ABN 72 088 749 008
Annual
Report
2021
LawFinance Limited
ABN 72 088 749 008
Annual Report - 31 December 2021
LawFinance Limited
Contents
31 December 2021
1
Corporate directory
2
Directors' report
4
Auditor's independence declaration
22
Consolidated statement of profit or loss and other comprehensive income
23
Consolidated statement of financial position
25
Consolidated statement of changes in equity
26
Consolidated statement of cash flows
27
Notes to the consolidated financial statements
28
Directors' declaration
81
Independent auditor's report to the members of LawFinance Limited
82
Shareholder information
86
LawFinance Limited
Corporate directory
31 December 2021
2
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
Suite 335
49-51 Queens Road
Five Dock NSW 2046
Tel: +61 2 9696 0220
Fax: +61 2 9252 3430
Principal place of business in
Australia
Suite 335
49-51 Queens Road
Five Dock NSW 2046
Tel: +61 2 9696 0220
Fax: +61 2 9252 3430
Principal place of business in US
Suite 120
1347 North Alma School Road
Chandler AZ 85224
Share register
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
Auditor
Stantons
Level 36, Gateway
1 Macquarie Place
Sydney NSW 2000
Solicitors
Arnold Bloch Leibler
Level 24, Chifley Tower
2 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
LawFinance Limited
Corporate directory
31 December 2021
3
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/
LawFinance Limited
Directors' report
31 December 2021
4
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', 'LAW' or 'parent entity') and the entities
it controlled at the end of, or during, the year ended 31 December 2021.
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
Jane Lamming (appointed on 1 September 2021 and resigned on 1 March 2022)
Review of operations
(i) 2021 a recovery and transition year
Last year was very much a transition year for LAW and a story of two halves. To use a sporting analogy (rugby) the first half
was not attractive as the LAW forward pack battled to defend their line, improve ball retention, and steadily gain field
position. In the second half the backline started to receive the ball with some room to move and created opportunities which
showed the team what is possible for the business and their loyal supporters next season.
At the start of 2021, LAW was in significant financial distress which had been amplified by the operational impacts of the
global COVID-19 pandemic. New leadership focused on stabilising the business and developing strategic priorities and
turnaround plans that would make LAW financially viable and create value for shareholders.
The restructure and capital raise, successfully completed in May 2021, reset the Group’s balance sheet and debt funding
lines. This process set the foundation for LAW to implement its strategic value creation plan in the second half of the
year. LAW’s strategic value creation plan included a dramatic simplification of group operations to focus on profitably growing
its US Medical Lien Funding business, National Health Finance ('NHF') headquartered in the United States (Arizona) to
create value for shareholders.
Key activities that were successfully implemented in the first half of 2021, with broad support from LAW's key stakeholders
including, lenders, shareholders, employees, and the board of directors included:
(1) Disposal of its non-core Australian businesses (Disbursement Funding and Litigation Funding)
(2) Converted A$55 million of Group debt to equity in LAW
(3) Raised A$21 million of fresh capital (comprising both debt and equity)
(4) Reduced the operating cost base of the Group
In the second half of 2021, the Company focused exclusively on transforming and growing its NHF business.
(ii) US Medical Lien Funding Operations (NHF business)
From June 2021, for the first time in some 18 months, NHF was appropriately funded including having a new asset backed
loan facility to fund new originations of medical lien claims (the Partners for Growth facility) which allowed NHF to actively
re-enter the US market to fund medical lien claims.
Progress to restore prior funding relationships with US Medical Service Providers was slower than expected. However, by
the end of the year the NHF business was starting to hit its stride. December 2021 was the strongest month of the year for
originations, which were largely driven by new relationships developed by NHF in the second half of the year. NHF also
started to see some of its former funding customers slowly returning to NHF.
Significant progress was made on the Company’s strategic priority to expand funding of medical lien claims emanating from
hospital emergency rooms. As announced on 22 December 2021 the Company executed definitive agreements with one of
the largest hospital systems in the state of Indiana to implement National Health Finance’s ER Concierge programme. While
implementation of operations at the two hospitals have progressed slower than expected due to the hospitals' operational
priorities stemming from COVID-19 impacts, management are looking forward to these new hospitals reaching expectations
in 2022.
LawFinance Limited
Directors' report
31 December 2021
5
The Trident Joint Venture outlined in the Company’s 2021 Financial Results presentation dated 28 February 2022 has the
potential to rapidly transform the Company’s funding of medical lien claims emanating from hospital emergency rooms, that
are currently funded by the US Governments Medicare and Medicaid programs. The Board is particularly optimistic about
the Trident model which will support hospitals to become compliant with the US Affordable Health Care Act ('Obamacare')
and allow the business to expand its addressable market exponentially.
Despite this positive progress, discrete portions of NHF’s claim portfolios were identified as being higher risk of successful
realisation ('higher risk claims'). Significant management time and effort in conjunction with the Company’s legal advisors
and financiers has been spent, in the second half of 2021, in understanding the higher risk claims, underlying causes,
developing plans and implementing initiatives to maximise value recoverable from the higher risk portions of the
portfolio. Plans developed to address these higher risk claims were being implemented at the end of 2021, however
management is optimistic that positive outcomes can be achieved in 2022. The Directors are confident that policies and
procedures are in place to prevent similar issues recurring and that the value of these higher risk claims have been
appropriately estimated and valued in the Balance Sheet as at 31 December 2021.
These higher risk claims, relate to certain claims originated around the time of the Company’s acquisition of NHF in 2018,
prior to when the Company’s former management significantly enhanced NHF’s underwriting policies and procedures (in
2018/19). In addition, Michigan implemented a law change in July 2021, relating to motor vehicle accident ('MVA') healthcare
costs which impacted the financial viability of medical service providers in continuing to treat victims of MVAs on a medical
lien basis. This placed financial stress on the medical service providers which NHF has purchased claims from in the past,
leading to certain medical providers breaching terms of their funding arrangements with NHF.
Work done in the second half of 2021 to re-organise the business, address issues of the past, develop new relationships and
expand its product offerings to cater for the changing landscape and needs of US Medical Service Providers in the Personal
Injury space have ensured that we ended the year with momentum. This momentum has continued in the first 3 months of
2022 as outlined in the 2021 Financial Results investor presentation dated 28 February 2022.
The Board considers that the hard work in 2021 has positioned the NHF business well to capitalise on the opportunity in
2022, which has been afforded to it, by its very supportive stakeholder base.
The broader economic and business environment in the United States has settled into a new normal post the dramatic
impacts of COVID-19 but now is experiencing rising costs for medical service providers. This is expected to increase the
demand for medical lien funding services in 2022, as medical service providers look for ways to unlock value in their
businesses and release cash to fund operations.
Nature of operations and principal activities
During the financial year the principal activities of the Group consisted of:
●
Medical lien funding;
●
Disbursement funding up until LAW ceased to control the business on 30 April 2021; and
●
Litigation funding, up until the completion of its sale on 24 June 2021.
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 with the ability to provide 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 (except in Michigan, which is a not-at-fault state). This business was
purchased by the Group on 28 September 2018.
NHF purchases a lien or obtains a letter of protection over medical receivables associated with personal injury cases from
healthcare providers and hospitals. The return to NHF is realised upon payment by the at-fault party or their insurance carrier
upon conclusion of the personal injury litigation, either by settlement or judgment.
LawFinance Limited
Directors' report
31 December 2021
6
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 maintain 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 year, 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.
Disbursement funding
The disbursement funding division (JustKapital Finance) was operated in Australia by LAW’s wholly owned subsidiary
JustKapital Financing Pty Ltd ('JKF'). As announced on 30 April 2021, 'Update on Conditions and JustKapital Financing' LAW
transferred control and collection responsibilities for the JKF book to an external collection agent appointed by its secured
lenders Assetsecure Pty Ltd ('Assetsecure'). JKF’s directors also appointed Martin Walsh as the Voluntary Administrator of
JKF. Martin was subsequently appointed as Liquidator of JKF on 4 June 2021.
The JKF business operations and balance sheet were deconsolidated from the Group’s accounts as at 30 April 2021.
LAW and Assetsecure reached an agreement whereby LAW will pay c.US$63,000 per month for 12 months to conclude on
30 May 2022 and US$780,000 by 1 July 2022 in full satisfaction of its potential corporate guarantee exposure relating to the
Assetsecure receivables purchase agreement with JKF.
JustKapital Finance provided 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
addressed the immediate and growing demand where the client or firm cannot, or may not be willing to, fund disbursements
directly.
Litigation funding
During the 2018 financial year the Board resolved to exit the litigation funding division. The litigation funding division is capital
intensive which had 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 US medical lien funding business.
On 24 June 2021, the sale of JustKapital Litigation Pty Ltd (and its subsidiaries) ('JKL') to Legal Equity Partners Pty Limited
(‘LEP’) completed. The transaction was considered fair and reasonable in an Independent Expert’s Report prepared by Grant
Thornton and was subsequently approved by shareholders at the Annual General Meeting on 25 May 2021. JKL was sold
for A$1, plus conditional proceeds equal to
●
50% of the net proceeds received from one of the funded cases; and
●
75% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has calculated the value of the conditional component of the sales
proceeds to have nil value. LAW is receiving updates and information from LEP, in accordance with the sale terms in order
to monitor the progress of outstanding litigation cases, which enables management to estimate the value of the conditional
component of the sales proceeds as cases proceed.
The litigation funding operations and the balance sheets attributable to JKL and its subsidiaries were deconsolidated from
the Group’s accounts as at 24 June 2021 when the sale to LEP completed.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
LawFinance Limited
Directors' report
31 December 2021
7
Significant changes in the state of affairs
As detailed above LAW ceased to control the JustKapital Finance business and sold the Litigation Funding businesses which
were deconsolidated from the Group’s financial accounts on 30 April 2021 and 24 June 2021 respectively. In addition, a
number of material recapitalisation and funding initiatives were successfully implemented as part of the Group’s strategic
turnaround plans.
Refinanced 'Front Book' secured finance facility
In late May 2021, the Group refinanced its existing Front Book facility provided by Atalaya Capital Management ('Atalaya')
with a new facility with Partners for Growth VI, LP ('PFG'). Management consider the PFG facility to be more strategically
aligned with its growth plans and business than the Atalaya facility.
The loan facility of US$30 million was established on 14 April 2021 and is available to fund the US medical lien funding
business. The facility has the capacity to be increased in stages to US$70 million based on certain conditions and criteria
set by PFG. The interest and fees payable under the drawn down facility total 11.25% per annum and the line fee is 0.5%.
The term of the facility is an initial three years to draw with an amortisation year in the fourth year and the maturity date being
the fourth anniversary of the date of the initial drawdown.
The new funding relationship with PFG has strengthened over the second half of the year and the funding process has been
efficient with up to two funding requests being processed per month. PFG has proved to be a very supportive and flexible
funding partner.
Raised new capital
As announced in May and June 2021 the Company raised a total of A$18 million via an A$17.2 million share placement
('Placement'), as announced on 28 May 2021 ('Completion of Restructure and Capital Raising') and a subsequent A$0.8
million raised via a Share Purchase Plan ('SPP'). Under both the Placement and the SPP, fully paid ordinary shares in the
Company were issued to investors ('Shares') at the issue prices of A$1.30 and A$0.92 per share (on a post-share
consolidation basis), respectively.
In addition to this new equity funding, an A$3 million new debt facility was raised in May 2021, prior to completion of the
Placement, by one of the Group’s existing Lenders ('Bridging Loan'). This Bridging Loan was subsequently restructured along
with the Group’s Syndicated Acquisition Facility ('SAF') as detailed below.
In total A$21 million of new capital was raised for reinvestment into LAW and the NHF business.
Restructured corporate secured and unsecured debt facilities
At the end of May 2021, following shareholder approval at the Annual General Meeting on 25 May 2021, the Company
completed a five-month consensual process with more than 40 secured and unsecured lenders, to convert some US$42
million (A$55 million) from debt-to-equity in LAW at an average price of A$0.037 per ordinary share (on a pre-share
consolidation basis).
Of the debt converted to equity, US$27 million (c.A$36 million) related to the lenders in the Syndicated Acquisition Facility
('SAF'), who converted a portion of their outstanding debt to equity. The balance of the SAF debt in the amount of US$15.6
million (A$20.8 million) was restructured via an amendment and restatement of the facility terms, including as follows:
●
Interest rate reduced from 13.6% p.a. to 9.5% p.a.;
●
Ability to capitalise interest payments until May 2024; and
●
Deferring the repayment date to May 2025 for A$0.825 million (Tranche 2) and to May 2026 for A$20 million (Tranche
1).
In addition to the restructured SAF debt, the US$2.253 million (A$3 million) Bridging Loan (detailed above under the heading
Raised new capital), was also restructured on the same terms as the Tranche 2 SAF debt. Accordingly, the total Tranche 2
of the SAF debt is now US$2.854 million (A$3.825 million).
While the debt holders converted A$55 million of debt-to-equity at an average price of A$0.037 per ordinary share (on a pre-
share consolidation basis), management have assessed the fair value of the shares at the time of the restructure at A$0.021
per ordinary share. This was the market price of the shares as at the date of announcement to the market, and immediately
prior to commencing the trading halt.
LawFinance Limited
Directors' report
31 December 2021
8
Share consolidation
The Company undertook a 100-for-1 share consolidation on 9 June 2021 following shareholder approval at the AGM on 25
May 2021.
Other than those set out in this report, there were no other significant changes in the state of affairs of the Group during the
financial year.
Matters subsequent to the end of the financial year
The Board has subsequently approved to pay up to 50% of the potential STI to Daniel Kleijn, Phil Smith, Richard Cruz and
Marialena Ziska and no LTI. The board has based the remuneration on achieving the KPI of successfully restructuring and
recapitalising the group, and progress made towards the KPI of achieving phase one of the group’s turnaround plan.
Apart from matters as disclosed in this report and in note 35, no other matter or circumstance has arisen since 31 December
2021 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:
Tim Storey
Title:
Non-Executive Chairman, Non-Executive Director
Experience and expertise:
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.
Other current directorships:
Chairman of Stride Property Group (NZX: SPG) and Director of Investore Property
Limited (NZX: IPL).
Former directorships (last 3 years): None
Special responsibilities:
Member of the Remuneration and Nominations Committee and Chairman of the Audit
and Risk Committee
Interests in shares:
148,634 ordinary shares
Interests in options:
Nil options/warrants over ordinary shares
Interests in rights:
Nil performance rights over ordinary shares
Name:
Anthony Murphy
Title:
Non-Executive Director
Experience and expertise:
Anthony is the Chief Executive Officer of Lucerne Investment Partners and is
responsible for overseeing and 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:
Chairman of the Remuneration and Nominations Committee and member of the Audit
and Risk Committee
Interests in shares:
796,322 ordinary shares
Interests in options:
142,800 warrants over ordinary shares
Interests in rights:
Nil performance rights over ordinary shares
LawFinance Limited
Directors' report
31 December 2021
9
Name:
David Wattel
Title:
Non-Executive Director
Experience and expertise:
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 on 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
Special responsibilities:
None
Interests in shares:
1,075,488 ordinary shares
Interests in options:
237,500 options over ordinary shares; 614,319 warrants over ordinary shares
Interests in rights:
Nil performance rights over ordinary shares
Name:
Daniel Kleijn
Title:
Chief Executive Officer, Managing Director
Experience and expertise:
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
Special responsibilities:
None
Interests in shares:
52,000 ordinary shares
Interests in options:
916,667 options over ordinary shares
Interests in rights:
Nil performance rights over ordinary shares
Name:
Jane Lamming (appointed on 1 September 2021 and resigned on 1 March 2022)
Title:
Former Non-Executive Director
Experience and expertise:
Jane Lamming is General Counsel and Chief Compliance Officer of Ausbil Investment
Management Limited. Ms Lamming brought a deep understanding of legal, compliance,
AML and risk and governance issues, developed from over 20 years' experience of
holding senior roles in financial services organisations covering global markets,
investment banking and asset management. Ms Lamming has a Bachelor of
Laws/Bachelor of Arts (Hons) from the University of Sydney.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Former Chairman of the Audit and Risk Committee
Interests in shares:
Not applicable as no longer a director
Interests in options:
Not applicable as no longer a director
Interests in rights:
Not applicable as no longer a director
'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 exclude
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.
LawFinance Limited
Directors' report
31 December 2021
10
Meetings of directors
The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2021,
and the number of meetings attended by each director was:
Full Board
Attended
Held
Tim Storey
10
10
Anthony Murphy
10
10
David Wattel
8
10
Daniel Kleijn
10
10
Jane Lamming
2
2
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 comprise of the following directors and other senior executives of the Group.
Name
Title
Non-Executive Directors
Tim Storey
Non-Executive Chairman, Non-Executive Director
Anthony Murphy
Non-Executive Director
David Wattel
Non-Executive Director
Jane Lamming
Former Non-Executive Director (appointed 1 September 2021 and resigned on 1 March
2022)
Executive Directors
Daniel Kleijn
Chief Executive Officer, Managing Director
Senior Executives
Phil Smith
Chief Financial Officer
Richard Cruz
President and General Counsel - NHF
Marialena Ziska
Chief Revenue Officer - NHF
Anthony Hersch
Former Chief Operating Officer (resigned on 13 December 2021)
Craig Beatton
Former Head of Reporting and Compliance (resigned on 13 September 2021)
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Directors' report
31 December 2021
11
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 2021. Therefore, during the financial year ended 31 December 2021, 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 2021, 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 2021. 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.
