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RMAppendix 4E - Final Report
Bentham IMF Limited
ABN 45 067 298 088
Financial year ended
30 June 2014
Results for announcement to the market
Current reporting period:
Previous reporting period:
30 June 2014
30 June 2013
Revenue and Net Profit
Revenues from ordinary activities (interest)
Total income
Profit from ordinary activities after tax attributable to members
Net profit for the period attributable to members
Up/Down
Percentage Change
Down
Up
Down
Down
(12%)
1%
(29%)
(29%)
$'000s
2,628
27,924
9,868
9,868
Cents per share
Today the Directors have declared a final fully franked dividend which will be paid on 3 October 2014. The Record
date is 19 September 2014 and the shares will trade ex dividend from 17 September 2014.
A fully franked interim dividend was paid on 4 April 2014. The record date for that dividend was 21 March 2014.
Total dividends per share for the current reporting period
In the previous reporting period the Directors declared a final fully franked dividend on 21 August 2013. The record
date was 18 October 2013. This dividend was paid on 31 October 2013. There was no interim dividend declared
during the previous reporting period.
The final dividend declared today is an Eligible Dividend under the Company's Dividend Reinvestment Plan. The 2014
interim dividend was also an Eligible Dividend under the Dividend Reinvestment Plan.
Net Tangible Asset Backing
Net tangible asset per ordinary share
Net asset per ordinary share
Consolidated
2014
$
$0.56
$1.16
5.0
5.0
10.0
5.0
2013
$
$0.32
$1.02
Additional Appendix 4E disclosure requirements can be found in the Directors' Report, Financial Statements and the Notes to the
Financial Statements contained in the Bentham IMF Limited Annual Report for the year ended 30 June 2014.
Audit Report
This Appendix 4E (Final Report) is based on the audited financial statements for the year ended 30 June 2014, which are contained
within the Bentham IMF Limited Annual Report, attached.
Page 1
ANNUAL REPORT 2014
CONTENTS
Highlights
Board of Directors and Senior Management
Managing Director’s Report
2014 Directors’ Report
Auditor’s Independence Declaration
Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flow
Statement of Changes in Equity
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Corporate Governance Statement
Shareholder Information
Corporate Information
1
2
3
4
20
21
22
23
24
25
63
64
66
72
75
BENTHAM IMF LIMITED HIGHLIGHTS
BENTHAM IMF LIMITED IS THE LEADING LITIGATION FUNDER IN AUSTRALIA.
WE WERE THE FIRST TO LIST ON THE AUSTRALIAN SECURITIES EXCHANGE
AND HAVE NOW BEEN LISTED FOR OVER 12 YEARS.
WE HAVE AN EXPERIENCED TEAM TO ENSURE THE STRONGEST
CASES RECEIVE FUNDING AND ARE MANAGED TO FACILITATE THEIR
SUCCESSFUL RESOLUTION.
$9.9
Million
NET PROFIT
IMF is in a strong
financial position
moving forward and is
capable of capitalising
on opportunities to
fund cases with larger
potential returns.
$25.3
Million
NET INCOME
FROM LITIGATION
FUNDING
120
100
80
60
40
20
0
CASH ($ Million)
105.6
68.0
62.4
55.0
42.9
FY10
FY11
FY12
FY13
FY14
IMF’S TRACK RECORD
100
INVESTMENTS ($ Million)
104
159 Cases
Completed
14
35
6
Lost
80
60
40
20
0
200
150
100
86.1
98.6
66.0
59.6
40.5
FY10
FY11
FY12
FY13
FY14
NET ASSETS ($ Million)
191.1
125.5
111.7
87.2
72.5
50
Settlements
Withdrawals
Won
0
FY10
FY11
FY12
FY13
FY14
1
ANNUAL REPORT 2014 BOARD OF DIRECTORS
AND SENIOR MANAGEMENT
Back from left to right: John Walker, Alden Halse, Clive Bowman, Michael Bowen and Hugh McLernon
Front from left to right: Diane Jones, Robert Ferguson and Wendy McCarthy
Board of Directors
John Walker
Executive Director
Alden Halse
Non-Executive Director
Clive Bowman
Executive Director –
Director Of Operations
Michael Bowen
Non-Executive Director
Hugh McLernon
Managing Director
Robert Ferguson
Non-Executive
Chairman
Wendy McCarthy
Non-Executive Director
Company Secretary
Diane Jones
Company Secretary,
Chief Operating Officer
and Chief Financial
Officer
2
BENTHAM IMF LIMITED MANAGING DIRECTOR’S REPORT
BENTHAM IMF LIMITED IS ON THE CUSP OF A NEW ERA IN GLOBAL
LITIGATION FUNDING.
Three funders have separated from the pack and
are attempting to create a multinational presence
– IMF coming out of Australia, Burford coming out
of the US and Harbour coming out of the UK. Each
of us is expanding into funding cases in the others’
original territory. Bentham IMF now has offices in
New York and Los Angeles in the US and London and
Amsterdam in Europe. We are also actively funding in
Hong Kong. Such geographical diversification provides
protection against regulatory and court room changes
and ensures a steady flow of funding opportunities.
It is our belief that there is only room for one major
multinational funder so we have geared up to ensure
that IMF fills that position. Real competition was
always going to arrive sooner or later and now it is
upon us. Such competition indicates the increasing
maturity of the industry while at the same time putting
downward pressure on fee levels.
We have also prepared the company to meet with
this competition in other ways. We have sought after,
found and contracted to appoint our first managing
director who will not also be a fee earner. Andrew
Saker, late of Ferrier Hodgson, will become Managing
Director in January next year. We have also beefed
up our accounting numbers with the appointment
of Ehinomen Akhabue as an understudy to our Chief
Financial Officer, Diane Jones.
In the first decade of our existence we were busy
creating, not just a business, but rather an industry,
and now is the time to adjust the structure of the
company to a more traditional form. To that end we
have invited Wendy McCarthy AO onto the board
so that we now have a majority of non-executive
directors. We have also sought to manage our
European operations by establishing a joint venture
in Europe, as well as a co-funding arrangement in
the Asia Pacific, with Elliott Partners of New York.
Finally, we have taken the step of increasing our cash
position by the issue of $50 million of vanilla bonds
and the establishment of a more aggressive cash
holding position.
Over the past few months, the Board has considered
the future dividend policy of the Company. It is a well
known fact that our annual income is uneven. Some
analysts have referred to that income as “lumpy”. It
is now the law that dividends need not be paid out
of profits. As a result, and taking into account the
lumpy nature of our income, the Board has resolved
to consider, and where appropriate implement, a
regular semi-annual dividend which reflects the cash
position of the Company at the time of the dividend
and the likely demand for cash over the ensuing
twelve month period.
The Company has put in place a dividend reinvestment
plan and, on appropriate occasions, will arrange
underwriting to reduce the impact a particular
dividend might otherwise have on cash. This approach
will enable the Company to consider its dividend
position over a two to three year period so that in
some years the dividend might exceed the net profit
after tax while in other years it may fall well short of
that net profit.
We have also taken the further step of establishing
more extensive insurance arrangements to cover
adverse costs in Europe, and are looking to do the
same in Australia, so that if we lose cases, the impact
will not be as severe as it might otherwise have been.
Such insurance has the usual effect of reducing both
profit and risk!
Good corporate governance requires that, as a
departing Managing Director, I provide as much space
as possible for my replacement. I will therefore be
resigning as a Director of your company in January
2015 although, at the invitation of the Board, I will
continue working with Andrew and the management
team for the foreseeable future.
Both the Board and the management team are
acutely aware of the perils involved in growth and
especially offshore growth. We will therefore continue
the step-by-step approach to such growth which we
have adopted since we opened our first US office.
This year we suffered our first major case loss of
about $15 million in the Bank of Queensland case.
This could have been much worse had we not
established insurance cover for such an eventuality.
We are funding an appeal and we are quietly sanguine
about the outcome. That said, the status quo is that
we are in a loss position on that matter and it is our
clients who have the burden of changing that status.
We are hoping for a hearing of the appeal around the
first quarter of calendar 2015.
Hugh McLernon
Managing Director
3
ANNUAL REPORT 2014
2014 DIRECTORS’ REPORT
THE DIRECTORS OF BENTHAM IMF LIMITED (FORMERLY IMF (AUSTRALIA)
LTD) (“IMF” OR “THE COMPANY” OR “THE PARENT”) SUBMIT THEIR REPORT
FOR THE YEAR ENDED 30 JUNE 2014.
Directors
The names and details of the Company’s directors in
office during the financial year and until the date of
this report are noted below. Directors were in office
for the entire period unless otherwise stated.
NAMES, QUALIFICATIONS, EXPERIENCE
AND SPECIAL RESPONSIBILITIES
Robert Ferguson
(NON-EXECUTIVE CHAIRMAN)
Robert Ferguson was appointed Non-Executive
Director on 26 November 2004 and was Executive
Chairman and Chief Executive Officer between
18 June 2007 and 18 March 2009. On 19 March 2009
he resumed his role as Non-Executive Chairman.
Mr Ferguson graduated from Sydney University
with a Bachelor of Economics (Honours) degree. He
commenced employment in 1971 with Bankers Trust
Australia Ltd and was its CEO between 1985 and 1999
and Chairman from 1999 to 2001. Mr Ferguson:
a. was a director of Westfield Holdings Ltd from 1994
to 2004;
b. was chairman and non-executive director of
Vodafone Australia until November 2002;
c. was a director of Racing NSW from 2004 to 2009;
d. was chairman of MoneySwitch Limited from
14 November 2005 to 18 February 2010.
He continued as a non-executive director since
18 February 2010;
e. was deputy chair of the Sydney Institute, from April
1998 to February 2013;
f.
is a director of the Lowy Institute, from April 2003;
g. has been chairman of GPT Group since 10 May 2010
and prior to this was a director and deputy chair
from 25 May 2009;
h. has been chairman of Primary Health Care since
1 July 2009; and
i.
is a non-executive director of Watermark Market
Neutral Fund Limited, since 25 May 2013.
During the past three years he has not served as
a director of any listed company other than those
noted above.
Mr Ferguson is a member of the audit committee
and remuneration committee.
Hugh McLernon
(MANAGING DIRECTOR)
Hugh McLernon is a lawyer by training. He holds
a Bachelor of Laws degree from the University of
Western Australia. After graduation he worked as
a Crown Prosecutor for eight years and then as a
barrister at the independent bar for a further nine
years, before joining Clayton Utz for three years as
a litigation partner.
In 1988, Mr McLernon retired from legal practice and
introduced the secondary life insurance market into
Australia through the Capital Life Exchange. He also
pioneered the funding of large-scale litigation into
Australia through McLernon Group Limited. From
1996 to 2001, Mr McLernon was the Managing Director
of the Hill Group of companies which operates in the
finance, mining, property, insurance and investment
arenas of Australia.
Mr McLernon has been an Executive Director of IMF
since December 2001 and was the inaugural Managing
Director through to December 2004. He became the
Managing Director again on 18 March 2009.
During the past three years he has not served as
a director of any other listed company.
John Walker
(EXECUTIVE DIRECTOR)
John Walker obtained a Bachelor of Commerce
degree from Melbourne University in 1981, with
qualifications as an accountant and economist.
He then practiced accountancy with Deloitte Haskins
and Sells (as it then was) prior to completing a
Bachelor of Laws degree at Sydney University in
1986. Between 1987 and 1998, Mr Walker practiced
as a commercial litigator in Sydney.
In 1998, Mr Walker incorporated Insolvency
Management Fund Pty Ltd and was the inaugural
Managing Director until the entity was purchased
by IMF in 2001. Since then, Mr Walker has been an
Executive Director of IMF and was its Managing
Director between December 2004 and June 2007.
During the past three years he has not served as
a director of any other listed company.
4
BENTHAM IMF LIMITED Clive Bowman
(EXECUTIVE DIRECTOR – DIRECTOR OF OPERATIONS)
Michael Bowen
(NON-EXECUTIVE DIRECTOR)
Clive Bowman has a degree in Economics and an
honours degree in Law from the Australian National
University. He also holds a graduate diploma in
Applied Finance and Investment from the Securities
Institute of Australia and has completed the Insolvency
Practitioners Association of Australia (“IPAA”)
Advanced Insolvency course.
Mr Bowman began his career at law firm Minter Ellison
and then moved to Denton Hall (now SNR Denton)
in London, where he continued to practice as a
litigation lawyer. In 1997 Mr Bowman became involved
in litigation funding and has been with IMF since its
listing.
Mr Bowman became an Executive Director of IMF
on 23 February 2011 and heads up IMF’s investment
committee.
During the past three years he has not served as
a director of any other listed company.
