business (vi)
Other NHF subordinated debt (x)
Economic Injury Disaster Relief loan (xvii)
Paycheck Protection Program loan (xiv)
Vendor loan - NHF Founders (xviii)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
17,017
25,266
-
1,233
3,684
415
-
1,410
1,000
4,750
27
36,716
2,130
2,496
335
-
17,012
4
-
19
-
-
315
3,500
11,642
8,858
4,163
1,180
1,000
3,000
33
29,396
1,252
2,275
-
9,000
41,603
-
55
103
113,514
117,375
-
-
-
146
270
-
416
21,447
3,264
1,750
-
-
13,612
40,073
113,930
157,448
Refer to note 28 for further information on financial instruments.
(i) Assetsecure Pty Limited ('Assetsecure')
This loan facility of $30,716,000 (A$40,000,000) 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
current in the current financial period, as loan terms have been breached and not rectified. Interest and management fees
payable total 7.8% per annum (2019: 7.7% per annum) on the drawn down amounts and the facility line fee is 1% per
annum (2019: 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.
Management are working closely with AssetSecure in respect of ongoing defaults under the loan facility. In accordance
with an agreement reached with them in February 2021 they are continuing to allow funding under the agreement – see
note 39 for details.
62
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings (continued)
(ii) Efficient Frontier Investing
On 4 December 2020, the Company entered into a facility agreement for US$25,550,000 with Efficient Frontier Investing
('EFI'), acting as agent for a syndicate of financiers – reduced to $25,266,000 at 31 December 2020 (2019: $nil). The
facility was used to refinance amounts owing to Atalaya Capital Management and Paradise Diversified Holdings and is
repayable on 4 December 2023, with interest accruing at 12.50% per annum (2019: n/a).
Under the terms of the agreement, the facility is to be repaid with proceeds received from the assets of NHF SPV III LLC (a
company established during 2020 which acquired the rights to the US medical lien receivables). Following the repayment
of the facility and any accrued interest, the syndicate is entitled to approximately 54% of the future cash flows from those
receivables. Management has estimated the expected cash flows to arise under the agreement, including principal, interest
and the share of the remaining proceeds, and determined that the effective interest rate for this borrowing is 14.9%.
The facility is subject to a number of financial and non-financial covenants, with the primary financial covenant being a
calculation of the Loan to Value Ratio ('LVR') between the principal outstanding on the loan and the secured assets. A
breach of a covenant may require the Group to repay the loan earlier. The loan is secured by a general security agreement
over the assets of NHF SPV III LLC, which holds a selection of the NHF Receivables whose carrying value at 31
December 2020 was $29,502,000. LawFinance Limited has also provided a guarantee over the facility.
The receivables held within NHF SPV III LLC were assessed under the derecognition requirements in AASB 9, with the
receivables continuing to be recognised at amortised cost by the Company in their entirety.
NHF is currently in technical default of this finance facility and EFI is reserving its rights under the finance agreement. NHF
failed to meet the post financial close requirement to open the Proceeds Account required under the agreement and
ensure a DACA (Deposit Account Control Agreement – a US security) was in place by 18 December 2020. Challenges
were encountered in opening the DACA as a consequence of EFI not being a US domiciled entity and US regulatory
requirements. NHF is working closely with EFI to finalise the establishment of the account.
In addition, the EFI facility included a Key Person term, which triggered a review event under the terms of the facility, when
Diane Jones resigned from the Group. We have requested a waiver of this provision. EFI have not yet waived this review
event requirement, while the focus is on establishing the DACA.
As a consequence, we have recorded the entire EFI loan as a current liability, pending the resolution and waiver of
ongoing breaches.
(iii) Vendor loan - Australian disbursement funding business
The loan due to the vendor of the Australian disbursement funding business was repaid on 15 March 2020. Interest was
payable at 11% (2019: 11%) per annum. The Group signed a variation agreement on 2 July 2019, with a monthly
repayment schedule. The loan was unsecured.
63
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings (continued)
(iv) 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 (2019: 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. During the year ended 31 December 2020,
three bondholders have converted A$3,600,000 (plus capitalised interest of A$237,000) of bonds into ordinary shares. The
remaining bonds maturity date has been extended to 31 December 2021.
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 2020.
(v) 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 was repayable on 31 December 2020. Ongoing interest payable was 13.5%
per annum (2019: 13.5% per annum (including establishment fees)) on $8,843,000 (2019: $8,843,000). Ongoing interest
payable was 15% per annum (2019: 15%) on $2,799,000 (2019: $2,799,000). 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 2020.
During the year ended 31 December 2020, the Company either repaid the majority of this loan by issue of equity or the
loan was converted into the Capitalising Converting Note (refer to note 25). The outstanding balance as at 31 December
2020 of US$3,684,000 (A$4,797,000) has been split into three loans, as follows:
(a) A total of US$314,000 (A$408,000) which is repayable on 31 December 2021;
(b) A total of US$1,926,000 (A$2,508,000) was repayable on 31 December 2019. The Group is currently in discussion to
extend the repayment date of this facility; and
(c) A total of US$1,444,000 (A$1,881,000) was repayable on 31 December 2019. The Group is currently in discussion to
extend the repayment date of this facility.
64
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings (continued)
(vi) Lucerne Group facility - US medical lien funding business
Lucerne Finance Pty Limited and the Principis Master Fund had jointly provided facilities totalling $12,122,000 (2019:
$12,122,000) to the medical lien funding business as at 30 June 2020. $8,858,000 of this facility was repayable on 28
September 2020 with an interest rate of 19% per annum (2019: 19%), $2,550,000 of this facility was repayable on 9
August 2021 with an interest rate of 9.95% per annum (2019: 9.95%) and $714,000 of this facility was repayable on 13
September 2021 with an interest rate of 15.5% per annum (2019: 15.5%).
During the year ended 31 December 2020, the Company either repaid this loan by issue of equity or the loan was
converted into the Capitalising Converting Note (refer to note 25).
Subsequently, the Principis Master Fund provided facilities of $365,000 (2019: $nil) and $50,000 (2019: $nil). $365,000 of
this facility was repayable on 27 October 2020 with an interest rate of 13.5% per annum (2019: n/a). The Group is currently
in discussion to extend the repayment date of this facility. $50,000 of this facility was repayable on 4 December 2020 with
an interest rate of 13.5% per annum (2019: n/a). The Group is currently in discussion to extend the repayment date of this
facility.
(vii) Paradise Diversified Holdings Limited Partnership
This facility of $7,931,000 (2019: $4,163,000) was provided to fund the investment in specific accounts receivable in the
US. This facility was repaid on 4 December 2020 through the proceeds from the new facility provided by Efficient Frontier
Investing. Interest payable under this facility was 45% per annum (2019: 30%). The loan was guaranteed by NHF and
LawFinance.