Use of remuneration consultants
During the financial year ended 31 December 2021, the Board did not engage a remuneration consultant to review and
advise on KMP remuneration, for both directors and senior executives. As a result, no fees were paid to an external
remuneration consultant during the financial year.
Non-executive directors remuneration
Non-executive directors' fees and payments are reviewed annually. Usually, this review will be undertaken by the R&NC,
however due to the current structure of the Board, this responsibility has currently moved to the Board. The chairman's fees
are determined independently to the fees of other non-executive directors based on comparative roles in the external market.
The chairman is not present at any discussions relating to the determination of his own remuneration. Non-executive directors
may be offered the opportunity, and encouraged, to participate in the Group’s equity plan arrangements to align their interests
with shareholder interests.
Non-executive directors fees
Role
US$
Chairman
34,859
Non-executive director
20,231
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$224,096 (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:
Fixed remuneration
Fixed compensation, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the
Board. Fixed remuneration is determined after review of Group and individual performance, relevant comparative
compensation in the market and internally and, where appropriate, external advice on policies and practices.
LawFinance Limited
Directors' report
31 December 2021
12
Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle
benefits) where it does not create any additional costs to the Group and provides additional value to the executive.
Variable remuneration
The objective of the variable compensation incentive is to reward executives in a manner that aligns this element of their
compensation with the objectives and internal KPIs of the Group. The total potential incentive available is set at a level so
as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is
reasonable in the circumstances.
The variable component is delivered in two parts:
a) Short-Term Incentive Plan ('STIP')
The STIP is a discretionary annual bonus payment available to participants who are senior executives of the Company and
is based on a percentage (up to 75% for the financial year ended 31 December 2021) 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 combination, of the following:
(i)
options;
(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).
Voting and comments made at the Company's 2021 Annual General Meeting ('AGM')
At the 2021 AGM held on 25 May 2021, 99.98% of the votes received supported the adoption of the remuneration report for
the financial year ended 31 December 2020.
LawFinance Limited
Directors' report
31 December 2021
13
Details of remuneration
Amounts of remuneration
Remuneration for the year 1 January 2021 to 31 December 2021.
Short-term benefits
Post-employment
benefits
Long-term
benefits
Share-based payments
Salary and
Non-
Super-
Termin-
ation
Long ser-
fees
monetary
annuation
benefits
vice leave
Shares
Options
Total
31 Dec 2021
US$
US$
US$
US$
US$
US$
US$
US$
Executive
Directors:
Daniel Kleijn
410,843
-
18,675
-
-
24,277
62,552
516,347
Non-Executive
Directors:
Tim Storey (1)
34,859
-
-
-
-
-
-
34,859
Anthony
Murphy (2)
3,370
-
4,411
-
-
-
-
7,781
Jane Lamming (4)
11,318
-
1,132
-
-
-
-
12,450
David Wattel (6)
-
-
-
-
-
-
-
-
Other KMP:
Phil Smith
204,142
-
19,954
-
-
-
37,565
261,661
Richard Cruz (3)
233,364
6,739
11,668
-
-
-
37,565
289,336
Marialena Ziska (3)
142,063
117
7,103
-
-
-
22,539
171,822
Anthony
Hersch (5)
255,649
-
19,894
79,936
-
-
-
355,479
Craig Beatton (5)
126,014
-
9,930
26,238
-
-
-
162,182
1,421,622
6,856
92,767
106,174
-
24,277
160,221
1,811,917
(1)
Prolex Limited, an entity associated with Tim Storey, was paid US$72,209 (A$96,666) for directors’ fees (2020:
A$105,000). As a result of the restructure, US$37,350 (A$50,000) of remuneration owing from 2020 was foregone in
the current year and offset against the current year’s remuneration.
(2)
Anthony was paid US$49,799 (A$66,667) during the current year. As a result of the restructure, US$42,018 (A$56,250)
of remuneration owing from 2020 was foregone in the current year and offset the current year’s remuneration.
(3)
Non-monetary benefits include medical benefits.
(4)
Represents remuneration from 1 September 2021 to 31 December 2021.
(5)
Represents remuneration from 1 January 2021 to date of resignation.
(6)
David forgave receipt of his salary for the year ended 31 December 2021.
LawFinance Limited
Directors' report
31 December 2021
14
Remuneration for the year 1 January 2020 to 31 December 2020.
Short-term benefits
Post-employment
benefits
Long-term
benefits
Share-based payments
Salary and
Non-
Super-
Termin-
ation
Long ser-
fees
monetary
annuation
benefits
vice leave
Shares
Options
Total
31 Dec 2020
US$
US$
US$
US$
US$
US$
US$
US$
Executive
Directors:
David Wattel (1)
201,266
-
-
-
-
-
-
201,266
Daniel Kleijn (2)
22,447
-
1,021
-
-
-
-
23,468
Diane Jones (3)
365,070
-
14,494
-
-
-
-
379,564
Non-Executive
Directors:
Tim Storey (4)
72,462
-
-
-
-
-
-
72,462
Anthony
Murphy (5)
47,268
-
4,491
-
-
-
-
51,759
Other KMP:
Anthony Hersch
251,201
-
14,494
-
-
-
-
265,695
Phil Smith (6)
11,182
-
1,062
-
-
-
-
12,244
Craig Beatton
156,210
-
14,594
-
-
-
-
170,804
Sarika Merchant(7)
284,454
-
-
-
-
-
-
284,454
Richard Cruz
263,215
-
-
-
-
-
-
263,215
1,674,775
-
50,156
-
-
-
-
1,724,931
(1)
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 year ended 31 December 2020.
(2)
Represents remuneration from 8 December 2020 to 31 December 2020.
(3)
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.
(4)
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.
(5)
Of the total of US$51,759 (A$75,000), A$56,250 has been accrued and is yet to be paid.
(6)
Represents remuneration from 8 December 2020 to 31 December 2020.
(7)
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.
LawFinance Limited
Directors' report
31 December 2021
15
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Fixed remuneration
Performance related - STIP Performance related - LTIP
Name
31 Dec 2021
31 Dec 2020
31 Dec 2021
31 Dec 2020
31 Dec 2021
31 Dec 2020
Executive Directors:
David Wattel (up to 1 December
2020)
-
100%
-
-
-
-
Daniel Kleijn
84%
100%
-
-
16%
-
Non-executive Directors:
Tim Storey
100%
100%
-
-
-
-
Anthony Murphy
100%
100%
-
-
-
-
Jane Lamming
100%
-
-
-
-
-
Other KMP:
Phil Smith
86%
100%
-
-
14%
-
Richard Cruz
87%
100%
-
-
13%
-
Marialena Ziska
87%
100%
-
-
13%
-
Anthony Hersch
100%
100%
-
-
-
-
Craig Beatton
100%
100%
-
-
-
-
Service agreements
Remuneration and other terms of employment for KMP are formalised in service agreements. Details of these agreements
are as follows:
Name:
Tim Storey
Title:
Non-Executive Chairman, Non-Executive Director
Agreement commenced:
1 April 2015
Term of agreement:
Ongoing
Details:
Tim is paid a gross salary of US$59,759 (A$80,000) per annum. Previously this was
US$78,434 (A$105,000) until 31 August 2021. The reduction is part of an effort to align
the interests of non-executive directors more closely to shareholders whereby the
Board has agreed to reduce their fees by $25,000 in return for 100,000 options with an
exercise price of $2.50 (subject to shareholder approval) as announced 31 August
2021.
Name:
Anthony Murphy
Title:
Non-Executive Director
Agreement commenced:
31 October 2017
Term of agreement:
Ongoing
Details:
Anthony is paid a gross salary of US$37,349 (A$50,000) per annum inclusive of
superannuation. Previously this was US$56,024 (A$75,000) until 31 August 2021. The
reduction is part of an effort to align the interests of non-executive directors more
closely to shareholders whereby the Board has agreed to reduce their fees by $25,000
in return for 100,000 options with an exercise price of $2.50 (subject to shareholder
approval) as announced 31 August 2021.
Name:
David Wattel
Title:
Non-Executive Director
Agreement commenced:
28 September 2018
Term of agreement:
Ongoing
Details:
During the year, David was not paid a salary and has decided to forego his salary in
order for the business to succeed.
LawFinance Limited
Directors' report
31 December 2021
16
Name:
Daniel Kleijn
Title:
Chief Executive Officer, Managing Director
Agreement commenced:
8 December 2020
Term of agreement:
Ongoing
Details:
Daniel is paid a gross salary of US$429,518 (A$575,000) per annum inclusive of
superannuation. The required notice period is 6 months by either party.
On the 25 May 2021, shareholders approved and granted 25,000 shares to the value
of A$32,500 in recognition of his appointment and contributions to the Company to
date.
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. Following shareholder approval on 25 May 2021 and completion of the
Restructure and Capital Raising on 28 May 2021, Daniel has been granted options to
acquire 916,667 LAW shares with a strike price of A$2.50 and approximate value of
US$366,376 ($A490,471). The options will vest 3 years from the date of grant and be
exercisable for a 1 year period after they vest.
Name:
Jane Lamming (appointed on 1 September 2021 and resigned on 1 March 2022)
Title:
Former Non-Executive Director
Agreement commenced:
1 September 2021
Term of agreement:
Not applicable
Details:
Jane was paid a gross salary of US$37,349 (A$50,000) per annum inclusive of
superannuation.
Name:
Anthony Hersch (resigned on 13 December 2021)
Title:
Chief Operating Officer
Agreement commenced:
18 April 2016
Term of agreement:
Not applicable
Details:
Anthony was paid a gross salary of US$224,096 (A$300,000) per annum inclusive of
superannuation.
Name:
Phil Smith
Title:
Chief Financial Officer
Agreement commenced:
8 December 2020
Term of agreement:
Ongoing
Details:
Phil is paid a gross salary of US$224,096 (A$300,000) per annum inclusive of
superannuation. The required 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 has been granted options to acquire 500,000 LAW
shares with a strike price of A$2.50 and approximate value of US$160,994
(A$215,525). The options will vest on 8 December 2023 from the date of grant and be
exercisable for a 1 year period after they vest.
Name:
Craig Beatton (resigned on 13 September 2021)
Title:
Former Head of Reporting & Compliance
Agreement commenced:
12 September 2016
Term of agreement:
Not applicable
Details:
Craig was paid a gross salary of US$149,397 (A$200,000) per annum inclusive of
superannuation.
LawFinance Limited
Directors' report
31 December 2021
17
Name:
Richard Cruz
Title:
President and General Counsel - NHF
Agreement commenced:
No signed agreement is in place, commenced employment 25 April 2016.
Term of agreement:
No agreement is in place and the employment relationship is governed by general
Arizonian law.
Details:
Richard is paid an annual salary of US$236,900 per annum. There is no notice period
required by either party. Richard has been granted options to acquire 500,000 LAW
shares with a strike price of A$2.50. The options will vest on 8 December 2023 from
the date of grant and be exercisable for a 1 year period after they vest.
Name:
Marialena Ziska
Title:
Chief Revenue Officer - NHF
Agreement commenced:
3 June 2019
Term of agreement:
No agreement is in place and the employment relationship is governed by general
Arizonian law.
Details:
Marialena is paid an annual salary of US$160,000 per annum. There is no notice
period required by either party. Marialena has been granted options to acquire
300,000 LAW shares with a strike price of A$2.50. The options will vest on 8
December 2023 from the date of grant and be exercisable for a 1 year period after
they vest.
KMPs have no entitlement to termination payments in the event of removal for misconduct.
Share-based compensation
Issue of shares
Details of shares issued to directors and other key management personnel as part of compensation during the year ended
31 December 2021 are set out below:
Name
Issue date
Shares*
Issue price
Value of
shares
issued
US$
Daniel Kleijn
02/06/2021
25,000
US$0.0000
24,277
*
2,500,000 shares (pre-consolidation) issued at $nil consideration
Options
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other KMP in
this financial year or future reporting years are as follows:
Number of
Fair value
options
Vesting date and
Exercise
per option
Name
granted
Grant date
exercisable date
Expiry date
price*
at grant date
Daniel Kleijn
916,667 28/05/2021
19/11/2024
19/11/2025
US$1.8670
US$0.400
Phil Smith
500,000 18/06/2021
08/12/2023
08/12/2024
US$1.8670
US$0.322
Richard Cruz
500,000 18/06/2021
08/12/2023
08/12/2024
US$1.8670
US$0.322
Marialena Ziska
300,000 18/06/2021
08/12/2023
08/12/2024
US$1.8670
US$0.322
*
Exercise price A$2.50
Options granted carry no dividend or voting rights.
LawFinance Limited
Directors' report
31 December 2021
18
General performance and link to remuneration policy
The earnings of the Group for the five years to 31 December 2021 are summarised below:
31 Dec 2021
31 Dec 2020
(restated)
31 Dec 2019
(restated)
31 Dec 2018
30 Jun 2018
US$'000
US$'000
US$'000
US$'000
US$'000
Total revenue and other income
357
(7,519)
(656)
4,554
5,918
EBIT (excluding discontinued operations)
(10,495)
(35,054)
(9,910)
(8,619)
(1,594)
Loss after income tax
(21,229)
(78,136)
(23,256)
(11,548)
(5,142)
The factors that are considered to affect TSR are summarised below:
31 Dec 2021
31 Dec 2020
31 Dec 2019
31 Dec 2018
30 Jun 2018
Share price at financial year end (A$)
0.76
0.03
0.06
0.07
0.07
Basic loss per share (cents per share)
(73.31)
(867.89)
(4.70)
(4.60)
(3.68)
Diluted loss per share (cents per share)
(73.31)
(867.89)
(4.70)
(4.60)
(3.68)
Short-Term Incentive Plan
Financial year ended 31 December 2021 - STIP
There were no bonuses paid to KMPs during the current financial year.
Financial year ended 31 December 2020 - STIP
There were no bonuses paid to KMPs during the current financial year.
Long-Term Incentive Plan
Daniel Kleijn received 916,667 options with a strike price of A$2.50 each vesting 3 years from the date of issue and expiring
4 years from the date of issue. Daniel was also issued 25,000 shares for $nil consideration.
Phil Smith and Richard Cruz received 500,000 options each and Marialena Ziska received 300,000 options with a strike price
of A$2.50 each vesting 2.5 years from the date of issue and expiring 3.5 years from the date of issue.
There were no grants of equity under the LTIP during the financial year ended 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:
Balance at
Share
Balance at
the start of
consolidation
Disposals/
the end of
the year
Additions
100:1
other (i)
the year
Tim Storey (ii)
7,263,315
7,600,000
(14,714,681)
-
148,634
Anthony Murphy (iii)
5,636,250
795,572
(5,579,887)
(55,613)
796,322
David Wattel
107,548,701
-
(106,473,213)
-
1,075,488
Diane Jones (i)
5,122,104
-
-
(5,122,104)
-
Anthony Hersch (i)
957,227
-
-
(957,227)
-
Craig Beatton (i)
100,000
-
-
(100,000)
-
Daniel Kleijn (iv)
-
5,200,000
(5,148,000)
-
52,000
126,627,597
13,595,572
(131,915,781)
(6,234,944)
2,072,444
(i)
shares held at the date of resignation
(ii)
7,600,000 shares acquired (pre-consolidation)
(iii) 790,572 shares acquired (post-consolidation) on conversion of debt to equity and 5,000 shares acquired (post-
consolidation)
(iv)
2,500,000 shares granted (pre-consolidation) as part of remuneration and 2,700,000 shares (pre-consolidation) under
placement
LawFinance Limited
Directors' report
31 December 2021
19
During the financial year ended 31 December 2021, there were no shares in the Company held by directors and other KMPs
other than those disclosed in the table above.
Option holding
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:
Balance at
Share
Expired/
Balance at
the start of
consolidation
forfeited/
the end of
the year
Granted
100:1
other
the year
Options over ordinary shares
David Wattel
35,750,000
-
(35,392,500)
(120,000)
237,500
Daniel Kleijn
-
916,667
-
-
916,667
Phil Smith
-
500,000
-
-
500,000
Richard Cruz
-
500,000
-
-
500,000
Marialena Ziska
-
300,000
-
-
300,000
35,750,000
2,216,667
(35,392,500)
(120,000)
2,454,167
The details of the options granted during the financial year are set out below:
Grant date
Expiry date
Exercise
price
Number
28/05/2021
19/11/2025
US$1.867
916,667
18/06/2021
08/12/2024
US$1.867
500,000
18/06/2021
08/12/2024
US$1.867
500,000
18/06/2021
08/12/2024
US$1.867
300,000
2,216,667
The options were granted as part of an effort to align the interests of directors and KMP more closely to shareholders.
During the financial year ended 31 December 2021, there were no options over ordinary shares in the Company held by
directors and KMP’s 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:
Balance at
Share con-
Expired/
Balance at
the start of
-solidation
forfeited/
the end of
the year
Granted
100:1
other
the year
David Wattel
61,431,818
-
(60,817,499)
-
614,319
Anthony Murphy
14,280,000
-
(14,137,200)
-
142,800
75,711,818
-
(74,954,699)
-
757,119
The grant date and expiry date of the warrants is 28 September 2018 and 8 November 2022 respectively.
The exercise price of the warrants is A$13.50 (31 December 2020: A$0.135). As a result of the capital raising and share
consolidation 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 2021, 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 30 for further details.
LawFinance Limited
Directors' report
31 December 2021
20
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 30 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:
Exercise
Number
Grant date
Expiry date
price*
under option
13/03/2020
28/09/2022
US$29.8790
225,000
13/03/2020
28/09/2023
US$44.8190
250,000
28/05/2021
19/11/2025
US$1.8670
916,667
18/06/2021
08/12/2024
US$1.8670
1,300,000
2,691,667
*
Exercise price - A$40, A$60, A$2.50 and A$2.50 respectively.