Alden Halse
(NON-EXECUTIVE DIRECTOR)
Alden Halse is a Chartered Accountant and was a
long-term principal of national chartered accountancy
firm, Ferrier Hodgson.
Over the last 30 years he has lectured and written
extensively in relation to directors’ duties, corporate
governance issues and corporate and personal
insolvency issues. Mr Halse:
a. is an associate member of the Institute of Chartered
Accountants, ARITA and the Australian Institute of
Company Directors;
b. is a past president and current councillor of the
Royal Automobile Club of WA (Inc);
c. is a non-executive director of RACWA Holdings
Pty Ltd;
d. is chairman of RAC Insurance Pty Limited, Western
Australia’s largest home and motor insurer; and
e. was a non-executive director of Count Financial Ltd
(resigned on 29 November 2011).
Mr Halse is the Chairman of the audit committee and
a member of the remuneration committee.
During the past three years he has not served as
a director of any listed company other than those
noted above.
Michael Bowen graduated from the University
of Western Australia with Bachelors of Law,
Jurisprudence and Commerce degrees. He has been
admitted as a barrister and solicitor of the Supreme
Court of Western Australia and is an Associate and
Certified Practicing Accountant of the Australian
Society of Accountants. Mr Bowen:
a. is a partner of the law firm Hardy Bowen, practicing
primarily corporate, commercial and securities law
with an emphasis on mergers, acquisitions, capital
raisings and resources; and
b. supports the Managing Director on matters
concerning the corporations law.
Mr Bowen is Chairman of the remuneration committee
and a member of the audit committee.
During the past three years he has also served as
a director of the following listed companies:
a. MOD Resources Ltd (formerly Medical Corporation
Australasia Limited) (appointed 18 October 2004,
resigned 13 April 2011); and
b. Sherwin Iron Limited (formerly Batavia Mining
Limited) (appointed on 28 November 2008,
resigned 20 July 2011).
During the past three years he has not served as
a director of any other listed company.
Wendy McCarthy
(NON-EXECUTIVE DIRECTOR)
Wendy McCarthy AO was appointed a non-executive
director of Bentham IMF Limited on 11 December 2013.
An experienced company director, Ms McCarthy
has an extensive record of achievement in business,
government and the not-for-profit sector.
Her previous leadership roles included eight years
as Deputy Chair of the Australian Broadcasting
Corporation and a decade as Chancellor of the
University of Canberra. Ms McCarthy currently chairs
a wide range of organisations including Headspace –
Australia’s National Youth Mental Health Foundation,
Circus Oz and McGrath Estate Agents. She is also a
director of national not-for-profit childcare operator,
Goodstart Childcare.
In 1989 Ms McCarthy was appointed an Officer of
the Order of Australia for outstanding contributions
to community affairs, womens’ affairs and the
Bicentennial celebrations (having served as a senior
executive with the National Bicentennial Authority).
5
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
COMPANY SECRETARY, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
Diane Jones
Diane Jones has been the Company Secretary since 14 June 2006. She has been a member of the Institute of
Chartered Accountants for over 20 years and holds a Masters of Business Administration degree and a Bachelor
of Economics degree from the University of Sydney.
After graduating Ms Jones spent ten years with a big four accounting firm before moving to a consulting and
private equity firm as a consultant and their Chief Financial Officer. Ms Jones is IMF’s Chief Operating Officer
whilst retaining her previous roles as Chief Financial Officer and Company Secretary.
INTERESTS IN SHARES AND OPTIONS OF THE COMPANY
As at the date of this report, the interests of the Directors in shares, convertible notes and options of the
Company were:
Robert Ferguson
Hugh McLernon
John Walker
Alden Halse
Michael Bowen
Clive Bowman
Wendy McCarthy
Total
Number of
ordinary
shares
Number of
bonds
Number of
options over
ordinary
shares
1,853,000
10,000
7,755,991
4,958,292
879,780
845,098
1,013,941
–
7,500
9,000
750
1,500
–
–
17,306,102
28,750
–
–
–
–
–
–
–
–
Further details of the interests of the Directors in the shares and options of the Company as at the date of this
report are set out in the Remuneration Report included with the Directors’ Report.
Dividends
The Directors have today declared a final fully franked dividend of 5.0 cents per share for the 2014 financial
year totalling $8,268,513. The record date for this dividend is 19 September 2014 and the payment date will be
3 October 2014. Shareholders are able to elect to participate in the dividend reinvestment plan in relation to
this dividend.
On 10 February 2014 the Directors declared a fully franked interim dividend of 5.0 cents per share totalling
$8,219,005. The record date for this dividend was 21 March 2014 and the payment date was 4 April 2014.
The Directors declared a fully franked dividend of 5.0 cents per share for the 2013 financial year totalling
$6,160,470. The record date for this dividend was 18 October 2013 and the payment date was 31 October 2013.
No interim dividend for 2013 was declared.
The Directors have determined they will consider, and where appropriate, implement, a regular semi-annual
dividend which reflects the cash position of the Company at the time of the dividend and the likely demand for
cash over the ensuing twelve month period. The Company has put in place a dividend reinvestment plan and,
on appropriate occasions, will arrange underwriting to reduce the impact a particular dividend might otherwise
have on cash.
Corporate information
Corporate structure
Bentham IMF Limited is a company limited by shares which is incorporated and domiciled in Australia. IMF has
prepared a consolidated financial report incorporating the entities that it controlled during the financial year, being
Financial Redress Pty Ltd (formerly Insolvency Litigation Fund Pty Ltd), Bentham Holdings Inc., Bentham Capital
LLC and Security Finance LLC (the Group or consolidated entity).
6
BENTHAM IMF LIMITED Operating and financial review
Nature of operations and principal activities
The principal activities of the Group during the financial year were the investigation, management and funding
of litigation. The Group enters into a contract, a litigation funding agreement, with claimants to provide these
services. The Group does not provide legal advice under the litigation funding agreement. The key business driver
is to manage and fund the litigation to a successful conclusion. If the litigation is successful, the Group earns a fee
and, depending on the jurisdiction, may also be reimbursed the costs it has paid during the course of the funded
litigation, payable from the recovery. The fee is generally a percentage of the settlement or judgment proceeds
and will be lower the earlier the litigation is resolved. If the litigation is unsuccessful the Group does not generate
any income and will write off its investment in the litigation. In certain jurisdictions the litigation funding agreement
contains an undertaking to the client that the Group will pay adverse costs ordered in respect of the costs incurred
by the defendant(s) during the period of funding.
The Group undertakes these activities through offices around Australia and has done so since 2001. In 2011 the
Group expanded into the USA by opening an office in New York. During the current financial year a further
office was opened in Los Angeles. Also during the current financial year the Group entered into a joint venture to
investigate, manage and fund cases in Europe. Consequently the Group now also has a presence in London and
Amsterdam.
The Group has funded this expansion by retaining earnings and issuing shares and bonds (refer to Notes 20, 21
and 22).
In any given year the Group’s profitability is dependent upon the outcome of funded cases resolved in that year,
however, the successful completion of a case and the timing of that completion is not ultimately within the Group’s
control. Legislative, regulatory, judicial and policy changes may have an impact on future profitability.
The Group endeavours to have a mix of cases it is funding at any one time. These can broadly be categorised as
commercial claims, insolvency claims and group actions. The expansion overseas creates diversification across
jurisdictions.
The Group discloses the cases it manages and funds to the ASX as those cases are funded. The Group also
provides an estimated claim value of those cases on a portfolio basis quarterly.
Investment portfolio report at 30 June 2014
Claims <$10M
Claims $10M – $50M
Claims >$50M
Total portfolio
Number of
claims
Estimated
claim value
Percentage
of total
estimated
claim value
6
14
10
$32,000,000
$395,000,000
$1,640,000,000
2%
19%
79%
30
$2,067,000,000
100%
The estimated claim value of IMF’s cases increased 26% in the year to 30 June 2014 from $1,635,000,000 to
$2,067,000,000. IMF commenced eight new cases during the year, which have a maximum claim value at 30 June
2014 of $765,000,000 (2013: nine new cases which had a maximum claim value of $465,000,000) including the
Wivenhoe Dam case.
An update on IMF’s principal funded cases is as follows:
In the Bank Fees case (an action by customers to recover unfair exception fees charged to their bank accounts and
credit cards) proceedings have been issued against a number of banks. On 5 February 2014 the Court delivered its
judgment in the case the Company funded against the ANZ Banking Group Limited (“ANZ”). The findings in favour
of the Company’s clients were that late payment fees were penalties at law and that certain inter-account exception
fees had been charged by ANZ in breach of contract. Our clients were not successful in relation to their claims
concerning honour fees, dishonour fees and over the limit fees charged by ANZ.
The Company currently estimates that the successful part of the action against ANZ represents about 25% of the
total claim being made in that action. The Company is presently not able to reliably measure the impact, if any, of
the decision on its revenue or profit for the year ending 30 June 2014. Both the ANZ and the clients’ representative
in the case are appealing, and the hearing of the appeal commenced on 18 August 2014.
7
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Operating and financial review (continued)
Further open class actions have or will soon be instituted against the major banks in relation to late fees. These
actions will include those members of each class who were not members of the class in the initial proceedings.
The Company will fund those further proceedings and will seek a common fund order from the Court to validate
the funding arrangements. Should the current appeals (or any subsequent appeal to the High Court) be won by
the banks then it is unlikely that the further proceedings would continue.
Proceedings for damages against Bankwest have been filed in the Westgem matter. The Bank has applied to
the Court to strike out parts of the claim and that application is to be heard on 2 October 2014. The Bank is
also pursuing other interlocutory applications (one of which, to remove the clients’ solicitors from the action,
it recently lost).
The Rivercity claim against Aecom and two Rivercity companies, alleging misleading and deceptive conduct
and omissions in relation to the traffic forecast included in the product disclosure statement, also continues through
the Court, with expert evidence being prepared. The case has a trial date commencing on 7 September 2015.
Proceedings were filed in December 2013 in the Netherlands, by the Foundation (incorporated in the Netherlands
called “Stichting Ratings Redress” (“SRR”)) to pursue claims in respect of losses suffered by investors in CPDOs,
arranged by ABN Amro and rated by S&P. SRR has entered into a funding agreement with IMF pursuant to
which IMF will fund claims assigned to SRR by CPDO purchasers. S&P has filed proceedings in the UK seeking
declarations and currently the matters are before the UK and Netherlands courts to determine which court(s)
have jurisdiction.
The claim in the Wivenhoe Dam case by persons who suffered loss due to the Brisbane floods in 2011 caused by
the alleged negligence of the Dam operators, was filed in the NSW Supreme Court on 8 July 2014. IMF has entered
into a participation agreement with interests associated with its European joint venturer to share equally the costs
(including any adverse costs) of, and any return from, this claim.
IMF is funding a claim by investors against McGraw Hill (“S&P”) for the balance of their losses not likely to form
part of any distribution by Lehman Bros Australia (the S&P Lehman case). The claim was filed in April 2013 and
is proceeding through interlocutory processes.
Bentham Capital LLC (IMF’s wholly owned United States subsidiary) had funded seven cases since being
established in August 2011 by 30 June 2014. One was completed in the 2013 financial year and one small matter
(income of less than $130,000) was completed in the 2014 financial year. The claim value of the five remaining
cases funded in the US was $322,000,000 and is included in the Investment Portfolio as at 30 June 2014. IMF has
taken the policy position not to disclose specific details about Bentham’s investments until after the resolution of
the cases and all appeal avenues have been finalised.
IMF did not withdraw from any investments during 2014 (2013: two cases). IMF continues to provide the ASX
with a summary of the cases funded by IMF in which IMF’s potential fee is greater than $500,000 per case (IMF’s
Investment Portfolio Report). This Report is updated every three months. IMF also provides case updates on its
website: www.benthamimflimited.com.au.
Employees
At 30 June 2014, IMF employed 32 permanent staff, including the three Executive Directors, providing investigative,
computer, accounting and management expertise (2013: 28 permanent staff).
Operating results for the financial year
The following summary of operating results reflects the Group’s performance for the year ended 30 June 2014:
Shareholder Returns
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Return on assets % (NPAT/Total Assets)
Return on equity % (NPAT/Total Equity)
Net debt/equity ratio %*
2014
2013
6.56
6.56
3.51%
5.16%
nil
11.21
9.78
7.12%
11.01%
nil
* Net debt (cash and short term deposits less total debt) is positive as cash and short term deposits are greater than
total debt.