(viii) Other NHF subordinated debt
A third party has provided a $1,410,000 facility (2019: $1,180,000) to fund working capital of the business which remains
payable as at 31 December 2020. This facility was repayable on 31 January 2021. The Group is currently in discussion to
extend the repayment date of this total facility. Interest payable under this facility is 24% per annum (2019: 24%) and can
be repaid early without penalty. 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 2020 (2019:
$1,000,000). The facilities are repayable on demand. Interest is payable at 12% per annum (2019: 12% per annum). The
loan is unsecured.
(x) Other NHF subordinated debt
Three third parties have provided facilities totalling $4,750,000 (2019: $4,750,000) to the medical lien funding business to
fund working capital as at 31 December 2020. $3,000,000 of this facility was repayable on 31 December 2020 with an
interest rate of 13.5% per annum (2019: 13.5%), $250,000 of this facility is repayable on 30 June 2021 with an interest rate
of 13% per annum (2019: 13%) and $1,500,000 of this facility is repayable on 31 July 2021 with an interest rate of 13.5%
per annum (2019: 13.5%). These loans are guaranteed by NHF and LawFinance. The Group is currently in discussion to
extend the repayment date of this total facility.
(xi) Syndicated acquisition facility ('SAF')
The Syndicated acquisition facility of $32,252,000 (A$42,000,000) (2019: $29,396,000 (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 (2019: 13% per annum). Interest has
been accrued under this facility for the period and therefore the balance as at 31 December 2020 was $36,716,000
(A$47,813,000). The loan is secured over all of the assets of the Group, with second ranking security provided behind the
assets secured to Assetsecure (see (i) above) and Atalaya (see (xvi) below).
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 2020, including the non-payment of interest. The
Group has successfully negotiated a standstill agreement with the Majority Lender of the facility until 30 April 2021. Despite
the fact that the facility is repayable on 28 September 2022, and no facility members have demanded the facility be repaid,
the facility has been classified as a current liability (31 December 2019: current).
65
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings (continued)
(xii) SAF Side Loan 1
Washington H Soul Pattinson & Company Limited ('WHSP') had provided a $2,130,000 (A$2,773,000) (2019: $1,252,000
(A$1,789,000)) loan to the Group. This loan was acquired by third parties on 4 December 2020. Interest payable under this
loan is 18% per annum (2019: 15%) on $1,976,000 (A$2,573,000) and 18% per annum (2019: 18%) on $154,000
(A$200,000). The loan is secured over all of the assets of the Group, with second ranking security provided behind the
assets secured to Assetsecure (see (i) above) and Atalaya (see (xvi) below).
(xiii) SAF Side Loan 2
WHSP had also provided a $2,496,000 (A$3,250,000) (2019: $2,275,000 (A$3,250,000)) deferred financing arrangement,
giving the Group the ability to defer interest payments payable under the Syndicated Acquisition Facility. This loan was
acquired by third parties on 4 December 2020. Interest payable under this arrangement is 18% per annum (2019: 15%).
The loan is secured over all of the assets of the Group, with second ranking security provided behind the assets secured to
Assetsecure (see (i) above) and Atalaya (see (xvi) below).
(xiv) Paycheck Protection Program loan
The Paycheck Protection Program Loan (or 'PPP Loan'), was made available by the U.S. Small Business Administration.
The PPP Loan was made available to US businesses in order to help bridge the economic gap that arose during the
COVID-19 pandemic and is to be utilised mainly for payroll (60%) and rent, mortgage interest payments and utilities (40%).
The Group has 24 weeks to utilise all the funds from the date the loan proceeds were received. The Company received the
loan funds on 17 April 2020.
Interest payable is 1% per annum until the loan is repaid in full, or forgiven under various US loan forgiveness programs.
Loan forgiveness can be applied for in relation to this loan under Section 1106 of the Coronavirus Aid, Relief and Economic
Security Act. This forgiveness can potentially be the entire amount of the loan other than an amount considered to be the
Economic Injury Disaster Advance amount received ('EIDL Advance'), if any. The Group received $10,000 as an EIDL
Advance as part of its PPP Loan. The Company’s preliminary calculations show that it should be able to apply for the
forgiveness of this loan, except for the $10,000 EIDL Advance. If the loan forgiveness is not granted, the Company must
repay the whole loan over an 18 month period at approximately $33,500 each month until the loan and its associated
interest is repaid in full. Given the backlog in processing forgiveness applications, this loan is still pending and as such, the
monthly loan repayments, if required, have not yet commenced.
(xv) NHF Founder Promissory Notes
As a result of the restatement of the 31 December 2019 comparatives (refer to note 4), these Promissory Notes were
forgiven in full during this current reporting period, with the Company issuing various options to the Founders in March
2020. The options were approved by shareholders at the extraordinary general meeting on 10 March 2020, and issued on
13 March 2020. The Promissory Notes were interest free (2019: interest free). The Promissory Notes were unsecured.
(xvi) Atalaya Capital Management ('Atalaya')
The loan facility of $80,000,000 (2019: $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 these
accounts receivables in the US). The interest and fees payable under the drawn down facility total 13.5% per annum
(2019: 12.76% per annum) and the undrawn line fees are 1% (2019: 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
would be waived if the Group complied with the forbearance arrangement by 31 January 2020. The Group received
confirmation that it had complied with the waiver conditions on 28 February 2020.
However, as a result of the effects of the COVID-19 pandemic, additional breaches of the facility have occurred during the
period. Although Atalaya have not demanded the facility be repaid, as several covenants were breached during the current
reporting period, it has been reclassified as a current liability (refer to note 4).
(xvii) Economic Injury Disaster Relief loan
The Economic Injury Disaster Relief loan (or 'EIDL Loan'), of $150,000 was made available to the Company by the U.S.
Small Business Administration on 16 June 2020. Interest at 3.75% per annum is payable under this EIDL Loan.
Repayments, including principal and interest, of $731 per month, commence on 26 July 2021. The loan term is 30 years.
66
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 23. Borrowings (continued)
(xviii) Vendor loan - NHF Founders
As a result of the restatement of the 31 December 2019 comparatives (refer to note 4), this loan was forgiven in full during
this current reporting period, with the Company issuing various options to the Vendors in March 2020. The options were
approved by shareholders at the extraordinary general meeting on 10 March 2020, and issued on 13 March 2020. There
was no interest payable under this facility in the current reporting period (2019: 13% per annum). The loan was unsecured.