No person entitled to exercise the options had or has any right by virtue of the options to participate in any share issue of the
Company or of any other body corporate.
Shares under warrants
Unissued ordinary shares of LawFinance Limited under warrants at the date of this report are as follows:
Number
Grant date
Expiry date
under rights
28/09/2018*
08/11/2022
3,298,800
28/09/2018**
08/11/2022
1,228,638
28/05/2021***
28/05/2028
2
4,527,440
The exercise price of the warrants issued on 28/09/2018 is US$10.08 (A$13.50) (31 December 2020: 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.
The exercise price of the warrants issued on 28/05/2021 is US$3.29 (A$4.40) (31 December 2020: NA).
*
Warrants issued to other Syndicated Acquisition Facility participants
**
Warrants issued to NHF Founders
*** Warrants issued to Partners for Growth
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
2021 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
2021 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.
LawFinance Limited
Directors' report
31 December 2021
21
During the financial year, 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 27 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.
The directors are of the opinion that the services as disclosed in note 27 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.
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 2022
Sydney
Stantons Is a member of the Russell
Bedford International network of firms
Liability limited by a scheme approved under Professional Standards Legislation
PO Box 1908
West Perth WA 6872
Australia
Level 2, 40 Kings Park Road
West Perth
WA 6005
Australia
Tel: +61 8 9481 3188
Fax: +61 8 9321 1204
ABN: 84 144 581 519
www.stantons.com.au
31 March 2022
Board of Directors
LawFinance Limited
Suite 335
49-51 Queens Road
Five Dock NSW 2046
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 2021, 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
(An Authorised Audit Company)
Samir Tirodkar
Director
LawFinance Limited
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December 2021
Consolidated
Note
31 Dec 2021
31 Dec 2020
US$'000
US$'000
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
23
Revenue from continuing operations
Net loss from medical lien funding
5
(3,079)
(9,311)
Other revenue
6
1,392
1,855
Total revenue
(1,687)
(7,456)
Non-supplier related cost of sales
(57)
(22)
Gross (loss)
(1,744)
(7,478)
Interest income
4
2
Foreign exchange gain
-
7
Expenses
Impairment gain on financial liabilities
7
-
19,602
Employee benefits expense
7
(4,196)
(4,724)
Depreciation and amortisation expense
7
(349)
(470)
Impairment of assets
7
(75)
(38,307)
Administration and other expenses
7
(4,135)
(3,686)
Finance costs
7
(11,474)
(15,010)
Loss before income tax benefit/(expense) from continuing operations
(21,969)
(50,064)
Income tax benefit/(expense)
8
1,528
(12,810)
Loss after income tax benefit/(expense) from continuing operations
(20,441)
(62,874)
Loss after income tax expense from discontinued operations
9
(788)
(15,262)
Loss after income tax benefit/(expense) for the year
(21,229)
(78,136)
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
1,977
(1,680)
Restructuring gain on debt to equity conversion
22
18,910
-
Other comprehensive income/(loss) for the year, net of tax
20,887
(1,680)
Total comprehensive loss for the year
(342)
(79,816)
Loss for the year is attributable to:
Non-controlling interest
27
338
Owners of LawFinance Limited
(21,256)
(78,474)
(21,229)
(78,136)
LawFinance Limited
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December 2021
Consolidated
Note
31 Dec 2021
31 Dec 2020
US$'000
US$'000
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
24
Total comprehensive loss for the year is attributable to:
Continuing operations
27
338
Discontinued operations
-
-
Non-controlling interest
27
338
Continuing operations
419
(64,892)
Discontinued operations
9
(788)
(15,262)
Owners of LawFinance Limited
(369)
(80,154)
(342)
(79,816)
Cents
Cents
Earnings per share for loss from continuing operations attributable to the
owners of LawFinance Limited
Basic loss per share
10
(70.59)
(699.10)
Diluted loss per share
10
(70.59)
(699.10)
Earnings per share for loss from discontinued operations attributable to the
owners of LawFinance Limited
Basic loss per share
10
(2.72)
(168.79)
Diluted loss per share
10
(2.72)
(168.79)
Earnings per share for loss attributable to the owners of LawFinance Limited
Basic loss per share
10
(73.31)
(867.89)
Diluted loss per share
10
(73.31)
(867.89)
LawFinance Limited
Consolidated statement of financial position
As at 31 December 2021
Consolidated
Note
31 Dec 2021
31 Dec 2020
US$'000
US$'000
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
25
Assets
Current assets
Cash and cash equivalents
11
5,101
4,746
Financial assets at fair value through profit or loss - Australia
12
-
7,194
Financial assets at amortised cost - USA
13
12,372
15,239
Other receivables
14
979
831
Prepayments
293
118
18,745
28,128
Assets held for sale
9
-
10,248
Total current assets
18,745
38,376
Non-current assets
Financial assets at fair value through profit or loss - Australia
12
-
8,929
Financial assets at amortised cost - USA
13
29,070
38,014
Other receivables
14
15
5
Property, plant and equipment
15
106
91
Right-of-use assets
16
235
1,074
Intangibles
17
-
10
Total non-current assets
29,426
48,123
Total assets
48,171
86,499
Liabilities
Current liabilities
Trade and other payables
18
2,068
6,789
Borrowings
19
38,323
113,514
Lease liabilities
100
461
Employee benefits
177
287
40,668
121,051
Liabilities directly associated with assets classified as held for sale
9
-
10,248
Total current liabilities
40,668
131,299
Non-current liabilities
Borrowings
19
17,818
416
Lease liabilities
164
784
Provision for withholding tax
-
1,559
Total non-current liabilities
17,982
2,759
Total liabilities
58,650
134,058
Net liabilities
(10,479)
(47,559)
Equity
Issued capital
20
97,626
61,310
Capitalising converting notes
21
14,832
13,933
Reserves
22
26,344
5,220
Accumulated losses
(148,816)
(127,560)
Deficiency attributable to the owners of LawFinance Limited
(10,014)
(47,097)
Non-controlling interest
(465)
(462)
Total deficiency
(10,479)
(47,559)
LawFinance Limited
Consolidated statement of changes in equity
For the year ended 31 December 2021
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
26
Issued
Capitalising
converting
Accumulated
Non-
controlling
Total
deficiency
capital
notes
Reserves
losses
interest
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2020
40,924
-
6,778
(49,086)
(1,128)
(2,512)
Profit/(loss) after income tax
expense for the year
-
-
-
(78,474)
338
(78,136)
Other comprehensive loss for
the year, net of tax
-
-
(1,680)
-
-
(1,680)
Total comprehensive
income/(loss) for the year
-
-
(1,680)
(78,474)
338
(79,816)
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transaction costs (note 20)
20,386
-
-
-
-
20,386
Distribution to non-controlling
interest
-
-
-
-
328
328
Share-based payments
-
-
122
-
-
122
Capitalising converting notes
(note 21)
-
13,933
-
-
-
13,933
Balance at 31 December 2020
61,310
13,933
5,220
(127,560)
(462)
(47,559)
Issued
Capitalising
converting
Accumulated
Non-
controlling
Total
deficiency
capital
notes
Reserves
losses
interest
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2021
61,310
13,933
5,220
(127,560)
(462)
(47,559)
Profit/(loss) after income tax
benefit for the year
-
-
-
(21,256)
27
(21,229)
Other comprehensive income
for the year, net of tax
-
-
20,887
-
-
20,887
Total comprehensive
income/(loss) for the year
-
-
20,887
(21,256)
27
(342)
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transaction costs (note 20)
36,316
-
-
-
-
36,316
Share-based payments
-
-
237
-
-
237
Distribution to non-controlling
interest
-
-
-
-
(30)
(30)
Capitalising converting notes
(note 21)
-
899
-
-
-
899
Balance at 31 December 2021
97,626
14,832
26,344
(148,816)
(465)
(10,479)
LawFinance Limited
Consolidated statement of cash flows
For the year ended 31 December 2021
Consolidated
Note
31 Dec 2021
31 Dec 2020
US$'000
US$'000
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
27
Cash flows from operating activities
Cash collections from customers (inclusive of GST)
15,156
28,179
Payments to suppliers and employees
(10,662)
(8,398)
Payments for disbursement reports and medical liens
(3,577)
(11,506)
Drawdowns from working capital facilities - disbursement funding division
629
3,526
Drawdowns from working capital facilities - medical lien funding division
111
6,083
Transfer of redraw account balance to PFG controlled account - medical lien funding
(2,206)
-
Repayment of working capital facilities - disbursement funding division
(2,176)
(9,379)
Repayment of working capital facilities - medical lien funding division
(4,716)
(12,950)
Interest and fees related to working capital facilities
(4,623)
(7,006)
Interest received
3
2
Interest paid
(5)
(18)
Net cash (outflow) from operating activities
33
(12,066)
(11,467)
Cash flows from investing activities
Payments for property, plant and equipment
(154)
(16)
Payments for litigation case funding (net of co-funders contributions)
(200)
(222)
Net proceeds from term deposits
145
-
Net proceeds from realisation of investments (case settlements)
-
1,855
Cash balance transfer associated with the sale of disbursement funding and
litigation case funding business
(194)
-
Net cash (outflow)/inflow from investing activities
(403)
1,617
Cash flows from financing activities
Proceeds from issue of shares
13,321
9,058
Share issue transaction costs
(584)
(409)
Proceeds from borrowings - corporate
2,914
28,689
Repayment of borrowings - corporate
(1,290)
(25,391)
Repayment of lease liabilities
(263)
(245)
Interest and fees related to loans and borrowings
(1,217)
(1,320)
Net cash inflow from financing activities
12,881
10,382
Net increase in cash and cash equivalents
412
532
Cash and cash equivalents at the beginning of the financial year
5,197
5,638
Effects of exchange rate changes on cash and cash equivalents
(508)
(973)
Cash and cash equivalents at the end of the financial year
11
5,101
5,197
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
28
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 335
49-51 Queens Road
Five Dock NSW 2046
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 2022.
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.
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
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 a loss after tax of US$21,229,000 for the year ended 31 December 2021 (2020: US$78,136,000) and a net
cash outflow from operating activities of US$12,066,000 (2020: US$11,467,000). This included a loss of US$788,000
attributable to the performance of the JustKapital Financing and Litigation Funding businesses which were discontinued
operations in H1 2021. The Group reached an agreement with the Secured Lenders to both businesses which de-risked the
Group (refer to note 19(iv)).
The after-tax loss for the year ended 31 December 2021 also included the impacts of the financial assets being recorded at
amortised cost (NHF’s Front and Back Books of financial assets) and recognised through the profit and loss. The amortisation
of these assets was calculated based on the prior six months collection history, which was adversely impacted by COVID-
19. Management expects that the valuation of the book will show an improvement in settlement gains as COVID-19 impacts
continue to subside in the US.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
29
As at 31 December 2021 the Group had a net asset deficiency of US$10,479,000 (31 December 2020: net asset deficiency:
of US$47,559,000). The Group has triggered a Review Event of the EFI asset backed facility, however, as at the date of this
report, EFI had not issued notice to the borrower (SPVIII), to commence a required re-negotiation period. Please refer to
note 19 for further details regarding this facility and the limited risks that the facility poses to the broader Group. A conditional
waiver agreement has been reached with PFG in respect of that asset backed facility and the Group is currently in the
process of raising capital which would satisfy remaining conditions of the Review Event waiver by 30 April 2022.
The Group’s one remaining and only corporate debt facility as at 31 December 2021 is the Syndicate Acquisition Facility
('SAF') which had outstanding principal of US$17,681,000 (A$24,395,000). As at 31 December 2021 the SAF was performing
and not in breach of its terms. Refer to note 19.
As at 31 December 2021, the Group held US$5,101,000 (31 December 2020: US$4,746,000) in cash. Of this amount
$4,319,000 (31 December 2020: $3,161,000) was unrestricted and available to fund operations and investment in the
business. These cash reserves will be required to fund Group operating expenses until the NHF business reaches the
required scale and performance to be operationally cash positive.
The PFG funding facility provides the required funding for the US business to grow the Front Book and capture revenue.
Under the PFG funding facility, PFG provide debt funding equal to 85% of the cost value of new/eligible originations (80% in
respect of certain originations including the Bulk Deal. The remaining 15% is funded by the Group. While the Company
breached the PFG tangible net worth covenant at 31 December 2021, and a Review Event triggered, a subsequent
agreement was reached with PFG to waive the Review Event subject to certain conditions being met. The last condition to
be satisfied by the Company is raising capital, which is expected to be satisfied with the completion of the Entitlement Offer
in April 2022. This agreement reached with PFG demonstrates the strength of the Group’s relationship with PFG and their
alignment with the Group’s strategic plans to grow the Front Book. Preparations are underway to raise capital to satisfy the
condition of the waiver agreed by PFG as referred to in note 19.
The Directors have reviewed LAW’s 12-month cash flow projections and underlying assumptions. The cash flow forecast
shows the Group will have sufficient cash and funding to operate as a going concern during the forecast period, however
depending on the level of growth in originations and collections, the Company may require further capital during the forecast
period as discussed above. Management is currently working on further funding options and is confident that if it executes
on its business plans during 2022, it will have the ability to raise further funding if required. As a result, the financial statements
have been prepared on a going concern basis.
NHF have been focused, since executing the PFG funding facility in May 2021, on its market re-entry campaign. While
progress of growing the front book was slower than expected, by the end of the year the Company had built significant
momentum which has continued into the initial months of 2022.
The Group is focused on executing its strategic priorities over 2022. These priorities include growing the Front Book to a
scale that drives positive cash flow from operations and future building of data capability to enhance the predictability (and
quality) of returns and cost management and productivity initiatives. The Directors believe that successful execution of these
strategic priorities, amongst others, will enable profitable deployment of capital and create value for shareholders.
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 2021. 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.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of LawFinance Limited as at 31
December 2021 and the results of all subsidiaries for the period then ended.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
30
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 deconsolidated 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.
Revenue recognition
The Group recognises revenue as follows:
Australian disbursement funding business (discontinued operation)
In the Australian disbursement funding business, the Group entered into contracts with law firms to pay, on the law firms’
behalf, legal disbursements to progress their clients’ claims. These disbursements ('Australian disbursement receivables')
included those for the preparation of independent expert reports and medico-legal reports relating to the client’s injuries.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
31
As the contracts with law firms do not involve the provision of any good or service to the law firm, the Group concluded that
the arrangement was not a contract with a customer under AASB 15 'Revenue from Contracts with Customers'. Rather, as
the contract was the provision of loan financing to the law firm, it created a financial asset that was within the scope of AASB
9 'Financial Instruments' and classified as at fair value through profit or loss.
No active market existed for these loans. Any difference at transaction date between the calculated fair value and the
transaction price (also known as a day 1 margin) was deferred and the Group recognised the deferred difference as a gain
or loss only to the extent that it arose from a change in a factor (including time) that market participants would take into
account when pricing the asset.
Any subsequent changes in the fair value of Australian disbursement receivables was 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 were calculated
using assumptions based on historical performance. These assumptions included 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 was 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.
US medical lien funding business (continuing 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 has
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 and are classified as financial assets held at amortised cost.
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).
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. Interest is recognised as income in profit or loss.
At each period end, the future expected cash flows now expected to arise from the asset going forward 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 gain or loss.
Rent
Rent revenue is recognised on a straight-line basis over the lease term.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the
net carrying amount of the financial asset.
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
32
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.
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 include 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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
33
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 (discontinued operations)
Initial recognition and measurement
The Group’s financial assets at fair value through profit or loss related to the loan receivables that arose from its disbursement
funding business. The Group’s loan receivables from this funding business were classified, at initial recognition, as financial
assets at fair value through profit or loss. The determination was 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 assets held at fair value through profit or loss were recognised initially at fair
value. The best evidence of fair value of a financial instrument at initial recognition was 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 have differed from the transaction price.
The fair value of the financial asset represented the invoice amount (where the final amount to be received from the Australian
disbursement funding was 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 was the amount of cash paid to fund the legal disbursement costs.
No active market existed for these loans. The difference between the fair value and the transaction price (also known as day
1 margin) was deferred and the Group recognised 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 were 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 were calculated using assumptions based on historical performance. These assumptions included
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 was recognised in the profit or loss on a systematic basis over the term of the arrangement using
the same assumptions and methodologies. It was 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) was 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 was an obligation to transfer
the cash flows from those receivables and that transfer qualifies for derecognition. Additional impairment gains or losses
arose if the amount or timing of cash flows differed from the expectation set at the previous period end.
Loan receivables at amortised cost – US medical lien receivables funding business (continuing 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).
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
34
Subsequent measurement
Financial assets at amortised cost are adjusted from their initial fair value by accruing interest using the effective interest rate
method. This is the interest rate that discounts expected future cash flows arising from the asset to its fair value on inception.
At initial recognition, POCI assets do not carry a separate impairment allowance; instead, lifetime expected credit losses are
incorporated into the calculation of the effective interest rate.
At each period end, the future expected cash flows now expected to arise from the asset are discounted at the original
effective interest rate. Any changes in value arising from changes in the amount or timing expected cash flows are recognised
as an impairment change (gain or loss).
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated statement of financial position) when the contractual rights to
receive cash flows from the loan receivables have either occurred or expired, 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.
Derivative financial instruments
Hedges of a net investment
Hedges of a net investment in a foreign operation include monetary items that are considered part of the net investment.
Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity whilst
gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation, the
cumulative value of any such gains or losses recognised directly in equity is transferred to profit or loss.
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.
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
35
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.
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. This balance was fully impaired at 31 December
2020 and 31 December 2021
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
36
Litigation contracts in progress (discontinued operations)
Litigation contracts in progress represented future economic benefits controlled by the Group. As litigation contracts in
progress are capable of being exchanged or sold, the Group was able to control the expected future economic benefit flowing
therefrom. Accordingly, litigation contracts in progress meet the definition of intangible assets. The carrying value of litigation
contracts in progress included 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 were 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 had been applied to litigation contracts in progress:
(i) Actions still outstanding: When funded litigation was outstanding and pending a determination, litigation contracts in
progress were carried at cost. Subsequent expenditure was capitalised when it met 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.
(ii) Successful judgments: Where the litigation had been determined in favour of the Group or a positive settlement had been
agreed, this constituted a derecognition of the intangible asset and accordingly a gain or loss was recognised in the profit or
loss statement. Any future costs relating to the defence of an appeal by the defendant were expensed as incurred.
(iii) Unsuccessful judgments: Where the litigation was unsuccessful at trial, this was a trigger for impairment of the intangible
asset and the asset was written down to its recoverable amount. If the claimant, having been unsuccessful at trial appealed
against the judgment, then future costs incurred by the Group on appeal were 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.
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
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
37
Trade and other payables
Trade and other payables 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 19) 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 determining the expected cash flows when measuring this liability at
amortised cost as they are an integral part of the effective interest rate.
The convertible bond was converted to equity as part of the restructure during 31 December 2021. Refer to note 19.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or,
if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected
to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably
certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or
a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured
if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual
guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an
adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset
is fully written down.
Finance costs
All other finance costs are expensed in the period in which they are incurred.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities
are settled.
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
38
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using
the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk
free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group
receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting
period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate
of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit
or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous
periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions
are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are
satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An
additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value
of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a
cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period,
any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, they are treated as if they had vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and
new award is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair
value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and
best use. Valuation techniques used to measure fair value are those that are appropriate in the circumstances and which
maximise the use of relevant observable inputs and minimise 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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 2. Significant accounting policies (continued)
39
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 2021. 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.
Key judgments and estimates - Australian disbursement receivables (note 12) (discontinued operations)
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 3. Critical accounting judgments, estimates and assumptions (continued)
40
Fair value measurement and carrying value measurement of loan receivables for Australian Disbursement Funding business
(note 12)
The key estimates applied were those used to determine the fair value of the Australian disbursement receivables. The fair
values could not be measured based on quoted prices in active markets. Instead, their fair value was measured using
assumptions that are based on historical performance. These assumptions took into account discount rates, credit risk and
analysis of discounts and write offs (a Level 3 fair value measurement). The inputs to these models were taken from
observable markets where possible, but where this was 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 have affected 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 25.
Key judgments and estimates - medical lien receivables (note 13)
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 2021 and 31 December 2020.
Key judgements and estimates - EFI Facility Agreement liability (note 19)
The key estimates applied in determining the amortised cost of the liability arising from the new facility agreement (see note
19) 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 (note 13)
Classifying loan receivables at amortised cost and the use of the credit-adjusted effective interest rate method requires the
Group to estimate future cash flows from medical lien receivables at acquisition date and at each balance sheet date.
Estimating the timing and amount of cash flows for both the calculation of credit-adjusted effective interest rates ('CAEIRs')
and subsequent re-measurement of the carrying amount of medical lien receivables requires significant management
judgment regarding key assumptions.
The key underlying estimates that form the basis for amortised cost accounting are the quantum of the expected cash receipt
from the lien and its expected timing, as the vast majority of medical liens are settled through one-off payments.
Cash flow forecasts are generated using 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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 3. Critical accounting judgments, estimates and assumptions (continued)
41
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. The Group then adjusts the carrying amount of the portfolios to reflect the revised estimated cash
flows. Events or changes in assumptions and management’s judgement will affect the recognition of revenue in the period.
When undertaking this valuation exercise as at 31 December 2021, management first characterised the portfolio into two
sub portfolios being i) the PFG Portfolio and a subset of the EFI portfolio that is not subject to litigation and enforcement
actions (“Performing Sub-Portfolio”); and ii) the EFI claims that are currently subject to litigation or enforcement action ('EFI
Litigation Sub-Portfolio'). Different methodologies were applied to estimate the future cash flows from these two sub
portfolios. As at 31 December 2021, the Performing Sub-Portfolio was assessed to have a carrying value of $25,876,270
and the EFI Litigation Sub-Portfolio had a carrying value of $15,565,645.
The future cash flows of the Performing Sub-Portfolio were estimated based on several key factors including:
●
the quality of the Medical Lien Receivables and the status of underlying insurance claims which is assessed, based on
available information obtained from the medical service provider, publicly available sources or the plaintiff’s attorney;
●
the legal and regulatory environment in each state which influences settlement outcomes including the time to settle/
resolve underlying insurance claims;
●
NHF’s historical experience / recovery performance from settling Medical Lien Receivables with similar characteristics
in the relevant jurisdiction, including loss rates;
●
given the uncertainty relating to ongoing impacts of COVID-19, the Group utilised collections data applicable to the 6
months to 31 December 2021, in order to estimate future cash flows. Recovery performance improved through this 6
month period but was still considered to be adversely impacted as a result of disruption caused by COVID-19; and
●
impacts of COVID-19 on future performance including time to collect.
Progress and expected outcomes from actions being undertaken to pursue contractual claims against medical service
providers, who sold claims to NHF. These claims stem from obligations under the funding contracts for medical service
providers to provide refunds or replacement claims or breaches of the terms of the funding agreements. These claims are
assessed based on their specific facts, merits of the case and information available to assess the medical providers ability
to pay. Our estimates of likely outcomes from these claims includes the views of our legal advisors.
Future cash flows applicable to the EFI Litigation Sub-Portfolio were individually assessed at 31 December 2021 in order to
derive the total carrying value of the sub-portfolio of $15,565,645. This portfolio is comprised of 5 separate claims/actions
against private medical groups, of which 3 large actions comprise approximately 95% of the total.
As with any litigation the outcomes are uncertain and challenging to estimate. Estimates have been formulated by
management based on information available at the time. Actual outcomes may ultimately differ significantly to these
estimates. Estimated future cash flows for this portfolio have been based on an assessment of:
●
The likelihood of obtaining a judgement debt and an estimate of time and cost to obtain such judgement; and
●
the existence of valuable assets to pursue judgement against.
In undertaking this assessment management have considered, amongst other things:
●
views of our legal advisors engaged in respect of the relevant actions;
●
the strength of our legal arguments and potential defences;
●
quality and completeness of information to support the actions;
●
experience from similar actions;
●
settlement offers obtained to date; and
●
information available to identify and assess the potential assets available to defendants in order to satisfy any successful
judgement debt.
The level of information available to assess the financial position of debtors varies from case to case, however given
they are private companies and individuals the information is not typically publicly available and is generally obtained
through discovery actions that are ongoing.
Management also reviews 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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 3. Critical accounting judgments, estimates and assumptions (continued)
42
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.
COVID-19 pandemic
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.
have remained slow in returning to pre-COVID levels.
By the end of 2021, the impacts of COVID-19 on the Court system have significantly lessened, with some Courts still working
through a backlog of cases impacting the time taken to resolve cases.
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.
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. The Group has fully impaired goodwill at 31 December 2021.
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 assessing the value of the asset at fair value
less costs of disposal and using value-in-use models which incorporate a number of key estimates and assumptions.
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 8 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 9.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 3. Critical accounting judgments, estimates and assumptions (continued)
43
Assetsecure loan
The Group records the outstanding debt in accordance with the Amended and Restated Standstill Deed. It is measured by
taking the outstanding debt of A$2,000,000 less repayments of A$83,333 per month over 12 months ending on 30 May 2022.
A final payment of A$1,000,000 must be paid by 1 July 2022 in full and final satisfaction of the agreement. A bank guarantee
of A$1,000,000 is held as security and available to Assetsecure if it has not been repaid in full by 1 July 2022. Refer to note
19.
Note 4. Operating segments
Identification of reportable operating segments
The Group was organised into four operating segments: (i) JustKapital Finance (comprising the Australian disbursement
funding business) and Litigation funding – which are both discontinued operations, (ii) short-term funding ('STL'), (iii) National
Health Finance, comprising the US medical lien funding business and (iv) all other operations and head office costs.
These operating segments are based on the internal reports that are reviewed and used by the Board (who are identified as
the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.
Operating segment information
JustKapital
Finance and
Litigation
National
Health
funding*
STL
Finance
Other
Total
Consolidated - 31 Dec 2021
US$'000
US$'000
US$'000
US$'000
US$'000
Revenue
Net (loss)/income from disbursement
funding/medical lien funding
2,033
-
(3,079)
-
(1,046)
Other revenue
7
10
1,360
22
1,399
2,040
10
(1,719)
22
353
Other income
-
-
-
-
-
Total revenue
2,040
10
(1,719)
22
353
Segment result
1,435
(66)
(6,118)
(3,962)
(8,711)
Depreciation and amortisation
(52)
-
(242)
(107)
(401)
Finance costs
(2,171)
(6)
(7,293)
(4,175)
(13,645)
Loss before income tax benefit
(788)
(72)
(13,653)
(8,244)
(22,757)
Income tax benefit
1,528
Loss after income tax benefit
(21,229)
Assets
Segment assets
-
-
44,228
3,943
48,171
Total assets
48,171
Liabilities
Segment liabilities
-
-
39,623
19,027
58,650
Total liabilities
58,650
*
Information about discontinued operation is provided in note 9.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 4. Operating segments (continued)
44
JustKapital
Finance and
Litigation
National
Health
funding*
STL
Finance
Other
Total
Consolidated - 31 Dec 2020
US$'000
US$'000
US$'000
US$'000
US$'000
Revenue
Net loss from disbursement funding/medical
lien funding
(133)
-
(9,311)
-
(9,444)
Other revenue
204
22
118
1,714
2,058
71
22
(9,193)
1,714
(7,386)
Other income
-
-
-
2
2
Total revenue
71
22
(9,193)
1,716
(7,384)
Segment result
(9,182)
(55)
(50,507)
15,978
(43,766)
Depreciation and amortisation
(1,114)
-
(467)
(3)
(1,584)
Finance costs
(4,176)
(19)
(8,463)
(6,528)
(19,186)
Profit/(loss) before income tax expense
(14,472)
(74)
(59,437)
9,447
(64,536)
Income tax expense
(13,600)
Loss after income tax expense
(78,136)
Assets
Segment assets
25,365
127
56,473
4,534
86,499
Total assets
86,499
Liabilities
Segment liabilities
28,094
-
56,575
49,389
134,058
Total liabilities
134,058
*
Information about discontinued operation is provided in note 9.
Segment assets
Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of
economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their
nature and physical location.
Segment liabilities
Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations
of the segment. Accordingly, all liabilities are allocated based on the operations of the segment.
Geographical information
Revenue from external
customers
Geographical non-current
assets
31 Dec 2021
31 Dec 2020
31 Dec 2021
31 Dec 2020
US$'000
US$'000
US$'000
US$'000
Australia
2,033
1,807
-
232
United States
(3,079)
(9,193)
356
943
(1,046)
(7,386)
356
1,175
The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets,
post-employment benefits assets and rights under insurance contracts.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
45
Note 5. Net loss from disbursement funding/medical lien funding
Consolidated Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
From continuing operations
Medical lien funding - USA:
Interest income at amortised cost
6,806
8,550
Net impairment losses on financial assets at amortised cost
(11,313)
(18,275)
Net settlement gains on financial assets at amortised cost
1,428
414
(3,079)
(9,311)
Note 6. Other revenue
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
From continuing operations
Interest received – short-term lending
10
22
Rental income
66
64
Government grants and subsidies
1,246
202
Non-case related settlements - NHF
70
44
Interest adjustment - vendor loan
-
1,523
Other revenue
1,392
1,855
Government grants
In the prior year, the Australian Government introduced its 'Boosting Cash Flow for Employers' scheme in response to the
COVID-19 pandemic and provided the Group with its final payment of $22,000 (31 December 2020: $192,000). The Groups
eligibility ended in December 2020. 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 also received a $10,000 (31 December 2020: $10,000) grant from the City of Chandler.
The Group also received debt forgiveness of $1,113,000 inclusive of $9,000 accrued interest (31 December 2020: $nil) from
the US Small Business Administration for its first and second Paycheck Protection Program Loan (‘PPP Loan’) – see note
19 for further information.
An Employee Retention Credit for $101,000 was also received from the US Department of the Treasury under the CARES
Act to provide relief in relation to the COVID-19 pandemic.
Interest adjustment – vendor loan
As a result of the write-off of the vendor loan, the Group reversed the interest that had previously been capitalised to this
vendor loan during the year ended 31 December 2020.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
46
Note 7. Expenses
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Loss before income tax from continuing operations includes the following specific expenses:
Impairment gain on financial liabilities*
Adjustment – vendor loan
-
(10,602)
Adjustment – promissory notes payable
-
(9,000)
-
(19,602)
Employee benefits expense
Defined contribution superannuation expense
148
136
Share-based payments expense
184
-
Employee benefits expense excluding superannuation
3,864
4,588
4,196
4,724
Depreciation and amortisation expense
Depreciation - property, plant and equipment
100
77
Depreciation - right-of-use assets
239
198
Amortisation - other intangibles
10
195
349
470
Impairment of assets
Goodwill
-
37,828
Impairment of short-term loans
75
479
75
38,307
Administration and other expenses
ASIC, ASX and share registry fees
46
41
Insurance
220
191
Legal and professional fees**
3,082
2,903
Rent and office costs
(51)
104
Travel and accommodation
265
98
Short-term lease payments
-
15
Low-value assets lease payments
54
55
Other
519
279
4,135
3,686
Finance costs
Interest expense and line fees
11,440
14,919
Interest - right-of-use assets
34
91
11,474
15,010
*
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 $1,363,000 (2020: $1,454,000) associated with the Efficient Frontier
Investing refinance, addressing the defaults under the Syndicated acquisition facility and the restructuring process.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
47
Note 8. Income tax
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Income tax (expense)/benefit is attributable to:
Loss from continuing operations
(1,528)
12,810
Loss from discontinued operations
-
790
Aggregate income tax (expense)/benefit
(1,528)
13,600
Numerical reconciliation of income tax (expense)/benefit and tax at the statutory rate
Loss before income tax benefit/(expense) from continuing operations
(21,969)
(50,064)
Loss before income tax expense from discontinued operations
(788)
(14,472)
(22,757)
(64,536)
Tax at the statutory tax rate of 25% (2020: 27.5%)
(5,689)
(17,747)
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Expenses not deductible
24,051
4,367
Income not assessable
(4,998)
(14,714)
Adjustment for withholding tax provision
(1,528)
-
11,836
(28,094)
Difference in overseas tax rates
142
16,364
Exchange differences
(13,506)
12,751
Adjustment for derecognition of deferred tax asset
-
12,579
Income tax (expense)/benefit
(1,528)
13,600
The Group has $3,279,000 (A$4,524,000) (2020: $23,876,000 (A$31,093,000)) of income tax losses to utilise in Australia
and $89,402,000 (2020: $54,976,000) of income tax losses to utilise in the USA. These have not been recognised as assets.
Note 9. Discontinued operations
Description
Disbursement funding
The disbursement funding division ('JustKapital Finance') was operated in Australia by LAW’s wholly owned subsidiary
JustKapital Financing Pty Ltd ('JKF'). As announced on 30 April 2021 'Update on Conditions and JustKapital Financing', LAW
transferred control and collection responsibilities for the JKF book to an external collection agent appointed by its secured
lenders Assetsecure Pty Ltd ('Assetsecure'). JKF’s directors also appointed Martin Walsh as the Voluntary Administrator of
JKF. Martin was subsequently appointed as Liquidator of JKF on 4 June 2021.
The JKF business operations and balance sheet were deconsolidated from the Group’s accounts as at 30 April 2021.
LAW and Assetsecure reached an agreement whereby LAW will pay c.US$63,000 per month for 12 months to conclude on
30 May 2022 and US$725,000 (A$1,000,000) by 1 July 2022 in full satisfaction of its potential corporate guarantee exposure
relating to the Assetsecure receivables purchase agreement with JKF.
JustKapital Finance provided 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
addressed the immediate and growing demand where the client or firm cannot, or may not be willing to, fund disbursements
directly.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 9. Discontinued operations (continued)
48
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.
On 24 June 2021, the sale of JustKapital Litigation Pty Ltd (and its subsidiaries) ('JKL') to Legal Equity Partners Pty Limited
('LEP') completed. The transaction was considered fair and reasonable in an Independent Expert’s Report prepared by Grant
Thornton and was subsequently approved by shareholders at the Annual General Meeting on 25 May 2021. JKL was sold
for A$1, plus conditional proceeds equal to:
●
50% of the net proceeds received from one of the funded cases; and
●
75% of any excess proceeds after repayment of the secured debt.
For the purposes of financial reporting, management has calculated the value of the conditional component of the sales
proceeds to have nil value. LAW is receiving updates and information from LEP, in accordance with the sale terms in order
to monitor the progress of outstanding litigation cases, which enables management to estimate the value of the conditional
component of the sales proceeds as cases proceed.
The litigation funding operations and the balance sheets attributable to JKL and its subsidiaries were deconsolidated from
the date the Group lost control of operations as at 24 June 2021 when the sale to LEP completed.