8
BENTHAM IMF LIMITED Operating and financial review (continued)
Six matters generated income greater than $500,000 during 2014, underpinning the Group’s profitability
and shareholder returns. The following summarises the major cases finalised during 2014:
Date commenced
Litigation contract’s
matter name
Claim value
included in
investment
portfolio
report at 30
June
2013
Total
litigation
contract’s
expenses
(including
capitalised
overheads)
Net gain/
(loss) on
disposal of
intangible
asset
Total
litigation
contract’s
income
$
$
$
$
Apr-09
Mar-12
Dec-10
Jan-12
Jun-09
Oct-08
May-10
Lehman Bros Australia*
160,000,000
31,955,560
(12,285,852)
19,669,708
MCC Mining
Downer
Hastings Capital
Great Southern
Air Cargo
20,000,000
5,037,388
(3,256,673)
1,780,715
30,000,000
11,340,578
(1,248,367)
10,092,211
5,000,000
1,952,072
(796,090)
1,155,982
80,000,000
12,291,261
(4,581,760)
7,709,501
80,000,000
7,333,495
(5,763,093)
1,570,402
Bank of Queensland
20,000,000
–
(15,402,670)
(15,402,670)
Other matters
–
5,997,286
(6,619,102)
(621,816)
395,000,000
75,907,640 (49,953,607)
25,954,033
* The Lehman Bros Australia income relates to IMF’s share of income generated during the period. An additional amount
of income totalling $10,960,217 was included from this matter in the 2013 financial year. This matter is not finalised as IMF
expects to receive additional income from this matter in future years.
The Group has finalised 159 (2013: 149) investments since listing, with an average investment period of 2.4 years
(2013: 2.3 years). The Group has generated a gross return on every dollar invested of 2.73 times (excluding
overheads) (2013: 2.90 times). IMF has a target to complete cases within 2.5 years and to generate a gross return
on every dollar invested of 3 times (excluding overheads).
The investment portfolio as at 30 June 2014 has a mixture of both mature and new investments, with 34% of the
investment portfolio expected to finalise over the next 12 months (2013: 44%). IMF is focused on replacing and
growing the investment portfolio within its conservative investment protocols. During the course of the year IMF
again received numerous requests for litigation funding from inside and outside of Australia.
IMF’s share price closed at $1.84 per share on 30 June 2014 (2013: $1.76). However, as at 1 August 2014 the IMF
share price was $2.04, representing a 16% increase since 30 June 2013. IMF entered the ASX top 300 companies
on 20 March 2009, when its share price was $1.15. Since entering this index and up to 1 August 2014, IMF’s share
price has increased 77%, which exceeds the index movement of 59% in that same period. IMF’s share price has
outperformed the major indices on an annualised basis from 1 August 2010 to 1 August 2014 as detailed below:
Annualised return with dividends reinvested
Annualised return without dividends reinvested
IMF Share
Price
ASX300
AXKO
Small Ords
AXSO
13.03%
7.99%
9.75%
4.95%
0.80%
-2.18%
9
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Operating and financial review (continued)
This share price analysis is shown graphically below:
IMF, ASX300 AND SMALL ORDINARIES
Annualised Return 1 August 2010 – 1 August 2014
15.00%
12.00%
9.00%
6.00%
3.00%
0.00%
-3.00%
IMF
ASX300
Small Ordinaries
Annualised Return with
Dividend Reinvestment
Annualised Return without
Dividend Reinvestment
13.03%
9.75%
0.80%
7.99%
4.95%
-2.18%
Liquidity and capital resources
The consolidated Statement of Cash Flows illustrates that there was an increase in cash and cash equivalents for
the year ended 30 June 2014 of $37,644,737 (2013: increase of $4,668,857). Operating activities used $8,779,105
of net cash outflows (2013: net cash outflow of $26,805,154), whilst investing activities used $18,195,957 of net
cash outflows (2013: net cash inflow of $43,794,777), and financing activities generated $64,619,799 of net cash
inflows (2013: net cash outflow of $12,320,766) principally as a result of the capital raising, including the institutional
placement, share placement plan and bond issue undertaken during the year.
10
BENTHAM IMF LIMITED
Operating and financial review (continued)
Asset and capital structure
Cash and short term deposits
Total debt
Net debt
Total equity
Gearing Ratio1
Interest Cover2
Working Capital Ratio
2014
$
2013
$
Change
%
105,576,733
67,984,284
(47,758,026)
(36,324,499)
57,818,707
31,659,785
191,131,272
125,504,384
nil
n/a
8.5
nil
n/a
11.5
55%
31%
83%
52%
n/a
n/a
26%
1 Net debt is positive as cash and short term deposits are greater than debt.
2
The application of AASB 123 Borrowing Costs has resulted in the capitalisation of interest associated with the Bentham
IMF Bonds as the Company’s intangible assets are qualifying assets.
During April 2014, the Company issued 500,000 Bentham IMF Bonds at $100 each. The interest is paid to
bondholders quarterly at a variable rate based on the Bank Bill Rate plus a fixed margin of 4.20% per annum.
The Bentham IMF Bonds will mature on 30 June 2019.
During December 2013, the outstanding balance of the convertible notes (which were issued on 13 December 2010)
were redeemed by the Company.
Profile of debts
The profile of the Group’s debt finance is as follows:
Current
Interest bearing loans and borrowings
Non current
Bonds
Convertible notes
Total debt
2014
$
–
(47,758,026)
–
(36,324,499)
(47,758,026)
(36,324,499)
2013
$
Change
%
–
–
–
N/A
–100%
32%
Shares issued during the year
On 14 October 2013 the Company issued 18,481,406 shares to sophisticated and institutional investors at $1.70 per
share. On 1 November 2013 the Company issued 6,242,196 shares under its Share Purchase Plan at $1.70 per share.
Between 14 October 2013 and 20 December 2013 16,447,169 convertible notes were converted into shares at
$1.68 per share (see Note 20). On 4 April 2014 the Company issued 990,126 shares under its Dividend Reinvestment
Plan at $1.69 per share.
Capital expenditure
There has been an increase in capital expenditure during the year ended 30 June 2014 to $170,941 from $70,120
in the year ended 30 June 2013. The capital expenditure in 2014 and 2013 mainly related to the purchase of new
computer equipment.
Risk management
The major risk for the Company continues to be the choice of cases to be funded. The extent of the mitigation
of that risk can best be identified, from time to time, by reference to the fact that in the first 12 years of operation
IMF has lost only six cases out of 159 matters funded and completed. The Company has an Investment Protocol
in relation to case selection and a rigorous due diligence process which ensures that only cases with very good
chances of success are accepted for funding. The Group also insures a portion of its adverse costs order exposure.
Another risk which needs constant management is liquidity. This principally involves holding a cash balance buffer
and taking on new investments only in accordance with IMF’s Investment Protocol. The Board of Directors has
authorised management to identify options for raising capital to fund further expansion of IMF’s business, if required.
11
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Operating and financial review (continued)
Risk management (continued)
In addition, IMF constantly monitors proposed
legislative, regulatory, judicial and policy changes that
may affect litigation funding in the markets in which
it operates.
In Australia, the Productivity Commission has
foreshadowed, in its draft report on Access to Justice,
its view that Australian lawyers should be permitted to
charge contingency fees and that litigation funders be
subject to financial services regulation. The Company
made detailed submissions to the Commission and the
final report is due in September 2014. The Company
has long supported regulation of litigation funders in
Australia and will seek to engage constructively with
regulators in the design of any regulatory regime.
The Group is not aware of any other material
regulatory developments in the other markets in
which it operates.
Pro bono
As IMF has become an integral part of the litigation
landscape in Australia it is important that it
participates in the honourable tradition of those
involved in litigation giving free support for worthy
public causes. IMF has a pro bono program under
which it makes time and funds available for such
causes. Support provided by IMF includes donations
to Austlii (Australian Legal Information Institute) and
financial assistance to PIAC (Public Interest Advocacy
Centre) and some of PIAC’s clients.
Significant changes in the state of affairs
Total equity increased 52% to $191,131,272 from
$125,504,384. This was mainly as a result of the
Group’s capital raising activities. There have been no
significant changes in the Company’s state of affairs
during this reporting period other than as is disclosed
in this report.
Significant events after reporting date
Intangible Assets
On 18 June 2014 the litigation funded by the Company
against KPMG was settled in principle. IMF is unable
to estimate the revenue or profit from this settlement
until certain steps in the settlement are undertaken. It
is envisaged these steps will be completed by the end
of December 2014.
On 7 July 2014 the litigation funded by the Company
by the Liquidator of ZYX Learning Centres Limited
(Receivers & Managers Appointed) (In Liquidation)
(formerly ABC Learning Centres Limited) was settled
in principle and a Deed of Settlement has now been
entered into. It is estimated that IMF will receive
approximately $17,000,000 from the settlement and
generate a total profit after capitalised overheads
of approximately $5,000,000 (before tax) from
this matter and the shareholder claims against
ABC Learning that IMF is also funding.
12
Likely developments and expected results
Approximately 34% of the investment portfolio as
at 30 June 2014 is expected to mature over the next
12 months. Accordingly, the Directors consider that
the Company is likely to generate a profit in this
period.
IMF expects demand for its funding to continue in
Australia, particularly as we are the leading funder
in this market. The establishment of our first wholly
owned subsidiary in the United States of America
and the joint venture in Europe should also result in
increased funding opportunities in these jurisdictions.
Competition, however, is increasing and is expected to
increase further in the coming years with new entrants
coming into the Australian market and new entrants
in overseas markets. Litigation funding is considered
non-cyclical or uncorrelated to underlying economic
conditions.
Environmental regulation and performance
The consolidated entity’s operations are not presently
subject to significant environmental regulation under
the laws of the Commonwealth and the States.
Share options
Unissued shares
As at the date of this report there were no options
on issue.
Indemnification and insurance of directors
and officers
During the financial year the Company has paid
premiums in respect of an insurance contract insuring
all the Directors and Officers of the Group against
any legal costs incurred in defending proceedings
for conduct other than:
a. wilful breach of duty; or
b. contravention of sections 182 or 183 of the
Corporations Act 2001, as may be permitted by
section 199B of the Corporations Act 2001.
The total amount of premiums paid under the
insurance contract referred to above was $142,061
during the current financial year. (During the year
ending 30 June 2013 there were nil payments made as
the previous payments were for an 18 month period.)
Indemnification of auditors
To the extent permitted by law, the Company has
agreed to indemnify its auditors, EY, as part of the
terms of its audit engagement against claims by third
parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify
EY during or since the financial year.
BENTHAM IMF LIMITED Remuneration report (Audited)
This Remuneration Report outlines the director and
executive remuneration arrangements of the Group in
accordance with the requirements of the Corporations
Act 2001 and its Regulations. For the purposes of
this report Key Management Personnel of the Group
are defined as those persons having authority and
responsibility for planning, directing and controlling
the major activities of the Group, directly or indirectly,
including any Director (whether executive or
otherwise) of the Company.
Key management personnel
Details of IMF’s key management personnel are:
(i) Directors
Robert Ferguson
Non-Executive Chairman
Hugh McLernon
Managing Director
John Walker
Executive Director
Clive Bowman
Executive Director –
Director of Operations
Alden Halse
Non-Executive Director
Michael Bowen
Non-Executive Director
Wendy McCarthy
Non-Executive Director
(ii) Executives
Diane Jones
Charlie Gollow
Chief Operating Officer,
Chief Financial Officer and
Company Secretary
Managing Director,
Bentham Capital LLC
There were no changes to IMF’s key management
personnel after the reporting date and before the
financial report was authorised for issue. However,
Andrew Saker will commence as the Group’s new
Managing Director in January 2015.
Remuneration committee
The Remuneration Committee of the Board
of Directors of the Company is responsible
for determining and reviewing remuneration
arrangements for the Board and executives.
The Remuneration Committee assesses the
appropriateness of the nature and amount of the
emoluments of the directors and executive team on
a periodic basis by reference to relevant employment
market conditions, with the overall objective of
ensuring the best stakeholder benefit from the
Board and executive team.
Remuneration philosophy
The performance of the Company depends upon the
quality of its directors and executives. Accordingly,
the Company must attract, motivate and retain
highly skilled directors and executives.
The Company embodies the following principles in
its remuneration framework:
– determination of appropriate market rates for the
fixed remuneration component; and
– establishment of appropriate performance hurdles
for the variable remuneration component.
Remuneration structure
In accordance with best practice corporate
governance, the structure of non-executive director
and executive remuneration is separate and distinct.
Historically, the Company obtained assistance
from remuneration experts in relation to setting its
remuneration structure. There were no consultations
in relation to remuneration during the current year.
Details of the nature and amount of each element of
the emoluments of each director and executive of the
Company for the financial year are set out below.