Financing arrangements
At the reporting date, the following lines of credit were available:
Total facilities
Assetsecure Pty Limited loan (a)
Atalaya Capital Management (b)
NHF founder promissory notes
Syndicated acquisition facility (c)
Efficient Frontier Investing (d)
Used at the reporting date
Assetsecure Pty Limited loan (a)
Atalaya Capital Management (b)
NHF founder promissory notes
Syndicated acquisition facility (c)
Efficient Frontier Investing (d)
Unused at the reporting date
Assetsecure Pty Limited loan (a)
Atalaya Capital Management (b)
NHF founder promissory notes
Syndicated acquisition facility (c)
Efficient Frontier Investing (d)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
30,716
80,000
-
32,252
25,550
168,518
17,017
17,012
-
32,252
25,266
91,547
13,699
62,988
-
-
-
76,687
27,996
80,000
9,000
29,396
-
146,392
21,447
41,603
9,000
29,396
-
101,446
6,549
38,397
-
-
-
44,946
(a) The facility can be drawn-down based upon various calculations relating to the underlying disbursement funding
receivables. As at 31 December 2020, $nil could be drawn down as a result of these calculations (2019: $nil).
(b) The facility can be drawn-down based upon various calculations relating to the underlying medical lien funding
receivables. As at 31 December 2020, $nil could be drawn down as a result of these calculations (2019: $nil).
(c) This facility excludes capitalised interest of $4,464,000 (2019: $nil).
(d) This facility does not have a redraw option.
Note 24. Issued capital
Ordinary shares - fully paid
1,170,230,045
561,760,467
61,310
40,924
Consolidated
31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019
Shares
Shares
US$'000
US$'000
67
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 24. Issued capital (continued)
Movements in ordinary share capital
Details
Date
Shares
Issue price
US$'000
Balance
Issue of shares - placement (i)
Share issue costs
1 January 2019
31 December 2019
Balance
Issue of shares - rights issue (ii) & (iii)
Issue of shares - conversion of convertible bonds (iii) 2 April 2020
Issue of shares - litigation settlement (iii)
2 April 2020
Issue of shares - conversion of convertible bonds (iii) 20 May 2020
Issue of shares - placement (iv)
Share issue costs
31 December 2019
21 February 2020
14 December 2020
483,635,467
78,125,000
-
561,760,467
330,923,639
819,090
14,000,000
59,126,849
203,600,000
-
US$0.045
US$0.042
US$0.040
US$0.040
US$0.041
US$0.019
Balance
31 December 2020
1,170,230,045
37,649
3,499
(224)
40,924
13,957
33
558
2,451
3,831
(444)
61,310
These shares were issued by the share registry on 2 January 2020.
(i)
(ii) The cash received from the rights issue was US$5,345,000 (A$8,210,000) and the balance related to debt to equity
conversion.
Issue price A$0.064 per share
Issue price A$0.025 per share
(iii)
(iv)
Ordinary shares
Ordinary shares entitle the holder to participate in any dividends declared and any proceeds attributable to shareholders
should the Company be wound up, in proportions that consider both the number of shares held and the extent to which
those shares are paid up. 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 (2019: 215,097,403) ordinary shares escrowed at 31 December 2020.
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.
68
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 24. Issued capital (continued)
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.
Consistent with the market announcement to the ASX on 29 January 2021 the Group’s plans include raising new equity
funding, in the near term, as a component of its broader restructuring and recapitalisation plans. The Directors intend to
make further announcements in this regard in due course.
Note 25. Capitalising converting notes
Capitalising converting notes
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
13,933
-
On 9 June 2020, the Company issued 188,972,861 Capitalising converting notes ('CCN') at a face value of A$0.10 per
share to convert A$18.9 million of existing subordinated debt owed by the Company. The noteholders may elect to convert
the notes into ordinary shares before 31 December 2022. The CCN accrues the noteholder interest at 6% per annum and
this interest is also convertible into ordinary shares, and not payable in cash. The CNN do not entitle the noteholder to
participate in dividends or to vote at a meeting of the Company.
Financial instruments issued by the Company are classified as equity when they do not meet the definition of a financial
liability. The CCN’s do not create a contractual obligation to deliver cash to the noteholder and the number of ordinary
shares to be issued upon conversion is fixed at 223,414,026, hence these CCN’s have been classified as equity. The
capitalised interest is calculated quarterly and this interest will be classified as equity on a quarterly basis until the notes
are converted into ordinary shares, or until 31 December 2022. During the year ended 31 December 2020, $652,000
(A$935,000) of interest was transferred into equity (2019: nil).
Note 26. Reserves
Foreign currency reserve
Share-based payments reserve
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(898)
6,118
5,220
782
5,996
6,778
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of Australian
operations to United States dollars.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their
remuneration, and other parties as part of their compensation for services.
69
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 26. Reserves (continued)
Movements in reserves
Movements in reserves during the current and previous financial period are set out below:
Consolidated
Balance at 1 January 2019
Foreign currency translation
Balance at 31 December 2019
Foreign currency translation
Share-based payments
Balance at 31 December 2020
Note 27. Dividends
Foreign
currency
US$'000
Share-based
payments
US$'000
Total
US$'000
2
780
782
(1,680)
-
(898)
5,996
-
5,996
-
122
6,118
5,998
780
6,778
(1,680)
122
5,220
There were no dividends paid, recommended or declared during the current or previous financial year.
Note 28. 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.
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.
70
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 28. Financial instruments (continued)
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 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019
US$'000
US$'000
US$'000
US$'000
19,883
55,520
25,207
77,539
(77,165)
(56,575)
(96,554)
(72,767)
75,403
102,746
(133,740)
(169,321)
The Group had net liabilities denominated in foreign currencies of US$58,337,000 (US$75,403,000 less liabilities of
US$133,740,000) as at 31 December 2020 (2019: net liabilities of US$66,575,000 (US$102,746,000 less liabilities of
US$169,321,000)).
USD strengthened
Effect on
profit before
Effect on
equity
tax
USD weakened
Effect on
profit before
tax
Effect on
equity
Consolidated - 31 Dec 2020
% change
US$'000
US$'000
% change
US$'000
US$'000
Australian dollars
10%
5,728
5,728
10%
(5,728)
(5,728)
USD strengthened
Effect on
profit before
Effect on
equity
tax
USD weakened
Effect on
profit before
tax
Effect on
equity
Consolidated - 31 Dec 2019
% change
US$'000
US$'000
% change
US$'000
US$'000
Australian dollars
10%
7,135
7,135
10%
(7,135)
(7,135)
The percentage change is the expected overall volatility of the significant currencies, which is based on management's
assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year
and the spot rate at each reporting date.
Price risk
The Group is not exposed to any significant price risk.