Financial performance information
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Net loss from medical lien funding
-
(1,414)
Net gain from disbursement funding
2,033
1,281
Other income:
Litigation contracts in progress – settlements and judgments
-
1,892
Litigation contracts in progress – expenses
-
(1,750)
Other revenue
7
61
Total revenue
2,040
70
Non-supplier related cost of sales
-
(29)
Employee benefits expense
(529)
(227)
Depreciation and amortisation
(52)
(1,114)
Impairment of assets
-
(8,733)
Administration and other expenses
(76)
(263)
Finance costs
(2,171)
(4,176)
Total expenses
(2,828)
(14,513)
Loss before income tax expense
(788)
(14,472)
Income tax expense
-
(790)
Loss after income tax expense from discontinued operations
(788)
(15,262)
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 9. Discontinued operations (continued)
49
Cash flow information
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Net cash inflow/(outflow) from operating activities
50
(67)
Net cash (outflow)/inflow from investing activities
(199)
1,632
Net cash (outflow) from financing activities
-
(54)
Net (decrease)/increase in cash and cash equivalents from discontinued operations
(149)
1,511
Note 10. Earnings per share
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Earnings per share for loss from continuing operations
Loss after income tax
(20,441)
(62,874)
Non-controlling interest
(27)
(338)
Loss after income tax attributable to the owners of LawFinance Limited
(20,468)
(63,212)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
28,995,748
9,041,890
Weighted average number of ordinary shares used in calculating diluted earnings per share
28,995,748
9,041,890
Cents
Cents
Basic loss per share
(70.59)
(699.10)
Diluted loss per share
(70.59)
(699.10)
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Earnings per share for loss from discontinued operations
Loss after income tax
(788)
(15,262)
Non-controlling interest
-
-
Loss after income tax attributable to the owners of LawFinance Limited
(788)
(15,262)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
28,995,748
9,041,890
Weighted average number of ordinary shares used in calculating diluted earnings per share
28,995,748
9,041,890
Cents
Cents
Basic loss per share
(2.72)
(168.79)
Diluted loss per share
(2.72)
(168.79)
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 10. Earnings per share (continued)
50
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Earnings per share for loss
Loss after income tax
(21,229)
(78,136)
Non-controlling interest
(27)
(338)
Loss after income tax attributable to the owners of LawFinance Limited
(21,256)
(78,474)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
28,995,748
9,041,890
Weighted average number of ordinary shares used in calculating diluted earnings per share
28,995,748
9,041,890
Cents
Cents
Basic loss per share
(73.31)
(867.89)
Diluted loss per share
(73.31)
(867.89)
The weighted average number of ordinary shares are calculated based on the number of ordinary shares that would have
been in existence had the capital restructure occurred as at 1 January 2020, in accordance with AASB 133 'Earnings per
share'.
The Company excluded 2,691,667 options on issue (2020: 71,500,000), nil convertible bonds (2020: 14,000), 4,527,440
warrants (2020: 452,743,636) and 2,234,141 shares (maximum conversion) attached to the Capitalising converting notes
(note 21) (2020: 223,414,026) from the diluted earnings calculations as they are anti-dilutive for the financial year.
Note 11. Cash and cash equivalents
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current assets
Cash at bank*
5,101
4,746
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
5,101
4,746
Cash and cash equivalents - classified as held for sale
-
451
Balance as per statement of cash flows
5,101
5,197
*
Of the total cash at bank, $782,000 (2020: $1,585,000) was considered unavailable for operations as it was held pending
distribution to asset-backed lenders. Refer note 19(i) Efficient Frontier Investing and note 19(iii) Partners for Growth.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
51
Note 12. Financial assets at fair value through profit or loss - Australia
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current assets
Loan receivables - disbursement funding - Australia (gross)
-
13,597
Fair value movement
-
(2,827)
Unrecognised day 1 margin
-
(532)
Allowance for expected credit losses
-
(3,044)
-
7,194
Non-current assets
Loan receivables - disbursement funding - Australia (gross)
-
12,980
Fair value movement
-
(2,700)
Unrecognised day 1 margin
-
(1,351)
-
8,929
-
16,123
Discontinued operations. Refer to note 9.
Note 13. Financial assets at amortised cost - USA
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current assets
Loan receivables - medical lien funding - USA (gross)
44,292
48,161
Allowance for expected credit losses
(31,920)
(32,922)
12,372
15,239
Non-current assets
Loan receivables - medical lien funding - USA (gross)
104,072
120,132
Allowance for expected credit losses
(75,002)
(82,118)
29,070
38,014
41,442
53,253
Medical lien funding receivables are considered purchased credit impaired assets under accounting standards. They are
initially recognised with an allowance for expected credit losses reflecting estimated lifetime credit losses. This reflects an
estimate of both the probability that a settlement will not recover the entire face value of the underlying receivable and the
probability that no settlement is obtained and is based on historical loss rates.
Refer to note 3 on details relating to critical accounting judgments, estimates and assumptions used by management in
determining carrying value.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
52
Note 14. Other receivables
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current assets
Other trade receivables
-
48
Short-term loans
-
128
-
176
Other receivables*
979
655
979
831
Non-current assets
Other receivables**
15
5
994
836
* Other receivables (current) as at 31 December 2021 includes:
(i)
term deposits of $725,000 (31 December 2020: $154,000). The term deposit is held as part of a standstill agreement
with Assetsecure and is able to be called on 1 July 2022 (see note 19).
(ii)
Mesh receivables of $246,000 (31 December 2020: $501,000). The associated Mesh liabilities of $nil as at 30 December
2021 (31 December 2020: $717,000) are included in note 18 'Trade and other payables'.
** Other receivables (non-current) as at 31 December 2021 includes rental bond of $15,000 (31 December 2020: $5,000).
Note 15. Property, plant and equipment
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Non-current assets
Plant and equipment - at cost
369
459
Less: Accumulated depreciation
(263)
(368)
106
91
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Plant and
equipment
Consolidated
US$'000
Balance at 1 January 2020
168
Additions
13
Exchange differences
(13)
Depreciation expense
(77)
Balance at 31 December 2020
91
Additions
117
Exchange differences
(2)
Depreciation expense
(100)
Balance at 31 December 2021
106
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
53
Note 16. Right-of-use assets
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Non-current assets
Land and buildings - right-of-use
549
1,780
Less: Accumulated depreciation
(314)
(706)
235
1,074
Additions to the right-of-use assets during the period were US$262,000.
The Group leases land and buildings for its offices under agreements of between two and seven years, with, in some cases,
options to extend.
For other AASB 16 lease related disclosures refer to the following:
●
note 7 for details of interest on lease liabilities and other lease payments;
●
note 24 for undiscounted future lease commitments;
●
consolidated statement of financial position for lease liabilities at the end of the reporting period; and
●
consolidated statement of cash flows for repayment of lease liabilities.
Note 17. Intangibles
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Non-current assets
Website - at cost
25
25
Less: Accumulated amortisation
(25)
(15)
-
10
Customer relationships – US medical lien funding business
-
1,913
Less: Accumulated amortisation
-
(1,913)
-
-
-
10
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 17. Intangibles (continued)
54
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Customer
Litigation
contracts in
Website
relationships
progress
Total
Consolidated
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2020
4
1,674
6,362
8,040
Additions
8
-
3,042
3,050
Classified as held for sale (note 9)
-
-
(8,070)
(8,070)
Disposals
-
-
(870)
(870)
Case funding adjustments
-
-
4,295
4,295
Impairment
-
(1,481)
(4,174)
(5,655)
Exchange differences
-
-
333
333
Amortisation expense
(2)
(193)
(918)
(1,113)
Balance at 31 December 2020
10
-
-
10
Amortisation expense
(10)
-
-
(10)
Balance at 31 December 2021
-
-
-
-
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 $1,481,000 for the year ended 31 December 2020.
Litigation contracts in progress – these costs form part of the discontinued operations as set out in note 9.
Note 18. Trade and other payables
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current liabilities
Trade and other payables*
692
5,031
Payable to Partners for Growth**
750
-
Accruals
626
1,673
Goods and services tax payable
-
85
2,068
6,789
Trade and other payables are paid within the agreed credit terms.
Refer to note 24 for further information on financial instruments.
*
The above Trade and other payables as at 31 December 2021 includes Mesh liabilities of $nil (31 December 2020:
$717,000) – see note 14 'Other receivables'.
**
As part of the Partners for Growth facility, a make good fee of $750,000 will be payable in the following circumstances:
(a) at the end of the loan term; (b) a refinancing of the PFG facility; (c) where PFG cancels the warrants; (d) at the end
of the warrant term; or (e) PFG exercises the warrants.
The $750,000 will be offset against the funds required to pay for the warrants.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
55
Note 19. Borrowings
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Current liabilities
Efficient Frontier Investing (i)
23,327
25,266
Syndicated acquisition facility (ii)
-
36,716
Partners for Growth (iii)
13,935
-
Assetsecure Pty Limited loan (iv)
1,027
17,017
Atalaya Capital Management (v)
-
17,012
Other NHF subordinated debt (vi)
-
4,750
Lucerne Group combined loan (vii)
-
3,684
SAF Side Loan 2 (viii)
-
2,496
SAF Side Loan 1 (ix)
-
2,130
Other NHF subordinated debt (x)
-
1,410
Convertible bonds payable (xi)
-
1,233
Other NHF subordinated debt (xii)
-
1,000
Principis Master Fund facility - US medical lien funding business (xiii)
-
415
Paycheck Protection Program loan (xiv)
-
335
Convertible Promissory Note (xv)
16
-
Economic Injury Disaster Relief loan (xvi)
9
4
Insurance financing - Australia
-
27
Credit cards
9
19
38,323
113,514
Non-current liabilities
Syndicated acquisition facility (ii)
17,681
-
Paycheck Protection Program loan (xiv)
-
270
Economic Injury Disaster Relief loan (xvi)
137
146
17,818
416
56,141
113,930
Refer to note 24 for further information on financial instruments.
(i) Efficient Frontier Investing
On 4 December 2020, a subsidiary of the Company (NHF SPV III, LLC) ('SPV III') entered into a facility agreement for
US$25,550,000 with (amongst others) EFI Cayman SPC for and on behalf of NHF SPV III Segregated Portfolio ('EFI'), acting
as agent for a syndicate of financiers. The principal outstanding under this facility reduced to US$24,317,000 at 31
December 2021 (31 December 2020: US$25,446,000). The carrying value of the loan in accordance with AASB 9 Financial
Instruments was US$23,327,000 at 31 December 2021 (31 December 2020: US$25,266,000).
The facility was used to (amongst other things) refinance amounts owing to Atalaya Special Opportunities Fund VI LP and
Paradise Diversified Holdings Limited Partnership and has a three year term expiring on 4 December 2023, with interest
(including management fee) on the facility accruing at 12.50% per annum (31 December 2020: 12.50%).
Under the terms of the agreement, the facility is to be repaid with proceeds received from the assets of SPV III (which
acquired the rights to certain US medical lien receivables). As at 31 December 2021, for accounting purposes, the discounted
future cash flow value of such receivables (book value) is c.94% of the outstanding loan, indicating that there may be a
shortfall of $1,438,000 on an accounting basis to allow SPV III to repay the loan in full, however the actual recoveries may
be sufficient for the loan to be discharged in full.
The facility is subject to two financial covenants being a loan to value ratio ('LVR') and a collection hurdle.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 19. Borrowings (continued)
56
In relation to the LVR, being the ratio of the principal outstanding of the loan to the valuation of certain secured assets
comprising receivables (the 'Claims'). SPV III is currently in compliance with this covenant, based on management’s valuation
of the claims. Maintaining compliance with this covenant will be dependent on future collections including the outcome of
legal recovery (litigation) actions which are difficult to estimate (time and quantum).
In January 2022, SPV III notified EFI that a Review Event occurred given it was unable to pay US$604,377 into the collections
hurdle pre-payment account subject to EFI security resulting from a collection hurdle shortfall as at 31 December 2021, which
related to the level of collections with respect to certain claims in the preceding 3 months. The obligation to pay the collection
hurdle shortfall is an obligation of SPV III and management is of the view that it is not broadly in the interests of stakeholders
to fund this payment from available cash resources of the Company, at this time, which would reduce cash available to invest
these funds into new originations to create value for all stakeholders, including EFI and its investors in the facility.
Following a Review Event, EFI may notify SPV III requiring it to negotiate in good faith for a period of 30 days to agree on
revised facility terms and if EFI and SPV III are unable to agree revised terms then EFI may demand repayment of the loan
within 90 days from the expiry of the negotiation period. It is unclear whether EFI intend to issue this notice to negotiate
revised terms or what they may seek in any such negotiation.
The loan is secured by a general security agreement over the assets of SPV III which holds the relevant claims receivables,
which have a book value as at 31 December 2021 of US$22,879,000 (31 December 2020: US$29,502,000). The Company
has also provided a limited guarantee in connection with the facility, however, this guarantee is only effective following the
earlier of i) the date a liquidator is appointed to the Company and ii) 4 November 2023 (and is otherwise subject to the terms
of a subordination deed dated 4 December 2020 between the Company, EFI and the SAF Lenders ('Subordination
Agreement'). The Company’s liability to pay any amount under the guarantee is limited to the lower of:
(a) US$28,687,500; and
(b) an amount equal to the principal amount outstanding in respect of the loan (including any capitalised interest) at the
relevant date plus the amount of interest that would accrue on such principal amount outstanding until the final day of
the next calendar month.
The receivables held within NHF SPV III, LLC were assessed under the derecognition requirements in AASB 9 Financial
Instruments, with the receivables continuing to be recognised at amortised cost by the Company in their entirety.
Under the terms of the Subordination Agreement with the SAF syndicated facility lenders ('SAF Lenders'), EFI is prohibited
from demanding payment under the guarantee (or otherwise) against the Company until the debt outstanding to the SAF
Lenders is repaid in full or the Company notifies the SAF Lenders that the subordination arrangement under the Subordination
Agreement has terminated (such notification cannot be given earlier than the date that is 10 business days prior to 4
November 2023).
As the EFI facility is an amortising loan, under AASB 9 Financial Instruments, it is required to be split between current and
non-current based on forecast cash repayments of the facility. Given the Review Event that arose due to SPV III breaching
the collection hurdle undertaking and the status of discussions with EFI the amount has been recorded as current as at 31
December 2021.
(ii) Syndicated acquisition facility ('SAF')
The Syndicated acquisition facility of US$32,344,000 (A$42,000,000) (31 December 2020: US$32,252,000 (A$42,000,000))
was provided by various leading Australian institutions and family offices. Interest payable under this facility is 13% per
annum (31 December 2020: 13%). Interest was accrued under this facility for the period until the restructuring was completed
and therefore the balance prior to restructure was US$38,693,000 (A$50,244,000) (31 December 2020 was US$36,716,000
(A$47,813,000)).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25
May 2021, a portion of this facility was converted to equity – 835,770,317 ordinary shares (pre-share consolidation) were
issued to settle this outstanding debt.
In addition to the remaining SAF facility of US$15,020,000 (A$20,000,000), now referred to as Tranche 1, a new loan amount
of US$2,873,000 (A$3,825,000) was received during the period, now referred to as Tranche 2.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 19. Borrowings (continued)
57
Tranche 1 has an interest rate of 9.50% per annum and is due for repayment on 28 May 2026. Tranche 2 has an interest
rate of 9.50% per annum and is due for repayment on 28 May 2025. The Group has the ability to capitalise interest payments
on both tranches until May 2024. During an election to capitalise interest, the amount is taken to be added to the principal
outstanding under the relevant loan.
At 31 December 2021, the Group elected to capitalise the December 2021 quarterly interest of US$416,000 (A$570,496).
The loan is secured over the assets of the Group excluding the assets of certain special purpose vehicles such as SPV III
and SPV IV.
(iii) Partners for Growth ('PFG')
The loan facility of US$30,000,000 (31 December 2020: US$nil) was established on 14 April 2021 and is available to fund
the US medical lien funding business. The Borrowers are NHF SPV IV, LLC ('SPV IV') and National Health Finance DM, LLC
('DM') (SPV IV and DM are together, 'NHF'). The facility has the capacity to be increased to US$70,000,000 based on certain
conditions and criteria set by PFG. The interest payable under the drawn down facility total 11.25% per annum (31 December
2020: nil) and the line fee payable on the relevant facility limit is 0.5% (31 December 2020: nil). The facility is subject to the
facility terms available to be drawn during the initial three years with an amortisation period in the fourth year and the maturity
date being the fourth anniversary of the date of initial draw.
The drawn loan amount of US$16,140,000 at 31 December 2021 (31 December 2020: US$nil) comprises of the principal
amount of US$15,962,000 (31 December 2020: US$nil) and accrued interest and legal fees of US$177,000 (31 December
2020: US$nil). The redraw account of US$2,201,000 was previously controlled by LAW and transferred to a PFG account in
the second half of the year. It was previously classified as cash and cash equivalents.
The loan is secured by a first ranking priority lien over all the assets of SPV IV and DM, including also share security over
SPV IV, lockbox agreements and deposit account control agreements.
The facility is subject to a number of covenants. A breach of a covenant may require the Group to (amongst other things)
repay the loan earlier.
The facility was compliant with the required advance rate of 85% of Eligible Receivables as at 31 December 2021. Following
completion of the December 2021 borrowing base submissions and adjustments, which occurred in January 2022, NHF
breached two financial covenants as at 31 December 2021 (Tangible Net Worth of the Company and Minimum Cash
Collections Covenant). These breaches constituted Review Events which PFG has agreed to waive subject to the
satisfication of certain conditions by the Company and NHF.