Non-executive director remuneration
Fees and payments to non-executive directors
reflect the demands which are made on, and the
responsibilities of, the non-executive directors.
Non-executive directors’ fees and payments totalled
$295,808 (including superannuation), as disclosed
in the following tables. At the 2013 Annual General
Meeting shareholders approved payments up to
$500,000 to non-executive directors.
There are no retirement allowances for non-executive
directors, nor do they participate in any incentive
programs. Non-executive directors may, however,
elect to have a portion of their remuneration paid
into their personal superannuation plans.
Executive remuneration
Objective
The Company aims to reward executives with a level
and mix of compensation elements commensurate
with their position and responsibilities, within the
following framework:
– reward executives for company and individual
performance against targets set to appropriate
benchmarks;
– align the interests of executives with those of
shareholders;
– link rewards with the internal strategic goals of
the Company; and
– ensure total compensation is competitive by
market standards.
Structure
It is the Remuneration Committee’s policy that
employment contracts are entered into with all Key
Management Personnel. Details of these contracts
are provided below.
Compensation consists of the following key elements:
– fixed remuneration; and
– variable remuneration.
13
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Remuneration report (Audited) (continued)
Fixed remuneration
Objective
Fixed compensation is reviewed annually by the
Remuneration Committee. The process consists of a
review of Company wide and individual performance,
relevant comparative compensation in the market and
internally and, where appropriate, external advice on
policies and practices.
Structure
Executives are given the opportunity to receive their
fixed remuneration in a variety of forms including
cash and fringe benefits such as motor vehicles and
expense payment plans. It is intended that the manner
of payment chosen will be optimal for the recipient
without creating undue cost to the Group.
Variable remuneration
Objective
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 key performance indicators of the Company.
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.
Structure
The short term executive incentive plan (“STI”) was
designed and implemented with the assistance of
external remuneration consultants, Mastertek Pty
Limited, in 2007. This STI replaced the Employee Share
Option Plan. All executives have the opportunity to
qualify for participation in the STI when specified
criteria are met. The Group has not implemented any
long term incentive plans, although the Remuneration
Committee may elect to make payments under the
STI in the form of cash, options or shares.
From time to time remuneration consultants are
engaged by, and report directly to, the Remuneration
Committee. In selecting remuneration consultants,
the Committee considers potential conflicts of interest
and requires independence from the Group’s Key
Management Personnel and other executives as part
of their terms of engagement. The Remuneration
Committee is in the process of engaging remuneration
consultants to review the STI which may result in
changes to its structure in the future. No remuneration
consultants were engaged in the current or prior
period.
The Group has pre-determined benchmarks that must
be met in order to trigger payments under the STI.
In summary, the benchmarks set by the Remuneration
Committee for 2014 and 2013 were as follows:
14
– A minimum “hurdle” of net profit before tax
(“NPBT”) must be achieved prior to any incentive
being calculated. From 2008 this hurdle was set at
20% of weighted net assets of the prior year. From
2011 this hurdle was increased to 25% of weighted
net assets of the prior year. This hurdle was not met
in the current financial year and therefore there was
no bonus pool generated from the current year’s
profits in the year ended 30 June 2014.
– A fixed percentage of NPBT above this hurdle may
be allocated to the incentive pool. From 2008 this
was set at 35% (i.e. 35% of any NPBT over the hurdle
may be allocated to the incentive pool).
– The incentive pool is capped at the total salaries
paid to those employees eligible to participate
(there is no individual cap within the pool).
– Once the pool size is quantified, the Remuneration
Committee determines the amount, if any, of the
STI to be allocated to each employee following
consideration of the individual employee’s
contribution. Since 2008 the Remuneration
Committee has not distributed the full amount of
the total incentive pool available. The unallocated
portion of prior years’ incentive pools may be used
in calculating future incentive pools at the discretion
of the Remuneration Committee.
– The unallocated portion carried forward has not
been distributed by the Remuneration Committee
in any prior periods. However, the Remuneration
Committee took the following factors into account
in its deliberations in determining whether it should
consider the unallocated portion of prior years’
incentive pools to create a 2014 pool:
i. During the last two years the investment
portfolio has grown 68% from $1.2B to over $2B;
ii. The establishment of the Group’s operations in
the USA has been consolidated such that growth
opportunities from this market can be pursued;
iii. The Group has established a presence in the
European market;
iv. The Group has implemented the approved
capital strategy during the current financial year
to underpin future growth;
v. For the first time since the establishment of the
STI in 2007 there was no bonus pool generated
by the benchmarks for two years in a row, yet
there was a sizable unallocated portion of prior
years’ incentive pools not distributed; and
vi. Employment environment in Australia and
overseas.
Given the above factors the Remuneration Committee
determined that it was appropriate to award a bonus
pool in 2014 from the unallocated portion of prior
years’ incentive pools even though the benchmarks
had not been achieved. As the STI is currently being
reviewed, it is unlikely that any remaining unallocated
pool will be considered in the future.
BENTHAM IMF LIMITED Remuneration report (Audited) (continued)
The Remuneration Committee determined that a total allocation under the 2014 STI should be $3,000,500. The
total allocation under the 2013 STI was nil. This amount has been accrued in the current financial year and will be
paid during the 2015 financial year. Details of allocations made under the STI to Key Management Personnel are
set out in Table 1 on page 16.
Group performance
The objectives and philosophy of the Remuneration Committee are based upon aligning the performance of the
Group’s employees with increasing shareholders’ wealth. The graph on page 10 shows the performance of the
Group as measured by its share price and compared to other shares listed on the ASX.
The following is a summary of the Group’s earnings per share (shown as cents per share) over the last five years.
IMF share price at 30 June
Earnings per share (cents per share)
Diluted earnings per share (cents per share)
Employment contracts
a. Hugh McLernon, Managing Director:
2010
1.58
9.77
9.70
2011
1.54
18.56
17.32
2012
1.46
34.87
29.84
2013
1.76
11.21
9.78
2014
1.84
6.56
6.56
– new rolling 12 month contract commenced 1 July 2007;
– gross salary package of $1,150,000 pa including super;
– salary to be reviewed annually, with the 2014 review determining there should be a 11% increase in salary
(2013: 4% increase); and
– notice period is 12 months.
b. John Walker, Executive Director
– new rolling 12 month contract commenced 1 July 2007;
– gross salary package of $925,000 pa including super;
– salary to be reviewed annually, with the 2014 review determining there should be a 11% increase in salary
(2013: 4% increase); and
– notice period is 12 months.
c. Clive Bowman, Executive Director – Director of Operations:
– new rolling 12 month contract commenced 1 July 2012;
– gross salary package of $925,000 pa including super;
– contract to be reviewed annually with the 2014 review determining there should be a 11% increase in salary
(2013: 4% increase); and
– notice period is 12 months.
d. Diane Jones, Chief Operating Officer, Chief Financial Officer & Company Secretary:
– contract commenced 5 June 2006;
– gross salary package of $475,000 pa including super;
– contract to be reviewed annually with minimum CPI increases, with the 2014 review determining an increase
in salary of 11% (2013: 4% increase); and
– notice period is 3 months.
e. Charlie Gollow, Managing Director of Bentham Capital LLC:
– contract commenced 22 April 2003;
– gross salary package of $575,000 pa including super;
– contract to be reviewed annually with minimum CPI increases, with the 2014 review determining an increase
in salary of 20% (2013: 4% increase); and
– notice period by the employee is 3 months and 6 months’ notice by the Company.
15
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Remuneration report (Audited) (continued)
(a) Remuneration of key management personnel
Table 1: Remuneration for the year ended 30 June 2014
Short-term
Salary &
Fees
2014
Bonus
Accrued1
Post
Employ-
ment
Super
2014
LSL
Accrued3
Perform-
ance
Related
2013
Bonus
Paid1
2014
Unpaid
Bonus1
Total2
2014
Directors
Robert Ferguson
109,840
–
Hugh McLernon 1,022,225
390,000
10,160
17,775
–
120,000
45,130
1,475,130
John Walker
814,225
390,000
17,775
34,320
1,256,320
Alden Halse
64,073
Michael Bowen
70,000
–
–
Clive Bowman
814,225
390,000
Wendy McCarthy
32,776
–
5,927
–
17,775
3,032
–
–
70,000
70,000
37,219
1,259,219
–
35,808
Executives
–
–
Charlie Gollow
460,625
177,000
Diane Jones
408,625
177,000
17,775
17,775
28,375
683,775
17,662
621,062
Total
3,796,614 1,524,000
107,994
162,706
5,591,314
Table 2: Remuneration for the year ended 30 June 2013
0%
26%
31%
0%
0%
31%
0%
26%
28%
27%
–
–
–
–
–
–
–
–
–
–
390,000
390,000
–
–
390,000
–
177,000
177,000
– 1,524,000
Short-term
Salary &
Fees
2013
Bonus
Accrued1
Post
Employ-
ment
Super
2013
LSL
Accrued3
Perform-
ance
Related
2012
Bonus
Paid1
2013
Unpaid
Bonus1
Total2
2013
Directors
Robert Ferguson
110,092
Hugh McLernon
983,530
John Walker
783,530
Alden Halse
Michael Bowen
64,220
70,000
Clive Bowman
783,530
Executives
Charlie Gollow
443,530
Diane Jones
393,530
Total
3,631,962
–
–
–
–
–
–
–
–
–
9,908
–
120,000
0%
–
16,470
26,885
1,026,885
0% 1,200,000
16,470
13,363
813,363
0% 1,000,000
5,780
–
–
–
70,000
70,000
0%
0%
–
–
16,470
21,571
821,571
0% 1,000,000
16,470
16,470
8,004
468,004
0% 375,000
7,711
417,711
0% 350,000
98,038
77,534 3,807,534
0% 3,925,000
–
–
–
–
–
–
–
–
–
1.
2.
The 2014 Bonus has been accrued and is payable in the 2015 financial year. There was no bonus awarded by the
Remuneration Committee under the STI in the 2013 financial year (accordingly, there was no bonus accrual as at
30 June 2013).
Total Key Management Personnel remuneration recognised in the Statement of Comprehensive Income. The insurance
premium for directors and officers was $142,061 in the current period (2013: Nil). This insurance has not been allocated
to specific individuals as the Directors do not believe there is a reasonable basis for allocation.
3.
Long Service Leave accrued during the period.
16
BENTHAM IMF LIMITED
Remuneration report (Audited) (continued)
(b) Compensation and remuneration options
No options were granted to Key Management Personnel in 2014 or 2013. No options expired in 2014 or 2013.
(c) Shareholdings of key management personnel
Directors
Robert Ferguson
Hugh McLernon
John Walker
Alden Halse
Michael Bowen
Clive Bowman
Wendy McCarthy
Executives
Charlie Gollow
Diane Jones
Total
Directors
Robert Ferguson
Hugh McLernon
John Walker
Alden Halse
Michael Bowen
Clive Bowman
Executives
Charlie Gollow
Diane Jones
Total
Balance
01-Jul-13
Received as
remuneration
Options
exercised
Net change
other1
Balance
30-Jun-14
1,853,000
7,738,346
4,958,292
876,251
813,751
1,013,941
–
460,000
20,000
17,733,581
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,853,000
17,645
7,755,991
–
4,958,292
3,529
879,780
31,347
845,098
–
–
1,013,941
–
7,058
467,058
18,764
38,764
78,343
17,811,924
Balance
01-Jul-12
Received as
remuneration
Options
exercised
Net change
other1
Balance
30-Jun-13
2,500,000
8,301,846
5,667,792
876,251
813,751
1,013,941
460,000
20,000
19,653,581
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(647,000)
1,853,000
(563,500)
7,738,346
(709,500)
4,958,292
–
–
–
–
–
876,251
813,751
1,013,941
460,000
20,000
– (1,920,000)
17,733,581
1.
The net changes relate to shares obtained through either the conversion of the convertible notes, or the share
purchase plan, or the dividend reinvestment plan, or sold on market.
All equity transactions with Key Management Personnel other than those arising from the exercise of remuneration
options have been entered into under terms and conditions no more favourable than those the Group would have
adopted if dealing at arm’s length.
(d) Loans to Key Management Personnel
There have been no loans provided to Key Management Personnel in 2014 (2013: nil).
(e) Transactions with Key Management Personnel
During the year the Group obtained legal advice from Hardy Bowen, a legal firm associated with Michael Bowen.
Refer to Note 24 for details.