71
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 28. Financial instruments (continued)
Interest rate risk
The Group's main interest rate risk arises from borrowings and cash and cash equivalents. The Group’s exposure to
interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market rates and
the effective weighted average interest rates on financial liabilities, is as follows:
Assetsecure Pty Limited loan
Efficient Frontier Investing
Vendor loan - Australian disbursement funding business
Convertible bonds payable
Lucerne Group combined loan
Lucerne Group facility - US medical lien funding business
Paradise Diversified Holdings Limited Partnership
Other NHF subordinated debt
Other NHF subordinated debt
Other NHF subordinated debt
Insurance financing - Australia
Syndicated acquisition facility ('SAF')
SAF Side Loan 1
SAF Side Loan 2
Paycheck Protection Program loan
NHF Founder Promissory Notes
Atalaya Capital Management
Economic Injury Disaster Relief loan
Insurance financing - USA
Credit cards
Vendor loan - NHF Founders
Cash and cash equivalents
31 Dec 2020 31 Dec 2020 31 Dec 2019 31 Dec 2019
Weighted
average
interest rate
%
Balance
US$'000
Weighted
average
interest rate
%
Balance
US$'000
8.41%
12.50%
-
11.50%
18.99%
13.50%
-
24.00%
12.00%
13.47%
5.06%
13.36%
18.00%
18.00%
1.00%
-
14.38%
3.75%
-
15.04%
-
0.02%
17,017
25,266
-
1,233
3,684
415
-
1,410
1,000
4,750
27
36,716
2,130
2,496
605
-
17,012
150
-
19
-
(5,351)
8.79%
-
11.00%
11.50%
13.44%
16.89%
30.00%
24.00%
12.00%
13.47%
6.21%
13.00%
15.00%
13.00%
-
-
14.25%
-
6.58%
17.04%
12.17%
0.04%
21,447
-
315
3,500
11,642
12,122
4,163
1,180
1,000
4,750
33
29,396
1,252
2,275
-
9,000
41,603
-
55
103
13,612
(5,777)
Net exposure to cash flow interest rate risk
108,579
151,671
The weighted average interest rate for the period ended 31 December 2020 was 13.53% (2019: 14.29%).
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$1,107,000 (2019: US$1,317,000) 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.
72
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 28. 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 120 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
Refer to Note 2 – ‘Going concern – material uncertainty’ and the Group’s restructuring and recapitalisation plans.
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, where available, from the following facilities:
Assetsecure Pty Limited loan (subject to certain calculations, see note 23)
Atalaya Capital Management (subject to certain calculations, see note 23)
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
-
-
6,549
38,397
44,946
73
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 28. Financial instruments (continued)
Remaining contractual maturities
The following are the remaining contractual maturities as at the reporting date. The amounts are gross, undiscounted and
include contractual interest payments and exclude the impact of netting agreements.
Consolidated - 31 Dec 2020
Non-interest bearing:
Trade and other payables
Interest bearing:
Assetsecure Pty Limited loan*
Efficient Frontier Investing*
Convertible bonds payable
Lucerne Group combined loan
Lucerne Group facility - US
medical lien funding business
Other NHF subordinated debt
Other NHF subordinated debt
Other NHF subordinated debt
Insurance financing - Australia
Syndicated acquisition facility
('SAF')*
SAF Side Loan 1*
SAF Side Loan 2*
Paycheck Protection Program
loan
Atalaya Capital Management
Economic Injury Disaster Relief
loan
Credit cards
Lease liabilities
Weighted
average
interest rate
%
1 year or
less
US$'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
-
5,116
-
-
8.41%
12.50%
11.50%
18.99%
13.50%
24.00%
12.00%
13.47%
5.06%
13.36%
18.00%
18.00%
1.00%
14.38%
3.75%
15.04%
6.88%
1,498
3,158
1,375
4,383
471
1,439
120
5,289
27
4,907
2,328
2,945
6
2,467
6
22
452
18,137
3,158
-
-
-
-
120
-
-
40,359
-
-
607
17,789
6
-
194
-
28,182
-
-
-
-
1,240
-
-
-
-
-
-
-
17
-
189
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
294
-
868
5,116
19,635
34,498
1,375
4,383
471
1,439
1,480
5,289
27
45,266
2,328
2,945
613
20,256
323
22
1,703
*
Refer to note 23 and the technical breaches of these facilities – the above remaining contractual maturities are as
expected once the breaches have been rectified.
36,009
80,370
29,628
1,162
147,169
74
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 28. 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 Dec 2019
Non-interest bearing:
Trade and other payables
NHF founder promissory notes
Interest bearing:
Assetsecure Pty Limited loan
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
Other NHF subordinated debt
Other NHF subordinated debt
Other NHF subordinated debt
Insurance financing - Australia
Syndicated acquisition facility
('SAF')
SAF side loan 1
SAF side loan 2
Atalaya Capital Management
Insurance financing - USA
Credit cards
Vendor loan - NHF Founders
Lease liabilities
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$'000
-
-
6,672
9,000
-
-
-
-
8.79%
1,871
1,866
22,842
11.00%
11.50%
13.44%
315
3,588
12,064
16.89%
10,279
30.00%
24.00%
12.00%
13.47%
6.21%
13.00%
15.00%
13.00%
14.25%
6.58%
17.04%
12.17%
6.76%
4,895
1,298
120
3,642
33
3,832
1,346
2,422
5,945
56
123
13,122
104
-
-
-
3,495
-
-
120
1,884
-
3,821
-
-
5,928
-
-
-
513
-
-
-
-
-
-
1,360
-
-
32,233
-
-
43,471
-
-
-
401
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,046
6,672
9,000
26,579
315
3,588
12,064
13,774
4,895
1,298
1,600
5,526
33
39,886
1,346
2,422
55,344
56
123
13,122
2,064
80,727
17,627
100,307
1,046
199,707
Note 29. Fair value measurement
Fair value measurement hierarchy for assets
The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Consolidated - 31 Dec 2020
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
Total assets
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
-
-
-
18,006
18,006
18,006
18,006
75
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 29. Fair value measurement (continued)
Consolidated - 31 Dec 2019
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
Total assets
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
-
-
-
24,921
24,921
24,921
24,921
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 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 or 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 4.45% (2019: 5.67%); 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 14.9% (2019: 11.9%).
●
●
●
●
●
Loan receivables fair value measurement – valuation process
Valuations are performed on a half-yearly basis. For the purpose of the valuation, Management collates 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 reviews any unusual movements noted.