These conditions include that an additional concentration funding ‘hold back provision’ of 15% of the total eligible Michigan
receivables, will be applied to the borrowing base of receivables eligible for funding. Receivables originated in Michigan
currently account for approximately one third of the total book as at 31 December 2021. Given forecast facility headroom at
the end of February 2022, we do not expect that any cash will need to be contributed to the facility to ensure compliance with
the required advance rate of 85%.
In addition, the conditions require that LAW needs to ensure that the Tangible Net Worth of the LAW is brought into
compliance with the terms of the PFG Facility by 30 April 2022 and that the Company has sufficient capital to fund at least 6
months of expected originations and operating expenditure. As at 31 January 2021, the Company’s Tangible Net Worth was
$7.1 million against a requirement in the PFG Facility of $10 million.
The condition described in the paragraph above, was proposed by PFG on the assumption that we will complete a large
(c.$10m) funding transaction structured as a collateralised line of credit with a single medical service provider group in March
2022. PFG has agreed to lift concentration limits relating to the portion of the book of receivables originated from a single
service provider, on the basis that PFG will fund the Line of Credit transaction at 80%, to support the completion of the
funding transaction.
The Board considers that PFG's concessions are a clear demonstration of the strength of LAW’s funding relationship and
PFG’s support of our growth strategy.
The Board is confident that all the conditions can be satisfied by 30 April 2022.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 19. Borrowings (continued)
58
Given the covenant breaches as at 31 December 2021, the PFG loan amount has been recorded as current payable as at
31 December 2021.
(iv) Assetsecure Pty Limited ('Assetsecure')
This loan facility of $30,716,000 (A$40,000,000) was available to fund the Australian disbursement funding business
operated by JustKapital Financing Pty Limited (JKF). Assetsecure appointed Receivers and Managers on 30 April 2021 to
manage and realise the portfolio of receivables owned by JKF. Martin Walsh was appointed as Liquidator of JustKapital
Financing Pty Ltd on 4 June 2021 and is currently winding up the affairs of the company in collaboration with the Receivers.
LAW and Assetsecure reached an agreement whereby LAW will pay c.US$63,000 (A$83,333) per month for 12 months
to conclude on 30 May 2022 and US$725,000 (A$1,000,000) by 1 July 2022 in full satisfaction of its potential corporate
guarantee exposure relating to the Assetsecure receivables purchase agreement with JKF. A bank guarantee of
A$1,000,000 is held as security and available to Assetsecure if it has not been repaid in full by 1 July 2022 – refer note 14.
As at 31 December 2021, $1,027,000 remained outstanding to be paid to Assetsecure under the agreement.
(v) Atalaya Capital Management ('Atalaya')
The loan facility of $80,000,000 (31 December 2020: $80,000,000) was available to fund the US medical lien funding
business. The interest and fees payable under the drawn down facility totalled 13.5% per annum (31 December 2020: 13.5%)
and the undrawn line fees were 1% (31 December 2020: 1%).
This facility was refinanced by PFG in May 2021 - see footnote (iii) above.
(vi) Other NHF subordinated debt
Three third parties had provided facilities totalling $4,750,000 (31 December 2020: $4,750,000) to the medical lien
funding business to fund working capital. $3,000,000 (31 December 2020: $3,000,000) of this facility had an interest rate of
13.5% per annum, $250,000 (31 December 2020: $250,000) of this facility had an interest rate of 13% per annum and
$1,500,000 (31 December 2020: $1,500,000) of this facility had an interest rate of 13.5% per annum (31 December 2020:
13.5%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity – 182,369,022 ordinary shares (pre-share consolidation) were issued to settle
this outstanding debt.
(vii) 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 (31 December 2020: 13.5% (including establishment fees)) on $8,843,000 (31 December 2020:
$8,843,000). Ongoing interest payable was 15% per annum (31 December 2020: 15%) on $2,799,000 (31 December 2020:
$2,799,000).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity –117,022,578 ordinary shares (pre-share consolidation) were issued to settle
this outstanding debt.
(viii) SAF Side Loan 2
Third parties had provided a $2,441,000 (A$3,250,000) (31 December 2020: $2,496,000 (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 from WHSP on 4 December 2020. Interest payable under this arrangement was 18% per annum (31
December 2020: 18%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity – 89,860,479 ordinary shares (pre-share consolidation) were issued to settle this
outstanding debt.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 19. Borrowings (continued)
59
(ix) SAF Side Loan 1
Third parties had provided a $2,330,000 (A$3,096,000) (31 December 2020: $2,130,000 (A$2,773,000)) loan to the Group.
This loan was acquired from Washington H Soul Pattinson & Company Limited (‘WHSP’) on 4 December 2020. Interest
payable under this loan was 18% per annum (31 December 2020: 18%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity – 85,602,474 ordinary shares (pre-share consolidation) were issued to settle this
outstanding debt.
(x) Other NHF subordinated debt
A third party had provided a $1,475,000 facility (31 December 2020: $1,410,000) to fund working capital of the business. In
terest payable under this facility was 24% per annum (31 December 2020: 24%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity – 48,495,341 ordinary shares (pre-share consolidation) were issued to settle this
outstanding debt.
(xi) 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 were cumulative and
payable at 11.5% per annum (31 December 2020: 11.5%), quarterly in arrears.
The convertible bonds were 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 were considered to include a derivative liability. As such the
convertible bonds were 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.
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25
May 2021, these convertible bonds were converted to equity – 38,091,751 ordinary shares (pre-share consolidation) were
issued to settle this outstanding debt.
(xii) Other NHF subordinated debt
A third party had provided a $1,000,000 facility to NHF (31 December 2020: $1,000,000). Interest was payable at 12% per
annum (31 December 2020: 12%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25 May
2021, these loans were converted to equity – 38,337,036 ordinary shares (pre-share consolidation) were issued to settle this
outstanding debt.
(xiii) Principis Master Fund facility - US medical lien funding business
Principis Master Fund previously provided facilities of $434,000 (31 December 2020: $415,000) with an interest rate of 13.
5% per annum (31 December 2020: 13.5%).
As part of the Company’s debt restructure approved by shareholders at the Company’s Annual General Meeting on 25
May 2021, 50% of this facility was forgiven, and the balance of this facility was converted to equity – 21,546,154 ordinary
shares (pre-share consolidation) were issued to settle this outstanding debt.
(xiv) Paycheck Protection Program loan ('PPP Loan')
The 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. The
Company applied for, and successfully received forgiveness of the loan in March 2021 and September 2021. The write-off
of this loan was accounted for in the statement of profit or loss as other revenue – refer to note 6.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 19. Borrowings (continued)
60
The Company received a second PPP Loan of $507,935 in March 2021, under the same terms and conditions as the
first PPP Loan. This loan was forgiven in September 2021.
(xv) Convertible Promissory Note
The issue of these shares is subject to shareholder approval at the next meeting of shareholders. In the event that the
Company does not obtain shareholder approval, the Company must pay the outstanding amount in the form of a cash
consideration. The cash settlement amount will be the number of shares issued multiplied by the Company’s 7 day volume
weighted average share price immediately prior to the date that the Company intends to pay the cash settlement amount.
This Convertible Promissory Note must be converted by 10 September 2022.
(xvi) Economic Injury Disaster Relief loan ('EIDL Loan')
The 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 (31 December 2020: 3.75%) is payable under this EIDL Loan. Repayments, including
principal and interest, of $731 per month, commenced on 26 July 2021. The loan term is 30 years.
Financing arrangements
At the reporting date, the following lines of credit were available:
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Total facilities
Efficient Frontier Investing (a)
25,550
25,550
Syndicated acquisition facility (b)
17,681
32,252
Partners for Growth (c)
30,000
-
Assetsecure Pty Limited loan (d)
-
30,716
Atalaya Capital Management (e)
-
80,000
73,231
168,518
Used at the reporting date
Efficient Frontier Investing (a)
23,327
25,266
Syndicated acquisition facility (b)
17,681
32,252
Partners for Growth (c)
15,963
-
Assetsecure Pty Limited loan (d)
-
17,017
Atalaya Capital Management (e)
-
17,012
56,971
91,547
Unused at the reporting date
Efficient Frontier Investing (a)
2,223
284
Syndicated acquisition facility (b)
-
-
Partners for Growth (c)
14,037
-
Assetsecure Pty Limited loan (d)
-
13,699
Atalaya Capital Management (e)
-
62,988
16,260
76,971
(a) This facility does not have a redraw option.
(b) This facility excludes capitalised interest of $414,000 (31 December 2020: $4,464,000).
(c) The facility can be drawn-down based upon various calculations relating to the underlying medical lien funding
receivables. As at 31 December 2021, $nil could be drawn down as a result of these calculations (31 December 2020:
n/a).
(d) The facility is now under the control of the secured lender and forms part of the Discontinued Operations refer to note
9.
(e) The facility has been repaid in the current period.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
61
Note 20. Issued capital
Consolidated
31 Dec 2021
31 Dec 2020
31 Dec 2021
31 Dec 2020
Shares
Shares
US$'000
US$'000
Ordinary shares - fully paid
40,770,740
1,170,230,045
97,626
61,310
Movements in ordinary share capital
Details
Date
Shares
US$'000
Balance
1 January 2020
561,760,467
40,924
Issue of shares - rights issue (i)
21 February 2020
330,923,639
13,957
Issue of shares - conversion of convertible bonds (ii)
2 April 2020
819,090
33
Issue of shares - litigation settlement (iii)
2 April 2020
14,000,000
558
Issue of shares - conversion of convertible bonds (iv)
20 May 2020
59,126,849
2,451
Issue of shares - placement (v)
14 December 2020
203,600,000
3,831
Share issue costs
(444)
Balance
31 December 2020
1,170,230,045
61,310
Issue of shares - placement (vi)
28 May 2021
1,273,258,048
12,835
Issue of shares - debt to equity restructure (vii)
28 May 2021
1,505,405,083
24,128
Issue of shares - share issue costs (viii)
28 May 2021
32,037,860
(322)
Issue of shares - remuneration shares (ix)
2 June 2021
2,500,000
-
Issue of shares - placement (x)
2 June 2021
2,700,000
51
Share consolidation (100:1) (xi)
9 June 2021
(3,946,269,507)
-
Issue of shares - share purchase plan (xii)
24 June 2021
909,211
629
Share issue costs
(1,005)
Balance
31 December 2021
40,770,740
97,626
(i)
Issue price of US$0.042 per share
(ii)
Conversion of convertible bonds at US$0.040 per share
(iii) Issue price of US$0.040 per share
(iv)
Conversion of convertible bonds at US$0.041 per share
(v) Issue price of US$0.019 per share
(vi)
Issue price A$0.013 (US$0.0098) per share
(vii) Debt to equity conversion at A$0.021 (US$0.0158) per share (refer to note 22)
(viii) Capital raising fee paid in shares, issue price of A$0.013 (US$0.0098) per share
(ix)
Issue of shares to key management personnel for $nil consideration - Resolution 5 at Company's 2021 AGM
(x) Issue price of A$0.025 (US$0.0188) per share - Resolution 19 at Company's 2021 AGM
(xi)
Consolidation of shares - 1 share for every 100 shares held at 9 June 2021 - Resolution 2 at Company's 2021 AGM
(xii) Issue price of A$0.920 (US$0.6909) per share
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 13,617,687 (2020: 215,097,403) ordinary shares escrowed at 31 December 2021.
Options
Options do not entitle the holder to participate in dividends or to vote at a meeting of the Company.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 20. Issued capital (continued)
62
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.
As part of the Partners for Growth facility, it requires National Health Finance to hold a minimum cash of $1,000,000 as part
of their covenant. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting
its capital structure in response to changes in these risks and in the market. These responses include the management of
debt levels, distributions to shareholders and share issues.
Note 21. Capitalising converting notes
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Capitalising converting notes
14,832
13,933
On 9 June 2020, the Company issued 188,972,861 Capitalising converting notes ('CCNs') at a face value of A$0.10 per
share (pre-share consolidation) 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. Interest accrues and capitalises
on the CCNs to the benefit of the noteholder at 6% per annum whereby the principal and interest is convertible into ordinary
shares, and not payable in cash. The CNNs do not entitle the noteholders 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 (on a pre-share consolidation basis), 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, US$911,000
(A$1,217,000) of capitalised interest was transferred into equity (31 December 2020: US$652,000 (A$935,000)).
Note 22. Reserves
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Foreign currency reserve
1,079
(898)
Share-based payments reserve
6,355
6,118
Restructuring reserve
18,910
-
26,344
5,220
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 22. Reserves (continued)
63
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of Australian
operations to United States dollars.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their
remuneration, and other parties as part of their compensation for services.
Restructuring reserve
The reserve is used to recognise the gain on debt to equity conversion.
Movements in reserves
Movements in reserves during the current and previous financial period are set out below:
Foreign
Share-based
currency
payments
Restructuring
Total
Consolidated
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2020
782
5,996
-
6,778
Foreign currency translation
(1,680)
-
-
(1,680)
Share-based payments
-
122
-
122
Balance at 31 December 2020
(898)
6,118
-
5,220
Foreign currency translation
1,977
-
-
1,977
Restructuring gain on debt to equity conversion*
-
-
18,910
18,910
Share-based payments
-
237
-
237
Balance at 31 December 2021
1,079
6,355
18,910
26,344
*
While the Group’s debt holders converted A$55 million of debt-to-equity at an average price of A$0.037 per ordinary
share (on a pre-share consolidation basis), management has assessed the fair value of the shares at the time of the
restructure at A$0.021 per ordinary share. This was the market price of the shares at the date of announcement to the
market, in line with ‘AASB 13 – Fair Value Measurement’ and it is a Level 1 input. The subsequent gain on this
conversion was accounted for in other comprehensive income.
Note 23. Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Note 24. 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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 24. Financial instruments (continued)
64
Market risk
Foreign currency risk
Foreign currency risk arises from investments and borrowings that are denominated in a currency other than the functional
currencies of the entities within the Group. These are Australian dollars and United States dollars based on country of
operation of the entities within the Group.
In addition, the Group is exposed to non-financial instrument risk on the translation of these entities from their functional
currency to the presentation currency of United States dollars. This presentation risk is separate to the foreign currency risk
dealt with here.
The Group does not hedge any foreign currency risks as those currency positions are considered to be long-term in nature.
The carrying amount of the Group's foreign currency denominated financial assets at the reporting date was as follows:
Assets
Liabilities
31 Dec 2021
31 Dec 2020
31 Dec 2021
31 Dec 2020
Consolidated
US$'000
US$'000
US$'000
US$'000
Australian dollars
3,835
19,883
(19,025)
(77,165)
United States dollars
43,688
55,520
(39,620)
(56,575)
47,523
75,403
(58,645)
(133,740)
The Group had net liabilities denominated in foreign currencies of US$11,122,000 (US$47,523,000 less liabilities of
US$58,645,000) as at 31 December 2021 (2020: net liabilities of US$58,337,000 (US$75,403,000 less liabilities of
US$133,740,000)).
Based on this exposure, had the USD weakened/strengthened by 10% (2020: weakened/strengthened by 10%) against the
$A with all other variables held constant, the Group's profit before tax for the year and equity would have been affected as
follows:
USD strengthened
USD weakened
Consolidated - 31 Dec 2021
% change
Effect on
profit before
tax
US$'000
Effect on
equity
US$'000
% change
Effect on
profit before
tax
US$'000
Effect on
equity
US$'000
Australian dollars
10%
1,519
1,519
10%
(1,519)
(1,519)
USD strengthened
USD weakened
Consolidated - 31 Dec 2020
% change
Effect on
profit before
tax
US$'000
Effect on
equity
US$'000
% change
Effect on
profit before
tax
US$'000
Effect on
equity
US$'000
Australian dollars
10%
5,728
5,728
10%
(5,728)
(5,728)
The percentage change is the expected overall volatility of the significant currencies, which is based on management's
assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year and
the spot rate at each reporting date.
Price risk
The Group is not exposed to any significant price risk.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 24. Financial instruments (continued)
65
Interest rate risk
The Group's main interest rate risk arises from borrowings and cash and cash equivalents. The Group’s exposure to interest
rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market rates and the
effective weighted average interest rates on financial liabilities, is as follows:
31 Dec 2021
31 Dec 2021
31 Dec 2020
31 Dec 2020
Weighted
average
interest rate
Balance
Weighted
average
interest rate
Balance
%
US$'000
%
US$'000
Efficient Frontier Investing
12.50%
23,327
12.50%
25,266
Syndicated acquisition facility
9.50%
17,681
13.36%
36,716
Partners for Growth
11.25%
13,935
-
-
Assetsecure Pty Limited loan
-
1,027
8.41%
17,017
Atalaya Capital Management
-
-
14.38%
17,012
Other NHF subordinated debt
-
-
13.47%
4,750
Lucerne Group combined loan
-
-
18.99%
3,684
SAF Side Loan 2
-
-
18.00%
2,496
SAF Side Loan 1
-
-
18.00%
2,130
Other NHF subordinated debt
-
-
24.00%
1,410
Convertible bonds payable
-
-
11.50%
1,233
Other NHF subordinated debt
-
-
12.00%
1,000
Paycheck Protection Program loan
-
-
1.00%
605
Principis Master Fund facility - US medical lien funding
business
-
-
13.50%
415
Convertible Promissory note
-
16
-
-
Economic Injury Disaster Relief loan
3.75%
146
3.75%
150
Insurance financing - Australia
-
-
5.06%
27
Credit cards
-
9
15.04%
19
Cash and cash equivalents
-
(5,101)
0.02%
(5,351)
Net exposure to cash flow interest rate risk
51,040
108,579
The weighted average interest rate for the period ended 31 December 2021 was 10.07% (2020: 13.53%).