– End Of Remuneration Report –
17
ANNUAL REPORT 2014 2014 DIRECTORS’ REPORT
CONTINUED
Directors’ meetings
The number of meetings of Directors held during the period under review and the number of meetings attended
by each Director were as follows:
Total number of meetings held:
Meetings Attended:
R Ferguson
M Bowen
A J Halse
H McLernon
J F Walker
C Bowman
W McCarthy (appointed 11 December 2013)
Board
Meetings
Audit
Committee
Remuneration
Committee
6
6
6
6
6
6
6
4
2
2
2
2
–
–
–
–
3
3
3
3
–
–
–
3
Committee membership
As at the date of this report, the Company had an Audit Committee, a Remuneration Committee and a Nomination
Committee. Directors acting on committees of the Board during the year were as follows:
Audit Committee
Remuneration Committee
Nomination Committee
A J Halse (Chairman)
M Bowen (Chairman)
R Ferguson (Chairman)
M Bowen
R Ferguson
A J Halse
R Ferguson
W McCarthy
H McLernon
On 13 August 2014 the Board determined that the Company should form a Corporate Governance Committee.
Rounding
The amounts contained in this report have been rounded to the nearest $1 (where rounding is applicable) under
the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the Class
Order applies.
Auditor’s independence declaration
EY, the Company’s auditors, have provided a written declaration to the Directors in relation to its audit of the
Financial Report for the year ended 30 June 2014. This Independence Declaration can be found at page 20.
On 26 June 2013 the Board approved the extension of the Lead Audit Partner rotation period from five years to
seven years in accordance with section 324DAB of the Corporations Act 2001 and the Corporations Legislation
Amendment (Audit Enhancement) Act 2012.
The reasons why the Board approved the extension included:
– Mr Meyerowitz, the Lead Audit Partner, has a detailed understanding of the Group’s business and strategies, its
systems and controls. This knowledge is considered to be invaluable to the Board at this point in time.
– The existing independence and service metrics in place with EY and Mr Meyerowitz, are sufficient to ensure that
auditor independence would not be diminished in any way by such an extension.
– Mr Meyerowitz will continue to abide by the independence guidance provided in APES 110 ‘Code of Ethics for
Professional Accountants’ as issued by the Accounting Professional and Ethical Standards Board and EY’s own
independence requirements.
– The threats of self-interest and familiarity have been mitigated as EY appointed a new Engagement Quality
Review Partner.
– The Board of Directors are of the view that Mr Meyerowitz’s continued involvement with the Group as the Lead
Audit Partner will not in any way diminish the audit quality provided to the Group.
18
BENTHAM IMF LIMITED Directors’ meetings (continued)
Non-audit services
The Directors are satisfied that the provision of non audit services by EY to the Group is compatible with the
general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of
each type of non-audit service provided means that auditor independence was not compromised.
EY received or are due the following amounts for the provision of non-audit services:
Tax compliance services and other non-audit services $129,448 (2013: $109,301).
CORPORATE GOVERNANCE
The Company has an extensive Corporate Governance Manual which includes a compliance program, Conflicts
Management Policy and complaint handling procedures which will enable the Company to interact with its clients
and the public in a consistent and transparent manner. The Company’s corporate governance statement is noted
from page 66 of this Annual Report.
Signed in accordance with a resolution of the Directors.
Robert Ferguson
Chairman
Sydney 21 August 2014
Hugh Mclernon
Managing Director
19
ANNUAL REPORT 2014
AUDITOR’S INDEPENDENCE DECLARATION
20
BENTHAM IMF LIMITED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Revenue
Other income
Total Income
Finance costs
Depreciation expense
Employee benefits expense
Corporate and office expense
Other expenses
Share of loss in joint venture
Profit Before Income Tax
Income tax expense
Net Profit for the Year
Other Comprehensive Income
Note
6
7
8(a)
8(b)
8(c)
8(d)
8(e)
32
Consolidated
2014
$
2013
$
2,627,549
2,971,843
25,296,909
24,625,335
27,924,458
27,597,178
(1,140,294)
(146,508)
(222,654)
(246,362)
(6,623,530)
(4,692,615)
(2,748,902)
(1,647,113)
(927,266)
(723,697)
(653,721)
–
15,608,091 20,140,883
9
(5,739,741)
(6,326,816)
9,868,350
13,814,067
Items that may be subsequently reclassified to profit and loss:
Transfer from net unrealised gains reserve to profit and loss upon disposal of
available-for-sale assets
Other comprehensive income for the year, net of tax
Total Comprehensive Income for the Year
–
–
(30,332)
(30,332)
9,868,350
13,783,735
Earnings per share attributable to the ordinary equity holders of the Company (cents per share)
Basic profit (cents per share)
Diluted profit (cents per share)
11
11
6.56
6.56
11.21
9.78
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
21
ANNUAL REPORT 2014 STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total Current Assets
Non-Current Assets
Trade and other receivables
Plant and equipment
Financial assets
Intangible assets
Investment held in joint venture
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Trade and other payables
Income tax (receivable)/payable
Provisions
Other liabilities
Total Current Liabilities
Non-Current Liabilities
Provisions
Debt securities
Other liabilities
Deferred income tax liabilities
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained earnings
TOTAL EQUITY
Consolidated
2014
$
2013
$
Note
12
13
14
13
15
16
17
32
18
19
105,576,733 67,984,284
60,375,749
23,927,978
251,581
94,015
166,204,063 92,006,277
14,353,414
15,252,854
570,712
622,425
–
18,890
98,636,050
86,127,315
1,153,499
–
114,713,675 102,021,484
280,917,738 194,027,761
7,928,101
7,833,156
4,705,516
(1,540,364)
6,905,435
1,644,718
74,555
74,555
19,613,607
8,012,065
19
20
539,882
229,026
47,758,026 36,324,499
130,469
205,026
9
21,744,482
23,752,761
70,172,859
60,511,312
89,786,466 68,523,377
191,131,272 125,504,384
21
112,050,208
41,912,195
22(b)
22(a)
7,235,936
7,235,936
71,845,128 76,356,253
191,131,272 125,504,384
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
22
BENTHAM IMF LIMITED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 JUNE 2014
Cash flows from operating activities
Payments to suppliers and employees
Interest income
Interest paid
Income tax paid
Consolidated
2014
$
2013
$
Note
(6,751,012) (8,095,009)
2,394,525
3,360,448
(2,920,477)
(3,887,712)
(1,502,141)
(18,182,881)
Net cash flows used in operating activities
23
(8,779,105) (26,805,154)
Cash flows from investing activities
Proceeds from litigation funding - settlements, fees and reimbursements
42,191,361 87,030,664
Payments for litigation funding and capitalised suppliers and employee costs
(57,084,733) (44,382,824)
Proceeds from loans to external parties
Purchase of plant and equipment
Proceeds from disposal of available-for-sale investments
Loans made to joint venture
Investment in joint venture
Net cash flows (used in)/from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Cost of issuing shares
Bonds proceeds
Cost of issuing bonds
Payments for redemption of convertible notes
Dividends paid
Net cash flows (used in)/from financing activities
Net increase in cash and cash equivalents held
Net foreign exchange difference
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
–
800,000
(170,941)
(70,120)
–
417,057
(1,324,424)
(1,807,220)
–
–
(18,195,957) 43,794,777
42,031,791
(1,198,499)
50,000,000
(2,326,739)
(11,180,756)
–
–
–
–
–
(12,705,998) (12,320,766)
64,619,799 (12,320,766)
37,644,737
4,668,857
(52,288)
890,861
67,984,284 62,424,566
12
105,576,733 67,984,284
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
23
ANNUAL REPORT 2014
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Issued
capital
$
Option
premium
reserve
$
Net
unrealised
gains
reserve
$
Convertible
notes
reserve
$
Retained
earnings
$
Total
$
41,912,195
3,403,720
–
–
–
–
–
–
–
3,832,216 76,356,253 125,504,384
–
–
9,868,350 9,868,350
–
–
41,912,195
3,403,720
–
3,832,216 86,224,603 135,372,734
CONSOLIDATED
As at 1 July 2013
Profit for the year
Other comprehensive income
Total Comprehensive Income
for the Year
Equity Transactions:
Dividend paid
–
Proceeds from shares issued
42,031,791
Transaction costs associated
with share issue
Shares issued under the
Dividend Reinvestment Plan
Convertible notes converted
(1,198,499)
1,673,477
27,631,244
–
–
–
–
–
As at 30 June 2014
112,050,208
3,403,720
–
–
–
–
–
–
– (14,379,475) (14,379,475)
–
–
–
–
–
42,031,791
–
(1,198,499)
–
–
1,673,477
27,631,244
3,832,216
71,845,128
191,131,272
As at 1 July 2012
Profit for the year
Other comprehensive income
Total Comprehensive Income
for the Year
Equity Transactions:
Dividend paid
Convertible notes converted
41,909,483
3,403,720
30,332
3,832,216 62,542,186
111,717,937
–
–
–
–
–
–
13,814,067
13,814,067
(30,332)
–
–
(30,332)
41,909,483
3,403,720
–
3,832,216 76,356,253 125,501,672
–
2,712
–
–
–
–
–
–
–
–
–
–
2,712
3,832,216 76,356,253 125,504,384
As at 30 June 2013
41,912,195
3,403,720
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
24
BENTHAM IMF LIMITED NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Note 1: Corporate information
The financial report of Bentham IMF Limited (IMF, the Company or the Parent) for the year ended 30 June 2014
and its subsidiaries (the Group or consolidated entity) was authorised for issue in accordance with a resolution
of the Directors on 20 August 2014.
Bentham IMF Limited (ABN 45 067 298 088) is a for profit company incorporated and domiciled in Australia
and limited by shares that are publicly traded on the Australian Securities Exchange (ASX code: IMF).
The nature of the operations and principal activities of the Group are described in Note 5.
Note 2: Summary of significant accounting policies
(a) Basis of preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared
on a historical cost basis.
The financial report is presented in Australian dollars, being the functional currency of the Parent.
The amounts contained within this report have been rounded to the nearest $1 (where rounding is applicable)
under the option available to the Company under ASIC Class Order 98/100.
(b) Compliance with IFRS
The financial report complies with Australian Accounting Standards and International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board.
For the purposes of preparing the consolidated financial statements, the Parent is a for profit entity.
(c) New accounting standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year except as follows:
(i) Changes in accounting policy and disclosures.
The Group has adopted all new and amended Australian Accounting Standards and AASB Interpretations
effective as of 30 June 2014, including:
Reference
Title
AASB 10
Consolidated Financial Statements
AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB
127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated
financial statements and UIG-112 Consolidation - Special Purpose Entities.
The new control model broadens the situations when an entity is considered to be controlled by
another entity and includes new guidance for applying the model to specific situations, including
when acting as a manager may give control, the impact of potential voting rights and when holding
less than a majority voting rights may give control.
Consequential amendments were also made to this and other standards via AASB 2011-7 and
AASB 2012-10.
AASB 11
Joint Arrangements
AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities -
Non-monetary Contributions by Ventures.
AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the
determination of whether joint control exists may change. In addition it removes the option to
account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting
for a joint arrangement is dependent on the nature of the rights and obligations arising from the
arrangement. Joint operations that give the venturers a right to the underlying assets and obligations
themselves is accounted for by recognising the share of those assets and obligations. Joint ventures
that give the venturers a right to the net assets is accounted for using the equity method.
Consequential amendments were also made to this and other standards via AASB 2011-7, AASB
2010-10 and amendments to AASB 128. Amendments made by the IASB in May 2014 add guidance
on how to account for the acquisition of an interest in a joint operation that constitutes a business.
25
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
Reference
Title
AASB 12
Disclosure of Interests in Other Entities
AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements,
associates and structured entities. New disclosures have been introduced about the judgments
made by management to determine whether control exists, and to require summarised information
about joint arrangements, associates, structured entities and subsidiaries with non-controlling
interests.
AASB 13
Fair Value Measurement
AASB 13 establishes a single source of guidance for determining the fair value of assets and
liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides
guidance on how to determine fair value when fair value is required or permitted. Application of
this definition may result in different fair values being determined for the relevant assets.
AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value.
This includes information about the assumptions made and the qualitative impact of those
assumptions on the fair value determined.
Consequential amendments were also made to other standards via AASB 2011-8.
Employee Benefits
The revised standard changes the definition of short-term employee benefits. The distinction
between short-term and other long-term employee benefits is now based on whether the benefits
are expected to be settled wholly within 12 months after the reporting date.
AASB 119
(Revised 2011)
Consequential amendments were also made to other standards via AASB 2011-10.
AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and
Financial Liabilities
AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure
of the effect or potential effect of netting arrangements, including rights of set-off associated with
the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial
position, when all the offsetting criteria of AASB 132 are not met.
AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management
Personnel Disclosure Requirements [AASB 124]
This amendment deletes from AASB 124 individual key management personnel disclosure
requirements for disclosing entities that are not companies. It also removes the individual KMP
disclosure requirements for all disclosing entities in relation to equity holdings, loans and other
related party transactions.
The adoption of the above amendments resulted in changes to presentation and disclosures, but had no material
impact on the financial position or financial performance of the Group.
26
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 2: Summary of significant accounting policies (continued)
(ii) Accounting standards and interpretations issued but not yet effective.
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not
yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2014 are
outlined in the table below. The impact of these new standards and interpretations has not been assessed.
Application
date of
standard*
Application
date for
Group*
1 January
2014
1 July 2014
1 January
2014
1 July 2014
1 January
2018^
1 July 2018^
Reference
Title
Summary
AASB 2012-3
Amendments
to Australian
Accounting
Standards
- Offsetting
Financial
Assets and
Financial
Liabilities
AASB 2012-3 adds application guidance to AASB
132 Financial Instruments: Presentation to address
inconsistencies identified in applying some of the
offsetting criteria of AASB 132, including clarifying the
meaning of “currently has a legally enforceable right
of set-off” and that some gross settlement systems
may be considered equivalent to net settlement.
Interpretation
21
Levies
AASB 9
Financial
Instruments
This Interpretation confirms that a liability to pay a
levy is only recognised when the activity that triggers
the payment occurs. Applying the going concern
assumption does not create a constructive obligation.
AASB 9 includes requirements for the classification
and measurement of financial assets. It was further
amended by AASB 2010-7 to reflect amendments
to the accounting for financial liabilities.
These requirements improve and simplify the approach
for classification and measurement of financial assets
compared with the requirements of AASB 139. The
main changes are described below.
a. Financial assets that are debt instruments will be
classified based on (1) the objective of the entity’s
business model for managing the financial assets;
(2) the characteristics of the contractual cash flows.
b. Allows an irrevocable election on initial recognition
to present gains and losses on investments in equity
instruments that are not held for trading in other
comprehensive income. Dividends in respect of
these investments that are a return on investment
can be recognised in profit or loss and there is
no impairment or recycling on disposal of the
instrument.
c. Financial assets can be designated and measured at
fair value through profit or loss at initial recognition
if doing so eliminates or significantly reduces a
measurement or recognition inconsistency that
would arise from measuring assets or liabilities,
or recognising the gains and losses on them, on
different bases.
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
^
In February 2014, the IASB tentatively decided that the mandatory effective date for AASB 9 will be for annual periods
beginning on or after 1 January 2018, however it is available for application now.
27
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
Reference
Title
Summary
AASB 9
(continued)
Financial
Instruments
AASB 2013-3
AASB 2013-5
Amendments
to AASB 136
– Recoverable
Amount
Disclosures for
Non-Financial
Assets
Amendments
to Australian
Accounting
Standards –
Investment
Entities
[AASB 1, AASB
3, AASB 7,
AASB 10,
AASB 12, AASB
107, AASB 112,
AASB 124,
AASB 127,
AASB 132,
AASB 134 &
AASB 139]
d. Where the fair value option is used for financial
liabilities the change in fair value is to be accounted
for as follows:
– The change attributable to changes in credit risk
are presented in other comprehensive income
(OCI)
– The remaining change is presented in profit
or loss
If this approach creates or enlarges an accounting
mismatch in the profit or loss, the effect of the
changes in credit risk are also presented in profit
or loss.
Consequential amendments were also made to other
standards as a result of AASB 9, introduced by AASB
2009-11 and superseded by AASB 2010-7 and 2010-10.
The AASB issued a revised version of AASB 9 (AASB
2013-9) during December 2013. The revised standard
incorporates three primary changes:
1. New hedge accounting requirements including
changes to hedge effectiveness testing, treatment
of hedging costs, risk components that can be
hedged and disclosures
2. Entities may elect to apply only the accounting
for gains and losses from own credit risk without
applying the other requirements of AASB 9 at the
same time
3. In February 2014, the IASB tentatively decided
that the mandatory effective date for AASB 9 will
be 1 January 2018.
AASB 2013-3 amends the disclosure requirements in
AASB 136 Impairment of Assets. The amendments
include the requirement to disclose additional
information about the fair value measurement when
the recoverable amount of impaired assets is based
on fair value less costs of disposal.
These amendments define an investment entity and
require that, with limited exceptions, an investment
entity does not consolidate its subsidiaries or apply
AASB 3 Business Combinations when it obtains control
of another entity.
These amendments require an investment entity to
measure unconsolidated subsidiaries at fair value
through profit or loss in its consolidated and separate
financial statements.
These amendments also introduce new disclosure
requirements for investment entities to AASB
12 and AASB 127.
Application
date of
standard*
Application
date for
Group*
1 January
2018^
1 July 2018^
1 January
2014
1 July 2014
1 January
2014
1 July 2014
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
In February 2014, the IASB tentatively decided that the mandatory effective date for AASB 9 will be for annual periods
beginning on or after 1 January 2018, however it is available for application now.
^
28
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Application
date of
standard*
Application
date for
Group*
1 July 2014 1 July 2014
1 July 2014 1 July 2014
Note 2: Summary of significant accounting policies (continued)
Reference
Title
Summary
Annual
Improvements
2010–2012
Cycle^^^
Annual
Improvements
to IFRSs
2010–2012
Cycle
Annual
Improvements
2011–2013
Cycle^^^
Annual
Improvements
to IFRSs
2011–2013
Cycle
This standard sets out amendments to International
Financial Reporting
Standards (IFRS) and the related bases for conclusions
and guidance made during the International
Accounting Standards Board’s Annual Improvements
process. These amendments have not yet been
adopted by the AASB.
The following items are addressed by this standard:
– IFRS 2 - Clarifies the definition of ‘vesting conditions’
and ‘market condition’ and introduces the definition
of ‘performance condition’ and ‘service condition’.
– IFRS 3 - Clarifies the classification requirements for
contingent consideration in a business combination
by removing all references to IAS 37.
– IFRS 8 - Requires entities to disclose factors used
to identify the entity’s reportable segments when
operating segments have been aggregated. An
entity is also required to provide a reconciliation
of total reportable segments’ asset to the entity’s
total assets.
– IAS 16 & IAS 38 - Clarifies that the determination of
accumulated depreciation does not depend on the
selection of the valuation technique and that it is
calculated as the difference between the gross and
net carrying amounts.
– IAS 24 - Defines a management entity providing
KMP services as a related party of the reporting
entity. The amendments added an exemption
from the detailed disclosure requirements in
paragraph 17 of IAS 24 for KMP services provided
by a management entity. Payments made to a
management entity in respect of KMP services
should be separately disclosed.
This standard sets out amendments to International
Financial Reporting.
Standards (IFRS) and the related bases for conclusions
and guidance made during the International
Accounting Standards Board’s Annual Improvements
process. These amendments have not yet been
adopted by the AASB.
The following items are addressed by this standard:
– IFRS 13 - Clarifies that the portfolio exception in
paragraph 52 of IFRS 13 applies to all contracts
within the scope of IAS 39 or IFRS 9, regardless of
whether they meet the definitions of financial assets
or financial liabilities as defined in IAS 32.
– IAS 40 - Clarifies that judgment is needed to
determine whether an acquisition of investment
property is solely the acquisition of an investment
property or whether it is the acquisition of a group
of assets or a business combination in the scope of
IFRS 3 that includes an investment property. That
judgment is based on guidance in IFRS 3.
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
^^^ These IFRS amendments/standards have not yet been adopted by the AASB.
29
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
Reference
Title
Summary
AASB 1031
Materiality
AASB 2013-9
Amendments
to IAS 16 and
IAS 38^^^
Amendments
to Australian
Accounting
Standards –
Conceptual
Framework,
Materiality
and Financial
Instruments
Clarification
of Acceptable
Methods of
Depreciation
and
Amortisation
(Amendments
to IAS 16 and
IAS 38)
The revised AASB 1031 is an interim standard
that cross-references to other Standards and the
Framework (issued December 2013) that contain
guidance on materiality.
AASB 1031 will be withdrawn when references to
AASB 1031 in all Standards and Interpretations have
been removed.
The Standard contains three main parts and
makes amendments to a number Standards and
Interpretations.
Part A of AASB 2013-9 makes consequential
amendments arising from the issuance of AASB CF
2013-1.
Part B makes amendments to particular Australian
Accounting Standards to delete references to AASB
1031 and also makes minor editorial amendments to
various other standards.
Part C makes amendments to a number of Australian
Accounting Standards, including incorporating
Chapter 6 Hedge Accounting into AASB 9 Financial
Instruments.
IAS 16 and IAS 38 both establish the principle for
the basis of depreciation and amortisation as being
the expected pattern of consumption of the future
economic benefits of an asset. The IASB has clarified
that the use of revenue-based methods to calculate
the depreciation of an asset is not appropriate because
revenue generated by an activity that includes the use
of an asset generally reflects factors other than the
consumption of the economic benefits embodied in
the asset.
The IASB also clarified that revenue is generally
presumed to be an inappropriate basis for measuring
the consumption of the economic benefits embodied
in an intangible asset. This presumption, however, can
be rebutted in certain limited circumstances.
Application
date of
standard*
Application
date for
Group*
1 January
2014
1 July 2014
^^
^^
1 January
2016
1 July 2016
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
^^ The application dates of AASB 2013-9 are as follows:
Part B - periods beginning on or after 1 January 2014 Application date for the Group: period beginning 1 July 2014
Part C - reporting periods beginning on or after 1 January 2015 Application date for the Group: period beginning 1 July
2015
^^^ These IFRS amendments/standards have not yet been adopted by the AASB.
30
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED
Application
date of
standard*
Application
date for
Group*
1 January
2017
1 July 2017
Note 2: Summary of significant accounting policies (continued)
Reference
Title
Summary
IFRS 15^^^
Revenue from
Contracts with
Customers
IFRS 15 establishes principles for reporting useful
information to users of financial statements about the
nature, amount, timing and uncertainty of revenue
and cash flows arising from an entity’s contracts with
customers.
IFRS 15 supersedes:
a. IAS 11 Construction Contracts
b. IAS 18 Revenue
c. IFRIC 13 Customer Loyalty Programmes
d. IFRIC 15 Agreements for the Construction of Real
Estate
e. IFRIC 18 Transfers of Assets from Customers
f. SIC-31 Revenue—Barter Transactions Involving
Advertising Services
The core principle of IFRS 15 is that an entity
recognises revenue to depict the transfer of promised
goods or services to customers in an amount that
reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services.
An entity recognises revenue in accordance with that
core principle by applying the following steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in the
contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the
performance obligations in the contract
(e) Step 5: Recognise revenue when (or as) the entity
satisfies a performance obligation
Early application of this standard is permitted.
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
^^^ These IFRS amendments/standards have not yet been adopted by the AASB.
31
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
(d) Basis of consolidation
The consolidated financial statements comprise the
financial statements of Bentham IMF Limited (IMF,
the Company or Parent) and its subsidiaries Financial
Redress Pty Limited (formerly Insolvency Litigation
Fund Pty Limited), Bentham Holdings Inc, Bentham
Capital LLC and Security Finance LLC (“the Group”)
as at 30 June each year. Control is achieved when the
Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the
ability to affect those returns through its power
over the investee.
The financial statements of the subsidiaries are
prepared for the same reporting period as the
Company, using consistent accounting policies.
In preparing the consolidated financial statements, all
intercompany balances and transactions, income and
expenses and profits and losses resulting from intra-
group transactions have been eliminated in full.
(e) Foreign currency
Transactions in foreign currencies are initially recorded
in the functional currency by applying the exchange
rates ruling at the date of transaction. Monetary assets
and liabilities denominated in foreign currencies are
converted at the exchange rate ruling at the reporting
date. Gains and losses arising from these transactions
are recognised in profit or loss.
(f) Cash and cash equivalents
Cash and cash equivalents in the Statement of
Financial Position comprise cash at bank and in hand
and short-term deposits with an original maturity of
three months or less, that are readily convertible to
known amounts of cash on hand and which are subject
to an insignificant risk of changes in value.
For the purposes of the Statement of Cash Flows,
cash and cash equivalents consist of cash and cash
equivalents as defined above.
(g) Trade and other receivables
Trade receivables, which generally have 30-90
day terms, are recognised initially at fair value and
subsequently remeasured at amortised cost using the
effective interest rate method, less an allowance for
any uncollectible amounts.
Collectability of trade receivables is reviewed on
an ongoing basis. Debts that are known to be
uncollectible are written off when identified. An
impairment loss is recognised when there is objective
evidence that the Group will not be able to collect
the debt. Financial difficulties of the debtor and loss
of cases on appeal are considered to be objective
evidence of impairment.