76
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 29. Fair value measurement (continued)
Reconciliation of fair value measurement of the Loan receivables and deferred day 1 margin is set out below:
Consolidated
Balance at 1 January 2019
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 2019
Cash disbursements in relation to new loans
New day 1 margin
Cash collections - disbursement funding
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
24,301
8,007
-
(10,284)
3,210
-
(313)
24,921
2,194
-
(11,629)
(242)
-
2,762
(3,037)
-
(2,407)
-
-
2,681
25
(2,738)
-
(1,196)
-
-
2,249
(198)
21,264
8,007
(2,407)
(10,284)
3,210
2,681
(288)
22,183
2,194
(1,196)
(11,629)
(242)
2,249
2,564
Balance at 31 December 2020
18,006
(1,883)
16,123
This reconciliation excludes other receivables and short-term loans.
There were no transfers into or out of Level 3 of the fair value hierarchy during the financial year.
The Loan receivables - disbursement funding - Australia (gross) balance was US$26,577,000 as at 31 December 2020
(2019: US$31,610,000).
Note 30. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel ('KMP') of the Group is
set out below:
Short-term employee benefits
Post-employment benefits
Consolidated
31 Dec 2020 31 Dec 2019
US$
US$
1,674,775
50,156
2,062,737
47,033
1,724,931
2,109,770
The above figures include amounts paid to companies related to directors for the service and/or director fees payable to
directors.
77
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 31. 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:
Audit services - Stantons
Audit or review of the financial statements
Other services - Stantons
Other corporate services
Audit services - SKP
Audit or review of the financial statements
Note 32. Contingent liabilities
Consolidated
31 Dec 2020 31 Dec 2019
US$
US$
121,541
133,350
5,649
-
127,190
133,350
13,983
124,710
Bank guarantees
The Group has given bank guarantees as at 31 December 2020 of $116,000 (2019: $104,000) 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 legal entity ('the funding entity') that is
funding the litigation 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% (2019: 70%) of the amount paid by the plaintiff to pursue the litigation (although in some cases there may
be more than one defendant). In all outstanding cases the particular funding entity has taken out adverse cost order
insurance policies to meet the costs of adverse cost orders, however, there is a risk that in some cases that the insurance
cover is insufficient to meet the cost of any adverse cost order, in full.
If any contingent liability crystalises during the period 31 December 2020 to the date of completion of the sale of the
litigation portfolio (refer to note 11), due to the award of adverse costs against the funded plaintiff then the liability will
transfer with the funding entities being sold, upon completion. From the date the sale is completed, the funding entities will
no longer be part of the Group and as such the costs will cease to be a contingent liability of the Group as they will still be
contingent liabilities of the funding entities.
Litigation against NHF
NHF is involved in two separate proceedings (litigation) 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. There has
been no change to the status of this case since 31 December 2019.
NHF is also involved with 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 payable to the plaintiff. There has been no change to the status of this case since 31 December 2019.
Note 33. Commitments
The Group had no capital commitments for property, plant and equipment as at 31 December 2020 and 31 December
2019.
78
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 34. Related party transactions
Parent entity
LawFinance Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 36.
Key management personnel
Disclosures relating to key management personnel are set out in note 30 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
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
David Wattel - fair value adjustment - Notes Payable
Mark Siegel - fair value adjustment - Notes Payable
David Wattel & Mark Siegel - fair value adjustment - Vendor Loan
Consolidated
31 Dec 2020 31 Dec 2019
US$
US$
736,116
-
2,200
940
2,468,636
110,234
78,838
3,996
64,341
18,994
5,205
761,423
761,423
4,500,000
4,500,000
10,602,241
83,313
28,477
41,090
-
-
-
-
-
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.
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 also 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 and Desiree Wattel
79
Consolidated
31 Dec 2020 31 Dec 2019
US$
US$
-
-
18,995
3,413
126,703
-
92,542
275,404
4,400
-
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 34. Related party transactions (continued)
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 23. Diane Jones was also a convertible note holder as
detailed in the Directors' Report.
There were also borrowings factored into the sale of the Litigation funding business to Legal Equity Partners Pty Limited,
as detailed in note 11 ‘Discontinued operations’.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 35. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
(Loss)/profit after income tax
Total comprehensive (loss)/income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net (liabilities)/assets
Equity
Issued capital
Capitalising converting notes
Foreign currency reserve
Share-based payments reserve
Accumulated losses
Total (deficiency)/equity
Parent
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(109,317)
10,155
(109,317)
10,155
Parent
31 Dec 2020 31 Dec 2019
US$'000
US$'000
3,418
2,577
3,401
85,461
47,880
49,913
49,439
51,411
(46,038)
34,050
59,353
13,933
8,524
6,044
(133,892)
40,924
-
(3,646)
5,996
(9,224)
(46,038)
34,050
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Except as described in note 23 and note 32, the parent entity had no guarantees in relation to the debts of its subsidiaries
as at 31 December 2020 and 31 December 2019.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2020 and 31 December 2019 other than those disclosed
in note 32.
80
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 35. Parent entity information (continued)
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2020 and 31
December 2019.
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 36. Interests in subsidiaries
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
National Health Finance HoldCo, LLC
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
Principal place of business /
Country of incorporation
Ownership interest
31 Dec 2020 31 Dec 2019
%
%
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
81
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%
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%
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%
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 36. Interests in subsidiaries (continued)
Name
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
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
Principal place of business /
Country of incorporation
Ownership interest
31 Dec 2020 31 Dec 2019
%
%
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
82
75.00%
75.00%
80.00%
87.00%
70.00%
67.00%
75.00%
75.00%
75.00%
73.00%
70.00%
70.00%
75.00%
78.00%
75.00%
70.00%
75.00%
100.00%
100.00%
76.00%
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%
100.00%
75.00%
68.00%
99.00%
75.00%
73.00%
75.00%
100.00%
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%
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%
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 36. Interests in subsidiaries (continued)
Name
Tri Cities Injury Solutions, LLC
Tristate Medical Finance, LLC
Waterleaf Medical Finance, LLC
West Coast Injury Solutions, LLC
Note 37. Cash flow information
Principal place of business /
Country of incorporation
Ownership interest
31 Dec 2020
%
31 Dec 2019
%
USA
USA
USA
USA
75.00%
75.00%
73.00%
75.00%
75.00%
75.00%
73.00%
75.00%
Reconciliation of (loss) after income tax to net cash (outflow) from operating activities
(Loss) after income tax (expense)/benefit for the year
Adjustments for:
Depreciation and amortisation
Employee bonus provision
Employee leave provision
Interest income
Commissions payable
Interest expense
Impairment expense - short-term loans
Impairment expense - goodwill and customer relationships
Net foreign exchange differences
Fair value gain on financial liabilities
Change in operating assets and liabilities:
Decrease in other loans and receivables
Decrease/(increase) in deferred tax assets
Decrease/(increase) in prepayments
Decrease in trade and other payables
Increase in tax provision
Increase/(decrease) in provisions or employee benefits
Increase in borrowings
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
(78,136)
(23,256)
666
-
47
(1,545)
(31)
8,186
479
42,387
(5,434)
(19,602)
25,938
12,579
47
(1,632)
755
74
3,755
591
305
29
370
(217)
9,769
458
-
477
-
1,777
(5,790)
(98)
(2,326)
804
(2)
3,120
Net cash (outflow) from operating activities
(11,467)
(13,989)
The comparatives above have been realigned in accordance with the restatements in note 4.