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$582,000 (2020: US$1,107,000) 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.
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.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 24. Financial instruments (continued)
66
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'.
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.
Remaining contractual maturities
The following are the remaining contractual maturities as at the reporting date. The amounts are gross and undiscounted
and include contractual interest payments and exclude the impact of netting agreements.
Weighted
Remaining
Consolidated - 31 Dec 2021
average
interest rate
1 year or
less
Between 1
and 2 years
Between 2
and 5 years
Over 5 years
contractual
maturities
%
US$'000
US$'000
US$'000
US$'000
US$'000
Non-interest bearing:
Trade and other payables
-
1,442
-
-
-
1,442
Interest bearing:
Efficient Frontier Investing*
12.50%
2,918
26,048
-
-
28,966
Syndicated acquisition facility
9.50%
1,679
1,679
21,452
-
24,810
Partners for Growth*
11.25%
1,568
1,568
14,381
-
17,517
Assetsecure Pty Limited loan
-
1,026
-
-
-
1,026
Convertible Promissory Note
-
16
-
-
-
16
Economic Injury Disaster Relief
loan
3.75%
5
5
16
280
306
Credit cards
-
8
-
-
-
8
Lease liabilities
7.50%
107
12
196
-
315
8,769
29,312
36,045
280
74,406
*
Refer to note 19 and the technical breaches of these facilities – the above remaining contractual maturities are as
expected once the breaches have been rectified.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 24. Financial instruments (continued)
67
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.
Weighted
Remaining
Consolidated - 31 Dec 2020
average
interest rate
1 year or
less
Between 1
and 2 years
Between 2
and 5 years
Over 5 years
contractual
maturities
%
US$'000
US$'000
US$'000
US$'000
US$'000
Non-interest bearing:
Trade and other payables
-
5,116
-
-
-
5,116
Interest bearing:
Assetsecure Pty Limited loan*
8.41%
1,498
18,137
-
-
19,635
Efficient Frontier Investing*
12.50%
3,158
3,158
28,182
-
34,498
Convertible bonds payable
11.50%
1,375
-
-
-
1,375
Lucerne Group combined loan
18.99%
4,383
-
-
-
4,383
Principis Master Fund facility -
US medical lien funding
business
13.50%
471
-
-
-
471
Other NHF subordinated debt
24.00%
1,439
-
-
-
1,439
Other NHF subordinated debt
12.00%
120
120
1,240
-
1,480
Other NHF subordinated debt
13.47%
5,289
-
-
-
5,289
Insurance financing - Australia
5.06%
27
-
-
-
27
Syndicated acquisition facility*
13.36%
4,907
40,359
-
-
45,266
SAF Side Loan 1*
18.00%
2,328
-
-
-
2,328
SAF Side Loan 2*
18.00%
2,945
-
-
-
2,945
Paycheck Protection Program
loan
1.00%
6
607
-
-
613
Atalaya Capital Management
14.38%
2,467
17,789
-
-
20,256
Economic Injury Disaster Relief
loan
3.75%
6
6
17
294
323
Credit cards
15.04%
22
-
-
-
22
Lease liabilities
6.88%
452
194
189
868
1,703
36,009
80,370
29,628
1,162
147,169
*
Refer to note 19 and the technical breaches of these facilities – the above remaining contractual maturities are as
expected once the breaches have been rectified.
Note 25. Fair value measurement
Fair value measurement hierarchy for assets
The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level 3: Unobservable inputs for the asset or liability.
Level 1
Level 2
Level 3
Total
Consolidated - 31 Dec 2021
US$'000
US$'000
US$'000
US$'000
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
-
-
-
-
Total assets
-
-
-
-
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 25. Fair value measurement (continued)
68
Level 1
Level 2
Level 3
Total
Consolidated - 31 Dec 2020
US$'000
US$'000
US$'000
US$'000
Assets measured at fair value:
Loan receivables - disbursement funding - Australia
-
-
18,006
18,006
Total assets
-
-
18,006
18,006
The above Loan receivables are shown excluding the adjustment for the unrecognised day 1 margin.
The Loan receivables now form part of the Discontinued Operations refer to note 9.
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 n/a% (2020: 4.45%); 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 n/a% (2020: 14.9%).
Loan receivables fair value measurement – valuation process
Valuations were performed on a half-yearly basis. For the purpose of the valuation, management collated the inputs and
data required to be applied in the valuations. Management performed a reconciliation of the fair value based on the valuation
results and as part of the reconciliation process reviewed any unusual movements noted.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 25. Fair value measurement (continued)
69
Reconciliation of fair value measurement of the Loan receivables and deferred day 1 margin is set out below:
Deferred day
Fair value
1 margin
Total
Consolidated
US$'000
US$'000
US$'000
Balance at 1 January 2020
24,921
(2,738)
22,183
Cash disbursements in relation to new loans
2,194
-
2,194
New day 1 margin
-
(1,196)
(1,196)
Cash collections - disbursement funding
(11,629)
-
(11,629)
Losses recognised in profit or loss
(242)
-
(242)
Amortisation of day 1 margin
-
2,249
2,249
Exchange rate movement
2,762
(198)
2,564
Balance at 31 December 2020
18,006
(1,883)
16,123
Gains recognised in profit or loss
335
-
335
New day 1 margin
-
(182)
(182)
Cash collections - disbursement funding
(2,176)
-
(2,176)
Amortisation of day 1 margin
-
569
569
Discontinued operations
(16,165)
1,496
(14,669)
Balance at 31 December 2021
-
-
-
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$nil as at 31 December 2021 (2020:
US$26,577,000).
Note 26. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel ('KMP') of the Group is
set out below:
Consolidated
31 Dec 2021
31 Dec 2020
US$
US$
Short-term employee benefits
1,428,478
1,674,775
Post-employment benefits
92,767
50,156
Termination benefits
106,174
-
Share-based payments
184,498
-
1,811,917
1,724,931
The above figures include amounts paid to companies related to directors for the service and/or director fees payable to
directors.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
70
Note 27. Remuneration of auditors
During the financial period, the following fees were paid or payable for services provided by Stantons International
('Stantons'), the auditor of the Company, and Spielman Koenigsberg & Parker, LLP ('SKP'), the auditor of NHF:
Consolidated
31 Dec 2021
31 Dec 2020
US$
US$
Audit services - Stantons
Audit or review of the financial statements
106,581
121,541
Other services - Stantons
Other corporate services
11,672
5,649
118,253
127,190
Audit services - SKP
Audit or review of the financial statements
-
13,983
Note 28. Contingent liabilities
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% (2020: 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.
No contingent liability arose during the period 1 January 2021 to the date of completion of the sale of the litigation portfolio
on 24 June 2021 (refer to note 9). 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 2021.
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 2021.
NHF is involved in litigation that was commenced in Michigan in 2020. The proceedings relate to a RICO action, which has
become a common tactic alleging numerous and widespread allegations of misrepresentation in an effort to eliminate
provider claims. The proceeding is being defended as having no basis in fact or proof, as NHF is not a medical provider of
care. As such, NHF believes there will be no amounts payable to the plaintiff.
Note 29. Commitments
The Group had no capital commitments for property, plant and equipment as at 31 December 2021 and 31 December 2020.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
71
Note 30. Related party transactions
Parent entity
LawFinance Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 32.
Key management personnel
Disclosures relating to key management personnel are set out in note 26 and the remuneration report included in the
directors' report.
Transactions with related parties
The following transactions occurred with related parties:
Consolidated
31 Dec 2021
31 Dec 2020
US$
US$
Other related parties - expenses:
Lucerne Group - interest on borrowings*
35,043
736,116
Multus Medical LLC - cost of sales
-
2,200
Diane Jones - Convertible Bond Interest
-
940
Other related parties - income:
Multus Medical LLC - office rental
65,573
64,341
Multus Medical LLC - staff and administration costs
-
18,994
Wattel & York - staff costs
-
5,205
David Wattel - interest adjustment on vendor loan
-
761,423
Mark Siegel - interest adjustment on vendor loan
-
761,423
David Wattel - fair value adjustment - Notes Payable
-
4,500,000
Mark Siegel - fair value adjustment - Notes Payable
-
4,500,000
David Wattel & Mark Siegel - fair value adjustment - Vendor Loan
-
10,602,241
*
Current year interest was not paid and converted to equity as part of the restructure.
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:
Consolidated
31 Dec 2021
31 Dec 2020
US$
US$
Current payables to other related parties:
Desiree Wattel - Convertible Promissory Note
16,149
-
Lucerne Group
-
126,703
David and Desiree Wattel
-
92,542
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 19.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 30. Related party transactions (continued)
72
There were also borrowings factored into the sale of the Litigation funding business to Legal Equity Partners Pty Limited, as
detailed in note 9 ‘Discontinued operations’.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 31. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Parent
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Loss after income tax
(20,777)
(109,317)
Total comprehensive loss
(20,777)
(109,317)
Statement of financial position
Parent
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Total current assets
3,945
3,418
Total assets
3,945
3,401
Total current liabilities
1,347
47,880
Total liabilities
19,028
49,439
Net liabilities
(15,083)
(46,038)
Equity
Issued capital
97,647
59,353
Capitalising converting notes
14,832
13,933
Foreign currency reserve
2,338
8,524
Share-based payments reserve
6,355
6,044
Restructuring reserve
18,414
-
Accumulated losses
(154,669)
(133,892)
Total deficiency
(15,083)
(46,038)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Except as described in note 19 and note 28, the parent entity had no guarantees in relation to the debts of its subsidiaries
as at 31 December 2021 and 31 December 2020.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2021 and 31 December 2020 other than those disclosed in
note 28.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2021 and 31 December
2020.
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 31. Parent entity information (continued)
73
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 32. 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:
Ownership interest
Principal place of business /
31 Dec 2021
31 Dec 2020
Name
Country of incorporation
%
%
JustKapital Litigation Insurance Pty Limited
Australia
100.00%
100.00%
JustKapital Co-Funding No 1 Pty Limited
Australia
100.00%
100.00%
JustKapital STL Pty Limited
Australia
100.00%
100.00%
JustKapital NHF USA Holdings, LLC
USA
100.00%
100.00%
JustKapital NHF Holdings Pty Limited
Australia
100.00%
100.00%
National Health Finance HoldCo, LLC
USA
100.00%
100.00%
JustKapital Financing Pty Limited (note 9)
Australia
-
100.00%
JustKapital Litigation Pty Limited (note 9)
Australia
-
100.00%
JustKapital Portfolio Pty Limited (note 9)
Australia
-
100.00%
Subsidiaries of National Health Finance HoldCo,
LLC
Accident Medical Funding, LLC
USA
71.00%
71.00%
Apex Injury Network, LLC
USA
75.00%
75.00%
Arizona Injury Medical Specialists, LLC
USA
75.00%
75.00%
Ark-La-Tex Injury Network, LLC
USA
75.00%
75.00%
Atlanta Health Funding, LLC
USA
75.00%
75.00%
Auto Medical Funding, LLC
USA
75.00%
75.00%
Bakersfield Injury Network, LLC
USA
75.00%
75.00%
Balboa Medical Funding, LLC
USA
75.00%
75.00%
Bay Area Medical Finance, LLC
USA
75.00%
75.00%
Bayou Health Finance, LLC
USA
99.00%
99.00%
California Health Finance, LLC
USA
50.50%
50.50%
California Legal Medical Funding, LLC
USA
68.00%
68.00%
Central Coast Injury Network, LLC
USA
72.50%
72.50%
Classic City Injury Solutions, LLC
USA
72.50%
72.50%
Coast Medical Finance, LLC
USA
75.00%
75.00%
Complete Health Network, LLC
USA
48.50%
48.50%
Cordova Injury Network, LLC
USA
75.00%
75.00%
Desert Sky Medical Funding, LLC
USA
75.00%
75.00%
DFW Medical Finance, LLC
USA
90.50%
90.50%
East Bay Medical Finance, LLC
USA
72.50%
72.50%
Florida Healthcare Finance, LLC
USA
75.00%
75.00%
Fresno Injury Treatment Network, LLC
USA
75.00%
75.00%
Georgia Injury Treatment Network, LLC
USA
71.50%
71.50%
Great Salt Lake Medical Finance, LLC
USA
89.00%
89.00%
Greater Houston Medical Funding, LLC
USA
75.00%
75.00%
GTI Medical Funding, LLC
USA
75.00%
75.00%
HALO Medical Funding, LLC
USA
75.00%
75.00%
Healthcare Affiliates of Florida, LLC
USA
75.00%
75.00%
Hospital Capital Partners, LLC
USA
82.50%
80.00%
Illinois Injury Solutions, LLC
USA
87.00%
87.00%
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 32. Interests in subsidiaries (continued)
74
Ownership interest
Principal place of business /
31 Dec 2021
31 Dec 2020
Name
Country of incorporation
%
%
Injury Health Alliance, LLC
USA
70.00%
70.00%
Injury Medical Network, LLC
USA
67.00%
67.00%
Inland Empire Medical Funding, LLC
USA
75.00%
75.00%
Kentucky Injury Network, LLC
USA
75.00%
75.00%
Lone Star Lien Solutions, LLC
USA
75.00%
75.00%
Louisiana HealthNet Solutions, LLC
USA
73.00%
73.00%
Medical Financial Group, LLC
USA
70.00%
70.00%
Metroplex Medical Finance, LLC
USA
70.00%
70.00%
Monument Medical Funding, LLC
USA
75.00%
75.00%
Mountain Medical Finance, LLC
USA
78.00%
78.00%
Mountain West Medical Funding, LLC
USA
75.00%
75.00%
MSP Payment Solutions, LLC
USA
70.00%
70.00%
Nashville Injury Network, LLC
USA
75.00%
75.00%
National Health Finance DM, LLC
USA
100.00%
100.00%
National Health Finance of Florida, LLC
USA
100.00%
100.00%
National Health Finance of Florida 2, LLC
USA
76.00%
76.00%
National Health Finance WA, LLC
USA
75.00%
75.00%
National Medical Finance & Assistance, LLC
USA
100.00%
100.00%
Nevada Health Finance, LLC
USA
60.00%
60.00%
Nevada Medical Concierge Services, LLC
USA
75.00%
75.00%
Nevada Orthopedic and Spinal Financing, LLC
USA
75.00%
75.00%
New Mexico Health Finance, LLC
USA
68.00%
68.00%
New Mexico Medical Financing, LLC
USA
49.00%
49.00%
North Carolina Health Finance, LLC
USA
73.00%
73.00%
North Texas Medical Finance, LLC
USA
70.00%
70.00%
Northern Florida Medical Finance, LLC
USA
89.00%
89.00%
NW Health Network, LLC
USA
66.00%
66.00%
Odessa Health Finance, LLC
USA
75.00%
75.00%
Oklahoma Health Finance, LLC
USA
83.00%
83.00%
Oklahoma Injury Network, LLC
USA
71.50%
71.50%
Oklahoma Injury Solutions, LLC
USA
75.00%
75.00%
Old Pueblo Medical Financing of Delaware, LLC
USA
100.00%
100.00%
Old Pueblo Medical Financing, LLC
USA
50.00%
50.00%
ONYX Medical Funding Group, LLC
USA
70.00%
70.00%
Pennsylvania Healthcare Finance, LLC
USA
70.00%
70.00%
Physicians Accident Injury Network, LLC
USA
75.00%
75.00%
Pikes Peak Medical Funding, LLC
USA
75.00%
75.00%
Premier Medical Review, LLC
USA
75.00%
75.00%
Red River Medical Funding, LLC
USA
75.00%
75.00%
Rocky Mountain Medical Finance, LLC
USA
73.00%
73.00%
San Fernando Injury Network, LLC
USA
75.00%
75.00%
Silver State Surgical Solutions, LLC
USA
100.00%
100.00%
Smash Medical Funding, LLC
USA
75.00%
75.00%
SMD Medical Finance, LLC
USA
68.00%
68.00%
Southern California Injury Treatment Network, LLC
USA
99.00%
99.00%
Southern Idaho Medical Funding, LLC
USA
75.00%
75.00%
Southwest Injury Solutions, LLC
USA
73.00%
73.00%
Southwest Medical Financing, LLC
USA
75.00%
75.00%
Surgical Capital Partners, LLC
USA
100.00%
100.00%
Top Tier Injury Solutions, LLC
USA
75.00%
75.00%
Tri Cities Injury Solutions, LLC
USA
75.00%
75.00%
Tristate Medical Finance, LLC
USA
75.00%
75.00%
Waterleaf Medical Finance, LLC
USA
73.00%
73.00%
West Coast Injury Solutions, LLC
USA
75.00%
75.00%
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
75
Note 33. Cash flow information
Reconciliation of loss after income tax to net cash (outflow) from operating activities
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Loss after income tax benefit/(expense) for the year
(21,229)
(78,136)
Adjustments for:
Depreciation and amortisation
401
666
Share-based payments
184
-
Employee leave provision
(78)
47
Interest income
222
(1,545)
Commissions payable
(32)
(31)
Interest expense
5,053
8,186
Impairment expense - short-term loans
75
479
Impairment expense - goodwill and customer relationships
-
42,387
Net foreign exchange differences
2,975
(5,434)
Fair value gain on financial liabilities
-
(19,602)
Change in operating assets and liabilities:
Decrease in other receivables
27,934
25,938
Decrease in deferred tax assets
-
12,579
Decrease/(increase) in prepayments
(175)
47
Decrease in trade and other payables
(4,721)
(1,632)
(Decrease)/increase in tax provision
(1,559)
755
(Decrease)/increase in provisions or employee benefits