32
(h) Investments and other financial assets
Investments and financial assets in the scope of
AASB 139 Financial Instruments: Recognition and
Measurement are categorised as either financial
assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, or available-
for-sale financial assets. The classification depends on
the purpose for which the investments were acquired.
The Group determines the classification of its financial
assets at initial recognition.
When financial assets are recognised initially, they are
measured at fair value, plus, in the case of investments
not at fair value through profit or loss, directly
attributable transaction costs.
Recognition and derecognition
All regular way purchases and sales of financial assets
are recognised on the trade date i.e. the date that the
Group commits to purchase the asset. Regular way
purchases or sales are purchases or sales of financial
assets under contracts that require delivery of the
assets within the period established generally by
regulation or convention in the market place. Financial
assets are derecognised when the right to receive
cash flows from the financial asset has expired or
been transferred.
(i) Financial assets at fair value through profit or loss
Financial assets classified as held for trading are
included in the category “financial assets at fair value
through profit or loss”. Financial assets are classified
as held for trading if they are acquired for the purpose
of selling in the near term with the intention of making
a profit. Gains or losses on financial assets held for
trading are recognised in the profit or loss and the
related assets are classified as current assets in the
Statement of Financial Position.
(ii) Loans and receivables
Loans and receivables including loan notes and loans
to Key Management Personnel are non-derivative
financial assets with fixed or determinable payments
that are not quoted in an active market. Such assets
are carried at amortised cost using the effective
interest method. Gains and losses are recognised
in the profit or loss when the loans and receivables
are derecognised or impaired, as well as through the
amortisation process.
(iii) Available-for-sale securities
Available-for-sale investments are those non-
derivative financial assets, principally equity securities,
that are designated as available for sale or are not
classified as any of the preceding categories. After
initial recognition available-for-sale are measured at
fair value with gains or losses being recognised in
other comprehensive income until the investment is
derecognised or until the investment is determined to
be impaired, at which time the cumulative gain or loss
previously reported in equity is recognised in the profit
or loss.
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 2: Summary of significant accounting policies (continued)
The fair value of investments that are actively traded
in organised financial markets are determined by
reference to quoted market bid prices at the close of
business on the balance sheet date. For investments
with no active market, fair values are determined
using valuation techniques. Such valuation techniques
include: using recent arm’s length market transactions;
reference to the current market value of another
instrument that is substantially the same; discounted
cash flow analysis and option pricing models making
as much use of available and supportable market
data as possible and keeping judgmental inputs to
a minimum.
Capitalised leased assets are depreciated over the
shorter of the estimated useful life of the asset and
the lease term if there is no reasonable certainty that
the Group will obtain ownership by the end of the
lease term.
Operating lease payments are recognised as an
expense in the profit or loss on a straight-line basis
over the lease term. Operating lease incentives
are recognised as a liability when received and
subsequently reduced by allocating lease payments
between rental expense and reduction of the liability.
(i) Plant and equipment
Plant and equipment is stated at historical cost less
accumulated depreciation and any accumulated
impairment losses. Such cost includes the cost of
replacing parts that are eligible for capitalisation when
the cost of replacing parts is incurred. All other repairs
and maintenance are recognised in the profit or loss as
incurred.
Depreciation is calculated on a straight-line basis over
the estimated useful lives of the assets as follows:
Plant and equipment – over 5 to 15 years.
The assets’ residual values, useful lives and
amortisation methods are reviewed, and adjusted
if appropriate, at each financial year end.
Derecognition
An item of plant and equipment is derecognised upon
disposal or when no further future economic benefits
are expected from its use or disposal.
(j) Leases
The determination of whether an arrangement is or
contains a lease is based on the substance of the
arrangement and requires an assessment of whether
the fulfilment of the arrangement is dependent on the
use of a specific asset or assets and the arrangement
conveys a right to use the asset.
Finance leases, which transfer to the Group
substantially all the risks and benefits incidental to
ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased
asset or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned
between the finance charges and reduction of the
lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability.
Finance charges are recognised as an expense in
the profit or loss.
(k) Intangible assets
Litigation Contracts In Progress
Litigation Contracts In Progress represent future
economic benefits controlled by the Group. As
Litigation Contracts In Progress may be exchanged or
sold, the Group is able to control the expected future
economic benefit flowing from the Litigation Contracts
In Progress. Accordingly, Litigation Contracts In
Progress meet the definition of intangible assets.
Litigation Contracts In Progress are measured at cost
on initial recognition. Litigation Contracts In Progress
are not amortised as the assets are not available for
use until the determination of a successful judgment
or settlement, at which point the assets are realised.
Gains or losses arising from derecognition of Litigation
Contracts in Progress are measured as the difference
between the net disposed proceeds and the carrying
amount of the asset and are recognised in the profit
or loss when the asset is derecognised.
The following specific asset recognition rules have
been applied to Litigation Contracts In Progress:
(A) Actions still outstanding:
When litigation is outstanding and pending a
determination, Litigation Contracts In Progress are
carried at cost. Subsequent expenditure is capitalised
when it meets all of the following criteria:
a. 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;
b. demonstration that the asset will generate future
economic benefits;
c. demonstration that the Group intends to complete
the litigation;
d. demonstration of the availability of adequate
technical, financial and other resources to complete
the litigation; and
e. ability to measure reliably the expenditure
attributable to the intangible asset during the
Litigation Contracts In Progress.
33
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
(B) Successful judgment:
Where the litigation has been determined in favour of
the Group or a positive settlement has been agreed,
this constitutes a derecognition of the intangible asset
and accordingly a gain or loss is recognised in the
Statement of Comprehensive Income.
Any future costs relating to the defence of an appeal
by the defendant are expensed as incurred.
(C) Unsuccessful judgment:
Where the litigation is unsuccessful at trial, this is a
trigger for impairment of the intangible asset and the
asset is written down to its recoverable amount. If the
claimant, having been unsuccessful at trial, appeals
against the judgment, then future costs incurred by
the Group on the appeal are expensed as incurred.
(l) Trade and other payables
Trade payables and other payables are carried at
amortised cost. Due to their short-term nature they
are not discounted. They represent liabilities for goods
and services provided to the Group prior to the end of
the financial year that are unpaid and arise when the
Group becomes obliged to make future payments in
respect of the purchase of these goods and services.
The amounts are unsecured and are usually paid
within 30 days of recognition.
(m) Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the
fair value of the consideration received less directly
attributable transaction costs.
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised
cost using the effective interest method. Fees paid
on the establishment of loan facilities that are yield
related are included as part of the carrying amount
of the loan and borrowings.
The borrowings are classified as current liabilities
unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after
the balance sheet date.
(n) Provisions and employee benefits
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result of
a past event, it is probable that an outflow of resources
embodying economic benefits will be required to
settle the obligation and a reliable estimate can be
made of the amount of the obligation.
When the Group expects some or all of the provision
to be reimbursed, for example under an insurance
contract, the reimbursement is recognised as a
separate asset but only when the reimbursement
is virtually certain. The expense relating to any
provision is presented in the profit or loss net
of any reimbursement.
34
Provisions are measured at the present value of
management’s best estimate of the expenditure
required to settle the present obligation at the balance
sheet date using a discounted cash flow methodology.
If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate
that reflects the time value of money and the risks
specific to the liability. The increase in the provision
resulting from the passage of time is recognised in
finance costs.
Employee leave benefits
(i) Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-
monetary benefits, annual leave and accumulated
sick leave expected to be settled within 12 months of
the reporting date are recognised in other payables
in respect of employees’ services up to the reporting
date. They are measured at the amounts expected
to be paid when the liabilities are settled. Expenses
for non-accumulated sick leave are recognised when
the leave is taken and are measured at the rates paid
or payable.
(ii) Long service leave
The liability for long service leave is recognised and
measured as 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 national
government bonds with terms to maturity and
currencies that match, as closely as possible, the
estimated future cash outflows.
(o) Share-based payment transactions
(i) Equity-settled transactions
Previously, the Company had an Employee Share
Option Plan (“ESOP”), which provided benefits to
directors and employees in the form of share-based
payments. During 2007 the Company implemented
a short term incentive plan (“STI”), which replaced
the ESOP, and which may also, at the discretion of
the Remuneration Committee, provide benefits to
employees in the form of share-based payments.
The cost of equity-settled transactions with employees
(for awards granted after 7 November 2002 that were
unvested at 1 January 2005) is measured by reference
to the fair value of the equity instruments at the date
at which they are granted. The fair value is determined
using a Black Scholes model.
In valuing equity-settled transactions, no account is
taken of any vesting conditions, other than conditions
linked to the price of the shares of IMF (i.e. market
conditions) if applicable.
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 2: Summary of significant accounting policies (continued)
The cost of equity-settled transactions is recognised,
together with a corresponding increase in the option
premium reserve, over the period in which the
performance and/or service conditions are fulfilled
(the vesting period), ending on the date on which the
relevant employees become fully entitled to the award
(the vesting date).
The dilutive effect, if any, of outstanding options
is reflected as additional share dilution in the
computation of diluted earnings per share.
(ii) Cash-settled transactions
The Group does not provide cash-settled share-based
benefits to employees or senior executives.
At each subsequent reporting date until vesting, the
cumulative charge to profit or loss is the product
of (i) the grant date fair value of the award; (ii) the
current best estimate of the number of awards that
will vest, taking into account such factors as the
likelihood of employee turnover during the vesting
period and the likelihood of non-market performance
conditions being met; and (iii) the expired portion of
the vesting period.
The charge to the profit or loss for the period is the
cumulative amount as calculated above less the
amounts already charged in previous periods. There
is a corresponding credit to equity.
Equity-settled awards granted by IMF to employees
of subsidiaries are recognised in the Parent’s separate
financial statements as an additional investment in
the subsidiary with a corresponding credit to equity.
These amounts are eliminated through consolidation.
As a result, the expenses recognised by IMF in relation
to equity-settled awards only represents the expense
associated with grants to employees of the Parent. The
expense recognised by the Group is the total expense
associated with all such awards.
Until an award has vested, any amounts recorded
are contingent and will be adjusted if more or fewer
awards vest than were originally anticipated to do so.
Any award subject to a market condition is considered
to vest irrespective of whether or not that market
condition is fulfilled, provided that all other conditions
are satisfied.
If the terms of an equity-settled award are modified,
as a minimum an expense is recognised as if the
terms had not been modified. An additional expense
is recognised for any modification that increases
the total fair value of the share-based payment
arrangement, or is otherwise beneficial to the
employee, as measured at the date of modification.
If an equity-settled award is cancelled, it is treated
as if it had vested on the date of cancellation, and
an expense not yet recognised for the award is
recognised immediately. However, if a new award is
substituted for the cancelled award and designated as
a replacement award on the date that it is granted, the
cancelled and new award are treated as if they were a
modification of the original award, as described in the
previous paragraph.
(p) Convertible notes
The component of the convertible notes that
exhibits characteristics of a liability is recognised as
a liability in the Statement of Financial Position, net
of transaction costs.
On issuance of the convertible notes, the fair value
of the liability component is determined using
an estimated market rate for an equivalent non-
convertible bond and this amount is carried as a
long-term liability on an amortised cost basis until
extinguished on conversion or redemption. The
increase in the liability due to the passage of time is
recognised as a finance cost. Interest on the liability
component of the instruments is recognised as an
expense in the Statement of Comprehensive Income.
The fair value of any derivative features embedded
in the convertible notes, other than the equity
component, are included in the liability component.
Subsequent to initial recognition, these derivative
features are measured at fair value with gains and
losses recognised in the profit or loss if they are not
closely related to the host contract.
The remainder of the proceeds is allocated to the
conversion option that is recognised and included
in shareholders’ equity, net of transaction costs.
The carrying amount of the conversion option is
not remeasured in subsequent years.
Transaction costs are apportioned between the
liability and equity components of the convertible
notes based on the allocation of proceeds to the
liability and equity components when the instruments
are first recognised.
(q) Contributed equity
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.
(r) Revenue recognition
Revenue is recognised and measured at the fair value
of the consideration received or receivable to the
extent that it is probable that the economic benefits
will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria
must also be met before revenue is recognised:
35
ANNUAL REPORT 2014 Note 2: Summary of significant accounting policies (continued)
(i) Interest income
– when the deferred income tax asset relating to
the deductible temporary difference arises from
the initial recognition of an asset or liability in a
transaction that is not a business combination and,
at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; or
– when the deductible temporary difference is
associated with investments in subsidiaries,
associates or interests in joint ventures, in which
case a deferred tax asset is only recognised to
the extent that it is probable that the temporary
difference will reverse in the foreseeable future and
taxable profit will be available against which the
temporary difference can be utilised.