Non-cash investing and financing activities
Additions to the right-of-use assets
Shares issued (consideration for underwriting)
83
Consolidated
31 Dec 2020 31 Dec 2019
US$'000
US$'000
-
200
200
1,663
-
1,663
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 37. Cash flow information (continued)
Changes in liabilities arising from financing activities
Vendor
loan -
Australian
disbursem
ent funding
business
US$'000
Converti -
ble bonds
payable
US$'000
Lucerne
Group
combined
loan
US$'000
Lucerne
Group
facility - US
medical
lien
funding
business
US$'000
Paradise
Diversified
Holdings
Limited
Partner-
ship
US$'000
Other NHF
subordin-
ated debt
US$'000
Other NHF
subordin-
ated debt
US$'000
Total
US$'000
824
-
(525)
23
(7)
-
3,529
-
-
-
(29)
-
8,548
2,785
-
367
(58)
-
5,238
5,660
-
732
-
492
-
4,124
(11)
50
-
-
1,150
-
-
30
-
-
1,000
-
-
-
-
-
20,289
12,569
(536)
1,202
(94)
492
315
3,500
11,642
12,122
4,163
1,180
1,000
33,922
-
-
(346)
(2,946)
-
-
(4,070)
-
-
(12,122)
550
(151)
-
2,942
(8,100)
-
-
31
-
(6,017)
339
340
998
1,131
-
16
-
-
1,233
3,684
415
-
995
-
-
-
-
-
-
230
-
-
-
-
-
-
-
(19,138)
3,492
(8,597)
(6,017)
2,578
1,502
1,410
1,000
7,742
Consolidated
Balance at 1
January 2019
Loans received
Loans repaid
Capitalised
interest
Exchange
differences
Other adjustment
Balance at 31
December 2019
Conversion to
shares
Loans received
Loans repaid
Conversion to
Capitalising
Converting Note
Capitalised
interest
Exchange
differences
Balance at 31
December 2020
84
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 37. Cash flow information (continued)
Other NHF
subordin-
ated debt
US$'000
Insurance
financing
- Australia
US$'000
Syndicated
acquisition
facility
('SAF')
US$'000
SAF Side
Loan 1
US$'000
SAF Side
Loan 2
US$'000
NHF
Founder
Prom-
issory
Notes
US$'000
Atalaya
Capital
Man
-agement
US$'000
Total
US$'000
-
4,750
-
-
-
-
88
(55)
-
-
29,644
-
-
-
(248)
-
864
-
388
-
-
2,275
-
-
-
9,000
-
-
39,902
17,625
(15,924)
78,546
25,602
(15,979)
-
-
-
-
388
(248)
4,750
33
29,396
1,252
2,275
9,000
41,603
88,309
-
-
-
-
-
88
(98)
-
4
-
-
-
4,414
2,906
-
-
-
602
122
154
-
-
-
-
-
-
221
-
-
(9,000)
3,141
(27,732)
3,229
(27,830)
-
-
-
5,016
3,253
(8,846)
4,750
27
36,716
2,130
2,496
-
17,012
63,131
Consolidated
Balance at 1
January 2019
Loans received
Loans repaid
Capitalised
interest
Exchange
differences
Balance at 31
December 2019
Loans received
Loans repaid
Capitalised
interest
Exchange
differences
Other adjustment
Balance at 31
December 2020
85
Paycheck
Protection
Program
loan
US$'000
Insurance
financing
- USA
US$'000
Credit
cards
US$'000
Asset-
secure Pty
Limited
loan
US$'000
Vendor
loan - NHF
Founders
US$'000
Economic
Injury
Disaster
Relief
loan
US$'000
Efficient
Frontier
Investing
US$'000
Total
US$'000
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 37. Cash flow information (continued)
Consolidated
Balance at 1
January 2019
Loans received
Loans repaid
Capitalised
interest
Exchange
differences
Balance at 31
December 2019
Loans received
Loans repaid
Capitalised
interest
Exchange
differences
Other
adjustments
Balance at 31
December 2020
Consolidated
-
-
-
-
-
-
605
-
-
-
-
605
-
90
(35)
-
-
55
-
(55)
-
-
-
-
Balance at 1 January 2019
Leases recognised on the adoption of AASB 16
Additions
Repayment of leases
Balance at 31 December 2019
Repayment of leases
Exchange differences
Balance at 31 December 2020
Note 38. Share-based payments
414
209
(505)
-
20,028
9,903
(8,326)
12,546
-
-
-
1,171
(15)
(158)
(105)
103
21,447
13,612
-
-
-
-
-
-
-
-
-
-
-
-
32,988
10,202
(8,866)
1,171
(278)
35,217
183
(267)
3,923
(10,436)
-
-
-
-
2,083
1,322
-
(14,934)
-
-
-
150
-
25,550
(336)
30,411
(11,094)
-
-
-
52
-
-
52
3,405
(14,934)
19
17,017
-
150
25,266
43,057
Lease
liabilities
US$'000
-
27
1,663
(159)
1,531
(245)
(41)
1,245
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').
86
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 38. Share-based payments (continued)
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 Dec 2020
Grant date
Expiry date
13/03/2020
13/03/2020
13/03/2020
28/09/2021
28/09/2022
28/09/2023
Exercise
price*
US$0.192
US$0.307
US$0.461
Balance at
the start of
the year
Granted
Exercised
Lapsed
-
-
-
-
24,000,000
22,500,000
25,000,000
71,500,000
-
-
-
-
Balance at
the end of
the year
-
-
-
-
24,000,000
22,500,000
25,000,000
71,500,000
Weighted average exercise price
US$0.000
US$0.322
US$0.000
US$0.000
US$0.000
*
Exercise price - A$0.25, A$0.40 and A$0.60 respectively.
31 Dec 2019
Grant date
Expiry date
Exercise
price*
22/01/2016
22/01/2019
US$0.176
Balance at
the start of
the year
1,500,000
1,500,000
Granted
Exercised
Lapsed
Balance at
the end of
the year
-
-
-
-
(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
Set out below are the options exercisable at the end of the financial year:
Grant date
Expiry date
13/03/2020
13/03/2020
13/03/2020
28/09/2021
28/09/2022
28/09/2023
31 Dec 2020 31 Dec 2019
Number
Number
24,000,000
22,500,000
25,000,000
71,500,000
-
-
-
-
The weighted average share price during the financial period was US$0.037 (2019: US$0.050).