(110)
74
(Decrease)/increase in borrowings
(21,006)
3,755
Net cash (outflow) from operating activities
(12,066)
(11,467)
Non-cash investing and financing activities
Consolidated
31 Dec 2021
31 Dec 2020
US$'000
US$'000
Additions to the right-of-use assets
262
-
Shares issued (consideration for underwriting)
-
200
Shares issued
41,591
-
41,853
200
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 33. Cash flow information (continued)
76
Changes in liabilities arising from financing activities
Vendor
loan -
Australian
disbursem
ent funding
Converti -
ble bonds
Lucerne
Group
combined
Principis
Master
Fund
facility - US
medical
lien
funding
Paradise
Diversified
Holdings
Limited
Partner-
Other NHF
subordin-
Other NHF
subordin-
business
payable
loan
business
ship
ated debt
ated debt
Total
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1
January 2020
315
3,500
11,642
12,122
4,163
1,180
1,000
33,922
Conversion to
shares
-
(2,946)
(4,070)
(12,122)
-
-
-
(19,138)
Loans received
-
-
-
550
2,942
-
-
3,492
Loans repaid
(346)
-
-
(151)
(8,100)
-
-
(8,597)
Conversion to
Capitalising
Converting Note
-
-
(6,017)
-
-
-
-
(6,017)
Capitalised
interest
-
339
998
16
995
230
-
2,578
Exchange
differences
31
340
1,131
-
-
-
-
1,502
Balance at 31
December 2020
-
1,233
3,684
415
-
1,410
1,000
7,742
Additions
-
-
-
-
-
154
-
154
Debt to equity
restructure
-
(1,215)
(3,732)
(434)
-
(1,638)
(1,000)
(8,019)
Capitalised
interest
-
51
255
19
-
74
-
399
Exchange
differences
-
(69)
(207)
-
-
-
-
(276)
Balance at 31
December 2021
-
-
-
-
-
-
-
-
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 33. Cash flow information (continued)
77
Other NHF
subordin-
Insurance
financing
SAF Side
SAF Side
NHF
Founder
Promi-
ssory
ated debt
- Australia
SAF
Loan 1
Loan 2
Notes
Atalaya
Total
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1
January 2020
4,750
33
29,396
1,252
2,275
9,000
41,603
88,309
Loans received
-
88
-
-
-
-
3,141
3,229
Loans repaid
-
(98)
-
-
-
-
(27,732)
(27,830)
Capitalised
interest
-
-
4,414
602
-
-
-
5,016
Exchange
differences
-
4
2,906
122
221
-
-
3,253
Other changes
-
-
-
154
-
(9,000)
-
(8,846)
Balance at 31
December 2020
4,750
27
36,716
2,130
2,496
-
17,012
63,131
Loans received
-
-
2,746
-
-
-
110
2,856
Interest
repayment
-
-
(571)
-
-
-
-
(571)
Loan repaid
-
(25)
-
-
-
-
(1,837)
(1,862)
Refinanced by
PFG
-
-
-
-
-
-
(15,285)
(15,285)
Capitalised
interest
-
-
2,175
234
-
-
-
2,409
Debt to equity
restructure
(4,750)
-
(21,322)
(2,099)
(2,356)
-
-
(30,527)
Exchange
differences
-
(2)
(2,063)
(120)
(140)
-
-
(2,325)
Other changes
-
-
-
(145)
-
-
-
(145)
Balance at 31
December 2021
-
-
17,681
-
-
-
-
17,681
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 33. Cash flow information (continued)
78
Insurance
financing
Credit
Asset
Vendor
loan - NHF
PPP loan
- USA
cards
- secure
Founders
EIDL loan
EFI
Total
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1
January 2020
-
55
103
21,447
13,612
-
-
35,217
Loans received
605
-
183
3,923
-
150
25,550
30,411
Loans repaid
-
(55)
(267)
(10,436)
-
-
(336)
(11,094)
Capitalised
interest
-
-
-
-
-
-
52
52
Exchange
differences
-
-
-
2,083
1,322
-
-
3,405
Other changes
-
-
-
-
(14,934)
-
-
(14,934)
Balance at 31
December 2020
605
-
19
17,017
-
150
25,266
43,057
Additions
508
-
-
-
-
-
-
508
Loans received
-
106
301
2,045
-
-
-
2,452
Loans repaid
-
(106)
(311)
(2,483)
-
(4)
(2,416)
(5,320)
Capitalised
interest
-
-
-
-
-
-
477
477
Exchange
differences
-
-
-
(956)
-
-
-
(956)
Other changes
(1,113)
-
-
(14,596)
-
-
-
(15,709)
Balance at 31
December 2021
-
-
9
1,027
-
146
23,327
24,509
Convertible
Promissory
Lease
PFG
Note
liabilities
Total
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2020
-
-
1,531
1,531
Repayment of leases
-
-
(245)
(245)
Exchange differences
-
-
(41)
(41)
Balance at 31 December 2020
-
-
1,245
1,245
Additions
-
16
262
278
Repayment of leases
-
-
(305)
(305)
Refinanced Atalaya
15,284
-
-
15,284
Loans received
679
-
-
679
Loans repaid
(2,028)
-
-
(2,028)
Exchange differences
-
-
(16)
(16)
Other changes
-
-
(922)
(922)
Balance at 31 December 2021
13,935
16
264
14,215
Note 34. Share-based payments
Share options
At the 2021 Annual General Meeting held on 25 May 2021, shareholders approved the adoption of the LAW Incentive Plan
('Incentive Plan') and associated Non-Recourse Loan Agreements for directors, officers, employees and consultants
('Participants'). The Incentive Plan, effective from 25 May 2021, replaced the previous Incentive Option Plan and Executive
Incentive Plans ('EIP').
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 34. Share-based payments (continued)
79
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 and other businesses and high performance.
Set out below are summaries of options granted under the plans:
31 Dec 2021
Balance at
Share con-
Balance at
Exercise
the start of
-solidation
Lapsed/
the end of
Grant date
Expiry date
price*
the year
100:1
Granted
Expired
the year
13/03/2020
28/09/2021
US$18.6750
24,000,000
(23,760,000)
-
(240,000)
-
13/03/2020
28/09/2022
US$29.8790
22,500,000
(22,275,000)
-
-
225,000
13/03/2020
28/09/2023
US$44.8190
25,000,000
(24,750,000)
-
-
250,000
28/05/2021
19/11/2025
US$1.8670
-
-
916,667
-
916,667
18/06/2021
08/12/2024
US$1.8670
-
-
1,300,000
-
1,300,000
71,500,000
(70,785,000)
2,216,667
(240,000)
2,691,667
Weighted average exercise price
US$0.3220
US$0.3260
US$1.8670
US$0.1920
US$8.1980
*
Exercise price - A$25, A$40, A$60, A$2.50 and A$2.50 respectively after consolidation; and
Exercise price - A$0.25, A$0.40, A$0.60, A$NA and A$NA respectively before consolidation.
31 Dec 2020
Balance at
Balance at
Exercise
the start of
the end of
Grant date
Expiry date
price*
the year
Granted
Exercised
Lapsed
the year
13/03/2020
28/09/2021
US$0.1920
-
24,000,000
-
-
24,000,000
13/03/2020
28/09/2022
US$0.3070
-
22,500,000
-
-
22,500,000
13/03/2020
28/09/2023
US$0.4610
-
25,000,000
-
-
25,000,000
-
71,500,000
-
-
71,500,000
Weighted average exercise price
US$0.0000
US$0.3220
US$0.0000
US$0.0000
US$0.3220
*
Exercise price - A$0.25, A$0.40 and A$0.60 respectively.
Set out below are the options exercisable at the end of the financial year:
31 Dec 2021
31 Dec 2020
Grant date
Expiry date
Number
Number
13/03/2020
28/09/2021
-
24,000,000
13/03/2020
28/09/2022
225,000
22,500,000
13/03/2020
28/09/2023
250,000
25,000,000
475,000
71,500,000
The comparative number of options for the year ended 31 December 2020, disclosed in the above table, are per
consolidation.
The weighted average share price during the financial period was US$0.83 (2020: US$0.037).
The weighted average remaining contractual life of options outstanding at 31 December 2021 was 2.8 years (2020: 1.76
years).
LawFinance Limited
Notes to the consolidated financial statements
31 December 2021
Note 34. Share-based payments (continued)
80
Warrants
Set out below are summaries of warrants granted on acquisition of NHF:
31 Dec 2021
Balance at
Share con-
Expired/
Balance at
Exercise
the start of
-solidation
forfeited/
the end of
Grant date
Expiry date
price*
the year
Granted
100:1
other
the year
28/09/2018
08/11/2022
US$10.0840
452,743,636
- (448,216,198)
-
4,527,438
28/05/2021
28/05/2028
US$3.2870
-
2
-
-
2
452,743,636
2 (448,216,198)
-
4,527,440
31 Dec 2020
Balance at
Expired/
Balance at
Exercise
the start of
forfeited/
the end of
Grant date
Expiry date
price*
the year
Granted
Exercised
other
the year
28/09/2018
08/11/2022
US$0.1040
452,743,636
-
-
-
452,743,636
452,743,636
-
-
-
452,743,636
*
Exercise price at 31 December 2021 is A$13.50 (31 December 2020: A$0.135) and A$4.400 respectively
The weighted average remaining contractual life of warrants outstanding at 31 December 2021 was 0.85 years (2020: 1.75
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:
Share price
Exercise
Expected
Dividend
Risk-free
Fair value
Grant date
Expiry date
at grant date
price
volatility
yield
interest rate
at grant date
28/05/2021
19/11/2025
US$0.822
US$1.867
75%
-
0.10%
US$0.4000
18/06/2021
08/12/2024
US$0.934
US$1.867
75%
-
0.10%
US$0.3220
Shares issued
On the 25 May 2021, shareholders approved and granted Daniel Kleijn 25,000 shares to the value of $24,277 (A$32,500) in
recognition of his appointment and contributions to the Company to date.
Note 35. Events after the reporting period
Following the EFI Review event in January 2022, EFI may notify SPV III requiring it to negotiate in good faith for a period of
30 days to agree on revised facility terms and if EFI and SPV III are unable to agree revised terms then EFI may demand
repayment of the loan within 90 days from the expiry of the negotiation period. It is unclear whether EFI intend to issue this
notice to negotiate revised terms or what they may seek in any such negotiation. Refer to note 19.
Partners for Growth have also agreed to waive the two covenant breaches (constituting a review event) subject to certain
conditions being agreed to by the Company which occurred in January 2022. Refer to note 19.
Apart from matters as disclosed in the Directors report and in this note, no other matter or circumstance has arisen since 31
December 2021 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.
LawFinance Limited
Directors' declaration
31 December 2021
81
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 and Australian Accounting standards 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
2021 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 2022
Sydney
Liability limited by a scheme approved under Professional Standards Legislation
PO Box 1908
West Perth WA 6872
Australia
Level 2, 40 Kings Park Road
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 Is a member of the Russell
Bedford International network of firms
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 2021, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s financial position as at 31 December 2021 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 (the Code) that are relevant to our audit of the financial
report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty regarding Going Concern
As described in note 2 to the financial report, the financial statements have been prepared on a going concern
basis. At 31 December 2021, the Group had working capital deficiency of $21,923,000 (31 December 2020
deficiency of $92,923,000), cash and cash equivalents of $5,101,000 (31 December 2020 $4,746,000). The Group
had incurred a loss before tax for the half year amounting to $21,969,000 (31 December 2020 $50,064,000). The
net cash outflow from operating activities for the year was $12,066,000 (December 2020 $11,467,000).
The ability of the Group to continue as a going concern is subject to collecting its outstanding medical lien
receivables books and continuing support of financiers and compliance with agreements and/or raising further
share capital in accordance with its budgeted cashflows. In the event that the Group does not successfully collect
its outstanding medical lien books and continuing support of financiers and compliance with agreements and/or
raising further share capital, the Group may not be able to meet its liabilities as and when they fall due and the net
realisable values of its assets would be significantly lower than its carrying values.
Page 2 of 4
Emphasis of Matter - Carrying value of financial assets
In particular we draw your attention to note 13 (Financial assets at amortised cost) of the financial report which
discloses the carrying value of the financial assets at amortised cost of US$41,442,000 (2020: US$53,253,000).
We also draw your attention to note 3 of the financial report and estimates used by management in the preparation
of the financial report. 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 and the Emphasis
of Matter for Carrying value of the financial assets, we have determined the matter 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
Discontinued Operations
The loss from Discontinued Operations was
$788,000 (31 December 2020 $15,262,000)
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 9).
On
30
April
2021,
the
company
appointed
administrators
to
former
subsidiary
JustKapital
Financing Pty Limited. On this date the operations of
the former subsidiary were deconsolidated.
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.
Inter alia, our audit procedures included the following:
I.
Obtained agreement to sell JustKapital
Litigation Pty Limited and interrogated;
II.
Checked clients calculations of Assets and
liabilities deconsolidated (including those of
JustKapital
Financing
Pty
Limited)
and
determination of the loss from discontinued
operations;
III.
Challenged management’s assessment of the
value of the conditional component of the sales
proceeds to support nil value for the Sale of
JustKapital Litigation Pty Limited; and
IV.
Ascertained
compliance
with
relevant
accounting standards and the disclosures
included in the annual report (refer note 9).
Restructuring gain on debt-to-equity conversion
The gain on the debt-to-equity conversion was
$18,910,000.
During the year the company completed the
restructuring of debts by converting debt holders into
equity.
We determined this to be a key audit matter given the
nature of the transaction and the materiality of the
amount involved.
Inter alia, our audit procedures included the following:
I.
Obtained agreements with debt holders and
agreed conversion terms to the management
working papers;
II.
Obtained management assessment of the
value used in the conversion and its
compliance with AASB 13– Fair Value
Measurement, challenged the assumptions
within and ensured accuracy;
III.
Reviewed the disclosures included in the
annual report (refer note 22).
Page 3 of 4
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 2021 but don’t think they would otherwise we would
have an invite as it is 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 based on 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
Page 4 of 4
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 10 to 20 of the directors’ report for the year ended
31 December 2021.
In our opinion, the Remuneration Report of Lawfinance Limited for the year ended 31 December 2021 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
(An Authorised Audit Company)
Samir Tirodkar
West Perth, Western Australia
Director
31 March 2022
LawFinance Limited
Shareholder information
31 December 2021
86
The shareholder information set out below was applicable as at 8 March 2022.
Distribution of equity securities
Analysis of number of equity security holders by size of holding:
Ordinary shares
Options over ordinary
shares
% of total
% of total
Number
shares
Number
shares
of holders
issued
of holders
issued
1 to 1,000
320
0.23
-
-
1,001 to 5,000
123
0.75
-
-
5,001 to 10,000
43
0.83
-
-
10,001 to 100,000
152
13.37
-
-
100,001 and over
58
84.82
6
100.00
696
100.00
6
100.00
Holding less than a marketable parcel
340
49.00
-
-
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Ordinary shares
% of total
shares
Number held
issued
J P Morgan Nominees Australia
5,432,995
13.33
Aquasia Pty Limited (Aquasia Private Invest A/c)
4,777,460
11.72
Principis Master Fund SPC (Lucerne Composite Master A/c)
4,107,900
10.08
CS Fourth Nominees Pty Ltd
2,267,690
5.56
National Nominees Limited
1,932,609
4.74
Australian Philanthropic Services Foundation Pty Limited (APS Foundation A/c)
1,213,879
2.98
Anne Gregerson
1,151,545
2.82
Mr Mark Siegel
1,075,488
2.64
Mr David Wattel
1,075,488
2.64
Contemplator Pty Ltd
612,914
1.50
Ellerston Capital Limited
599,196
1.47
Lucerne Finance Pty Ltd
599,194
1.47
Mickey Clark
575,773
1.41
Ms Snezana Bowden
560,000
1.37
Galloway and Galloway
484,954
1.19
Altor Capital Management Pty Ltd
467,351
1.15
Factotum Group Pty Limited (Factotum Partners A/c)
454,000
1.11
Portfolio Services Pty Ltd
438,768
1.08
Barbright Australia Pty Ltd
409,485
1.00
Equity Trustees Limited
383,371
0.94
28,620,060
70.20
LawFinance Limited
Shareholder information
31 December 2021
87
Unquoted equity securities (options)
Number
Number
on issue
of holders
Options – exercisable at A$40.00 cent before 28 September 2022
225,000
2
Options – exercisable at A$60.00 cent before 28 September 2023
250,000
2
Options – exercisable at A$2.50 before 19 November 2025
916,667
1
Options – exercisable at A$2.50 before 8 December 2024
1,300,000
3
Substantial holders
Substantial holders in the Company are set out below:
Ordinary shares
% of total
shares
Number held
issued
J P Morgan Nominees Australia
5,432,995
13.33
Aquasia Pty Limited (Aquasia Private Invest A/c)
4,777,460
11.72
Principis Master Fund SPC (Lucerne Composite Master A/c)
4,107,900
10.08
CS Fourth Nominees Pty Ltd
2,267,690
5.56
Voting rights
The voting rights attached to ordinary shares are set out below:
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
Number
Details
of warrants
Warrants issued to:
Other Syndicated Acquisition Facility participants
3,298,800
NHF Founders
1,228,638
Partners for Growth
2
4,527,440