The weighted average remaining contractual life of options outstanding at 31 December 2020 was 1.76 years (2019: nil
years).
87
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 38. Share-based payments (continued)
Warrants
Set out below are summaries of warrants granted on acquisition of NHF:
31 Dec 2020
Grant date
Expiry date
28/09/2018
28/09/2022
31 Dec 2019
Grant date
Expiry date
28/09/2018
28/09/2022
Exercise
price*
Balance at
the start of
the year
US$0.104 452,743,636
452,743,636
Exercise
price*
Balance at
the start of
the year
Granted
US$0.099 452,743,636
452,743,636
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
-
-
-
-
-
-
-
-
Expired/
forfeited/
other
-
-
-
-
452,743,636
452,743,636
Balance at
the end of
the year
452,743,636
452,743,636
Exercised
*
Exercise price at 31 Dec 2020 A$0.135 (31 Dec 2019 : A$0.135)
The weighted average remaining contractual life of warrants outstanding at 31 December 2020 was 1.75 years (2019: 2.75
years).
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the
grant date, are as follows:
Grant date
Expiry date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
Fair value
interest rate at grant date
13/03/2020
13/03/2020
13/03/2020
28/09/2021
28/09/2022
28/09/2023
US$0.041
US$0.041
US$0.041
US$0.192
US$0.307
US$0.461
56%
56%
56%
-
-
-
0.50% US$0.0003
0.50% US$0.0004
0.50% US$0.0005
Shares issued
There were no shares issued as share-based payments during the year ended 31 December 2020.
88
LawFinance Limited
Notes to the consolidated financial statements
31 December 2020
Note 39. Events after the reporting period
(i) On 29 January 2021, as announced to the market, the Company entered into a definitive conditional agreement to sell
JustKapital Litigation Pty Ltd (and its subsidiaries) for A$1, plus conditional proceeds equal to:
● 50% of the net proceeds received from one of the funded cases; and
● 50% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has assumed the value of the conditional component of the
sales proceeds to have nil value. Management is in the process of satisfying conditions precedent under the sale
agreement including holding an Extraordinary General Meeting for shareholders to approve the transaction. Grant
Thornton have prepared an Independent Expert’s Report (‘IER’) which had concluded the transaction to be fair and
reasonable and in the best interest of shareholders. This IER is currently being updated based on recent positive
developments, as announced to the market on 24 March 2021. The terms of the agreement are being reconsidered in
parallel with Grant Thornton’s work. The Extraordinary General Meeting to obtain shareholder approval for the
transaction has been postponed until further notice.
(ii)
In February 2021 AssetSecure Pty Ltd, being the asset-backed lender to JustKapital Financing Pty Ltd, formally
agreed to amend terms of the facility to allow originations to recommence albeit in a reduced capacity of A$2-3 million
subject to their own internal periodic reviews. AssetSecure Pty Ltd’s internal lending mandate has changed and the
Directors envisage refinancing this facility with a new lender by the end of June 2021. There are continuing
defaults under the Receivables Purchase Agreement which the borrower is seeking to resolve.
No other matter or circumstance has arisen since 31 December 2020 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.
89
LawFinance Limited
Directors' declaration
31 December 2020
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 2020 and of its performance for the financial year 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 as stated in the Going Concern section of note 2 to the financial statements.
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 2021
Sydney
90
Stantons International Audit and Consulting Pty Ltd
trading as
Chartered Accountants and Consultants
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
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF
LAWFINANCE LIMITED
Report on the Audit of the Financial Report
Opinion
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 2020, the consolidated statement of
profit or loss and other 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)
giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial
performance for the year then ended; and
(ii)
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 (including Independence Standards) 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
Without modifying our audit opinion expressed above, attention is drawn to the following matter.
We draw your attention to note 2 (Going concern - material uncertainty) and note 23 (Borrowings) of the financial
report which states that the financial report has been prepared on a going concern basis and describes the events
which give rise to the existence of a material uncertainty that may cast significant doubt about the Group’s ability to
continue as a going concern.
As at 31 December 2020 the Group had a working capital deficiency of US$92,923,000 (31 Dec 2019:
US$90,187,000), cash and cash equivalents of US$4,900,000 (31 Dec 2019: US$5,777,000) and incurred a loss
after tax for the year amounting to US$78,136,000 (2019: US$23,256,000). As at 31 December 2020 the Syndicated
acquisition facility of US$36,716,000, Assetsecure Pty Limited facility US$17,017,000 and the Atalaya Capital
Liability limited by a scheme approved
under Professional Standards Legislation
Management loan of US$17,012,000 had breached convents and been reclassified as current liabilities (refer note
23).
The ability of the Group to continue as a going concern is subject to the Group realising cashflows from collecting
its outstanding disbursement receivables books in accordance with its budgeted cashflows and completing its
recapitalisation plans as outlined in note 2 (Going concern - material uncertainty) of the financial report.
In the event that the Board does not successfully realise cashflows from collecting its outstanding disbursement
receivables books in accordance with its budgeted cashflows, successfully complete its recapitalisation plans as
outlined in note 2 (Going concern - material uncertainty), the Group may not be able to realise its assets and
discharge its liabilities in the normal course of business and/or as and when they fall due.
In particular we draw your attention to notes 14 (Financial assets at fair value through profit or loss – Australia) and
15 (Financial assets at amortised cost – USA) of the financial report which discloses the carrying value of financial
assets at fair value through profit or loss of US$16,123,000 (2019: US$22,183,000) and the carrying value of the
financial assets at amortised cost of US$53,253,000 (2019: US$73,131,000). These financial assets may be
significantly impaired if the recapitalisation plans of the group as outlined in note 2 are not completed.
Key Audit Matters
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have
determined the matters described below to be Key Audit Matters 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 2020, Financial Assets totalled
US$69,376,000 (refer to Note 14 (Financial assets at
fair value through profit or loss – Australia and 15
(Financial assets at amortised cost – USA)).
in
the
financial assets balance
Included
is
US$16,123,000 in relation to the Group’s Australian
to as
disbursement/funding Business
JustKapital Financing Pty Limited
(“JKF”).These
financial assets are held at fair value though profit or
loss
referred
in
the
financial assets balance
is
Included
US$53,253,000 in relation to the Group’s Medical Lien
disbursement/funding Business referred to as Nation
Health Finance (“NHF”).These financial assets are
held at amortised cost after impairment gains/losses.
This is considered to be a key audit matter due to
significance of the balance and this required significant
judgement in the valuation and classification of these
financial assets.
Inter alia, our audit procedures included the following:
i. Tested the valuation models provided by the
management, assessing the design of the model
and its various inputs. We have also critically
assessed the assumptions used in the valuation by
comparing to historical data in the accounting
records;
ii. We completed substantive testing on a sample
basis of the transactions within the valuation model
including additions during the period;
iii. Tested for impairments and requested adjustments
to carrying value of assets as required;
iv. Obtained confirmations, tested on a sample basis,
of individual financial assets; and
v. Assessed whether the disclosures included in the
financial report were in accordance with the
requirements of AASB 9 Financial Instruments:
Disclosures.
Key Audit Matters
How the matter was addressed in the audit
Carrying Value/Impairment of Goodwill
The carrying value of Goodwill as at 31 December
2020 was US$40,906,000 prior to impairment.
Inter alia, our audit procedures included the following:
The company recognised an impairment charge of
US$40,906,000 for Goodwill during the period ended
31 December
Associated Customer
relationships of US$1,481,000 were also impaired in
the same period.
2020.
The carrying value/Impairment of Goodwill is a key
audit matter due to:
▪ The significance of the Goodwill representing
24% of total assets in the prior year;
▪ The necessity
to assess management’s
application of the requirements of the accounting
standards,
to
impairment test at each reporting period; and
requirement
including
the
I.
II.
III.
Challenged management on their historical
budgets and its application to the impairment
models;
Reviewed the company’s breaches of lending
covenants and its implications to the future
cashflows;
Agreed to management’s assessment to fully
impair
Customer
relationships given the uncertainties outlined in
points i and ii ; and
Goodwill/Associated
IV.
Reviewed the disclosures included in the
annual report (refer note 20 Goodwill).
▪ The assessment of significant judgements made
by management in relation to the impairment
review.
Discontinued Operations
The loss from Discontinued Operations was
US$7,440,000 (31 December 2019 -US$177,000).
Inter alia, our audit procedures included the following:
On 29 January 2021 the Company entered into a
definitive conditional agreement to sell JustKapital
Litigation Pty Ltd (and its subsidiaries) for A$1, plus
conditional proceeds equal to: 50% of the net proceeds
received from one of the funded cases; and 50% of any
excess proceeds after repayment of the secured debt
(refer to Note 11 Discontinued operations).
We determined this to be a key audit matter given the
materiality of the amount involved together with the
level of judgement required in assessing the final sale
price which is subject to conditional proceeds.
As at the date of this report the transaction is still to
complete.
I.
II.
III.
IV.
Restatement/Impairment of Vendor Loans
Reviewed agreement
Litigation Pty Limited;
to sell Juskapital
Tested determination of Assets held for Sale
and Associated liabilities;
Reviewed management’s assessment of the
value of the conditional component of the sales
proceeds to have nil value; and
Reviewed the disclosures included in the
in accordance with
annual
accounting
11
Discontinued operations).
report were
standards
(refer
note
Founder
The write down of the Vendor loan - NHF Founders and
NHF
totalling
Promissory
US$19,602,000 were subject to shareholder approval,
which was obtained at the Extraordinary General
Meeting held on 10 March 2020 (Note 4 Restatement
of comparatives).
Notes
As at 31 December 2019 the company had impaired
the loans as they had agreed all terms with Vendor.
However due to advice received in FY20 the Directors
restated the FY19 comparatives to reflect the fact that
transaction had not completed as at the prior year
reporting date.
We determined this to be a key audit matter given the
materiality of the amount involved.
Inter alia, our audit procedures included the following:
I.
II.
III.
Reviewed original agreements to write off
loans;
Reviewed client’s calculations for Restatement
and impairment in FY20.
Reviewed the disclosures included in the
in accordance with
annual
accounting
4
Restatement of comparatives).
report were
standards
(refer
note
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 2020, 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 8 to 17 of the directors’ report for the year ended 31
December 2020.
In our opinion, the Remuneration Report of Lawfinance Limited for the year ended 31 December 2020 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)
Samir Tirodkar
Director
West Perth, Western Australia
31 March 2021
LawFinance Limited
Shareholder information
31 December 2020
The shareholder information set out below was applicable as at 29 March 2021.
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
Ordinary shares
Options over ordinary
shares
Number
of holders
% of total
shares
issued
Number
of holders
% of total
shares
issued
39
15
54
289
296
693
243
-
-
0.04
1.01
98.95
100.00
-
-
-
-
-
2
2
-
-
-
-
-
100.00
100.00
-
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
National Nominees Limited
Mr Mark Siegel
Mr David Wattel
J P Morgan Nominees Australia Pty Limited
Washington H Soul Pattinson & Company Limited
Principis Master Fund SPC (Lucerne Composite Master A/c)
Principis Master Fund SPC (Lucerne Comp Mast Fund SP)
Factotum Group Pty Limited (Factotum Partners A/c)
Australian Philanthropic Services Foundation Pty Limited (APS Foundation A/c)
Aquasia Pty Limited (Aquasia Private Invest A/c)
Barbright Australia Pty Ltd (Interquartz Super Fund A/c)
Mr John Herbert Bannister
National Nominees Limited
Litigation Management Pty Limited
J F Byrnes Super Pty Ltd (Argoon Avenue S/F A/c)
Kesor Pty Limited (Sorensen Superfund A/c)
Ms Snezana Bowden
Efficient Frontier Investments SA
Mr Jason Maxwell Yu
Ordinary shares
Number held
% of total
shares
issued
144,233,412
113,420,169
107,548,702
107,548,701
66,000,000
43,750,000
43,047,018
40,000,000
25,300,000
20,000,001
20,000,000
19,000,000
16,963,146
16,079,831
13,140,625
8,618,182
8,400,000
8,300,000
8,000,000
7,700,000
837,049,787
12.33
9.69
9.19
9.19
5.64
3.74
3.68
3.42
2.16
1.71
1.71
1.62
1.45
1.37
1.12
0.74
0.72
0.71
0.68
0.66
71.53
96
LawFinance Limited
Shareholder information
31 December 2020
Unquoted equity securities (options)
Options – exercisable at A$0.25 cent before 28 September 2021
Options – exercisable at A$0.40 cent before 28 September 2022
Options – exercisable at A$0.60 cent before 28 September 2023
Substantial holders
Substantial holders in the Company are set out below:
Citicorp Nominees Pty Limited
National Nominees Limited
Mr Mark Siegel
Mr David Wattel
J P Morgan Nominees Australia Pty 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
144,233,412
113,420,169
107,548,702
107,548,701
66,000,000
% of total
shares
issued
12.33
9.69
9.19
9.19
5.64
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
97