The carrying amount of deferred income tax assets
is reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are
reassessed at each reporting date and are recognised
to the extent that it has become probable that future
taxable profit will allow the deferred tax asset to be
recovered.
Deferred income tax assets and liabilities are
measured at the tax rates that are expected to apply
to the year when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the
reporting date.
Income taxes relating to items recognised directly in
other comprehensive income are recognised in equity
and not in profit or loss.
Deferred tax assets and deferred tax liabilities are
offset only if a legally enforceable right exists to set
off current tax assets against current tax liabilities and
the deferred tax assets and liabilities relate to the same
taxable entity and the same taxation authority.
IMF and its 100% owned subsidiary have formed a tax
consolidated group with effect from 1 July 2002. IMF
is the head of the tax consolidated group.
Members of the tax consolidated group have not
entered into a tax sharing/funding agreement. Under
UIG 1052: Tax Consolidation Accounting, where a
tax consolidated group has not entered into a tax
sharing/funding agreement, the assumption of current
tax liabilities and tax losses by the Parent entity
is recognised as a contribution/distribution in the
subsidiary’s equity accounts. The Group has applied
the group allocation approach in determining the
appropriate amount of current and deferred taxes to
allocate to the members of the tax consolidated group.
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.
(ii) Dividends
Revenue is recognised when the Group’s right to
receive the payment is established.
(iii) Fees
Revenue is recognised when the Group’s right to
receive the fee is established.
(s) Income tax and other taxes
Current tax assets and liabilities for the current and
prior periods are measured at the amount expected to
be recovered from or paid to the taxation authorities
based on the current period’s taxable income. The tax
rates and tax laws used to compute the amount are
those that are enacted or substantively enacted by
the reporting date.
Deferred income tax is provided on all temporary
differences at the Statement of Financial Position
reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial
reporting purposes.
Deferred income tax liabilities are recognised for
all taxable temporary differences except:
– when the deferred income tax liability arises from
the initial recognition of goodwill or of 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 profit nor taxable
profit or loss; or
– when the taxable temporary difference is associated
with investments in subsidiaries, associates or
interests in joint ventures, and the timing of the
reversal of the temporary difference can be
controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all
deductible temporary differences, carry-forward of
unused tax assets and unused tax losses, to the extent
that it is probable that taxable profit will be available
against which the deductible temporary differences
and the carry-forward of unused tax credits and
unused tax losses can be utilised, except:
36
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 2: Summary of significant accounting policies (continued)
Other taxes
Revenues, expenses and assets are recognised net
of the amount of GST, except:
– when the GST incurred on a purchase of goods
and services is not recoverable from the taxation
authority, in which case the GST is recognised as
part of the cost of acquisition of the asset or as part
of the expense item, as applicable; and
– receivables and payables, which are stated with the
amount of GST included.
The net amount of GST recoverable from, or
payable to, the taxation authority is included as
part of receivables or payables in the Statement
of Financial Position.
Cash flows are included in the Statement of Cash
Flows on a gross basis and the GST component
of cash flows arising from investing and financing
activities, which is recoverable from, or payable to,
the taxation authority is classified as part of cash
flows from operating activities.
Commitments and contingencies are disclosed net
of the amount of GST recoverable from, or payable
to, the taxation authority.
(t) Earnings per share
Basic earnings per share is calculated as net profit
attributable to members of the Parent, adjusted to
exclude any costs of servicing equity (other than
dividends), divided by the weighted average number
of ordinary shares outstanding during the financial
year, adjusted for any bonus element.
Diluted earnings per share is calculated as net profit
attributable to members of the Parent, adjusted for:
– costs of servicing equity (other than dividends);
– the after tax effect of interest dividends associated
with dilutive potential ordinary shares that have
been recognised; and
– other non-discretionary changes in revenue or
expenses during the period that would result from
dilution of potential ordinary shares, divided by the
weighted average number of shares and dilutive
shares, adjusted for any bonus element.
(u) Borrowing costs
Borrowing costs directly attributable to the acquisition
and development of a qualifying asset (i.e. an asset
that necessarily takes a substantial period of time to
get ready for its intended use or sale) are capitalised
as part of the cost of that asset. All other borrowing
costs are expensed in the period they occur.
Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing
of funds.
(v) Investment in joint venture
A joint venture is a type of joint arrangement whereby
the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. Joint
control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions
about the relevant activities require unanimous
consent of the parties sharing control.
The Group’s investment in its joint venture is
accounted for using the equity method. Under the
equity method, the investment in a joint venture is
initially recognised at cost. The carrying amount of
the investment is adjusted to recognise changes in
the Group’s share of net assets of the joint venture
since the acquisition date. Goodwill relating to the
joint venture is included in the carrying amount
of the investment and is neither amortised nor
individually tested for impairment.
The Statement of Comprehensive Income reflects the
Group’s share of the results of operations of the joint
venture. Any change in other comprehensive income
of those investees is presented as part of the Group’s
other comprehensive income. In addition, when there
has been a change recognised directly in the equity of
the joint venture, the Group recognises its share of any
changes, when applicable, in the statement of changes
in equity. Unrealised gains and losses resulting from
transactions between the Group and the joint venture
are eliminated to the extent of the interest in the joint
venture.
The aggregate of the Group’s share of profit or loss of
a joint venture is shown on the face of the Statement
of Comprehensive Income outside operating profit and
represents profit or loss after tax.
After application of the equity method, the Group
determines whether it is necessary to recognise an
impairment loss on its investment in its joint venture.
At each reporting date, the Group determines whether
there is objective evidence that the investment in the
joint venture is impaired. If there is such evidence, the
Group calculates the amount of impairment as the
difference between the recoverable amount of the
joint venture and its carrying value, then recognises
the loss in the ‘Share of profit of a joint venture’ in the
Statement of Comprehensive Income.
37
ANNUAL REPORT 2014 Note 3: Financial risk management objective and policies
The Group’s principal financial instruments comprise cash and short-term deposits, receivables and
payables and bonds.
The Group manages its exposure to key financial risks, including interest rate risk and currency risk 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 interest rate risk, foreign currency 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. Aging analyses and monitoring of specific credit allowances are
undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow
forecasts.
Risk exposures and responses
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash holdings
with a floating interest rate. In addition, as at 30 June 2014, the Group has a $50,000,000 variable rate bond debt
outstanding. This bond requires that the Group make a quarterly coupon payment that is based on the Bank Bill
Rate plus a fixed margin of 4.20% per annum.
At reporting date the Group had the following financial instruments exposed to Australian variable interest rate risk:
Financial instruments
Cash and cash equivalents
Bonds
Net exposure
Consolidated
2014
$
2013
$
105,576,733 67,984,284
(47,758,026)
–
57,818,707 67,984,284
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.
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
At 30 June 2014, if interest rates had moved, as illustrated in the following table, with all other variables held
constant, post tax profit and equity would have been affected as follows:
Judgment of reasonably possible movements:
+0.5% (500 basis points) (2013: +0.5%)
202,366
237,945
202,366
237,945
-0.2% (100 basis points) (2013: -0.2%)
80,946
95,178
80,946
95,178
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2014
$
2013
$
2014
$
2013
$
38
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 3: Financial risk management objective and policies (continued)
Credit risk
Credit risk arises from the financial assets of the Group, which comprises cash and cash equivalents and
receivables. The Group’s exposure to credit risk arises from potential default of the counterparty, with a maximum
exposure equal to the carrying amount of these instruments. Exposure at reporting date is addressed in each
applicable note.
The Group’s deposits are spread amongst a number of financial institutions to minimise the risk of default of
counterparties, all of whom have been pre-approved by the Board, have AA credit ratings and are subject to the
prudential regulation of the Reserve Bank of Australia.
The Group assesses the defendants in the matters funded by the Group prior to entering into any agreement to
provide funding and continues this assessment during the course of funding. Wherever possible the Group ensures
that security for settlement sums is provided, or the settlement funds are placed into solicitors’ trust accounts. As
at 30 June 2014, a significant portion of the Group’s receivables were not under any such security. However, the
Group’s continual monitoring of the defendants’ financial capacity mitigates this risk.
Liquidity risk
The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet the Group’s
expected financial commitments in a timely and cost effective manner.
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. All financial liabilities of the
Group, except the Bentham IMF Bonds, are current and payable within 30 days.
The maturity profile of the Group’s financial liabilities based on contractual maturity on an undiscounted basis are:
< 6 months
$
6-12 months
$
1-5 years
$
>5 years
$
Total
$
7,928,101
–
–
–
7,928,101
–
– 50,000,000
– 50,000,000
1,718,750
1,718,750
13,750,000
9,646,851
1,718,750
63,750,000
–
–
17,187,500
75,115,601
2014
Financial Liabilities
Trade and other payables
Bonds
Bonds interest
2013
Financial Liabilities
Trade and other payables
Convertible notes
Convertible notes interest
1,963,827
1,963,827
1,963,827
9,796,984
1,963,827
40,282,413
7,833,156
–
–
–
–
38,318,585
–
–
–
–
7,833,156
38,318,585
5,891,481
52,043,222
Fair value
The methods for estimating fair value are outlined in the relevant notes to the financial statements. The carrying
amounts of financial assets and liabilities of the Group approximate their fair values, except for the Bonds. The
Bonds have a carrying value of $50,000,000 (excluding the transaction costs) and a fair value of $52,000,000
at 30 June 2014. The fair value has been determined using the market price at 30 June 2014. Under AASB 13 the
fair value measurement used is level 1 on the fair value hierarchy.
Foreign currency risk
The Group is currently funding cases outside Australia. The investment in these cases and the subsequent income
generated by these cases are subject to exchange rate movements. The Group has managed its foreign currency
commitments risk by ensuring that it has sufficient levels of the foreign currency available to meet its short term
requirements. The Group has not hedged its expected income from its foreign cases. The exposure to foreign
currency risk is not considered to be material.
39
ANNUAL REPORT 2014 Note 4: Significant accounting judgments, estimates and assumptions
The preparation of the Group’s consolidated
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, revenues and expenses. Management
bases its judgments on historical experience and on
other factors it believes to be reasonable under the
circumstances, the results of which form the basis
of the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual
results may differ from these estimates under different
assumptions and conditions.
Assumptions about the generation of future taxable
profits depend on management’s estimates of
future cash flows. These depend on estimates of
future income, operating costs, capital expenditure,
dividends and other capital management transactions.
Judgments and assumptions are also required about
the application of income tax legislation. These
judgments and assumptions are subject to risk and
uncertainty, hence there is a possibility that changes
in circumstances will alter expectations, which may
impact the amount of deferred tax assets and deferred
tax liabilities recognised on the Statement of Financial
Position and the amount of other tax losses and
temporary differences not yet recognised. In such
circumstances, some or all of the carrying amounts
of recognised deferred tax assets and liabilities may
require adjustment, resulting in a corresponding credit
or charge to the Statement of Comprehensive Income.
Management has identified the following critical
accounting policies for which significant judgments
have been made as well as the following key estimates
and assumptions that have the most significant impact
on the financial statements. Actual results may differ
from these estimates under different assumptions and
conditions and may materially affect financial results
or the financial position reported in future periods.
Further details of the nature of these assumptions and
conditions may be found in the relevant notes to the
financial statements.
(i) Significant accounting judgments
Classification of and valuation of investments
The Group has decided to classify certain
investments in listed securities as ‘available-for-sale’
or ‘held for trading’ investments and movements in
fair value are recognised directly in equity or in the
Statement of Comprehensive Income. The fair value
of listed shares has been determined by reference
to published price quotations in an active market.
Taxation
The Group’s accounting policy for taxation requires
management’s judgment in assessing whether
deferred tax assets and certain deferred tax liabilities
are recognised on the Statement of Financial Position.
Deferred tax assets, including those arising from un-
recouped tax losses, capital losses and temporary
differences, are recognised only where it is considered
more likely than not that they will be recovered, which
is dependent on the generation of sufficient future
taxable profits.
40
(ii) Significant accounting estimates and
assumptions
Impairment of non-financial assets other than
goodwill
The Group assesses impairment of all assets 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
it is likely to be successful, the cost and timing to
completion and the ability of the defendant to pay
upon completion. If an impairment trigger exists the
recoverable amount of the asset is determined. This
involves value in use calculations, which incorporate
a number of key estimates and assumptions (refer to
Note 17).
Impairment of intangibles with indefinite useful lives
The Group determines whether intangibles with
indefinite useful lives are impaired at least on an annual
basis. This requires an estimation of the recoverable
amount of the cash-generating units, using a value in
use discounted cash flow methodology, to which the
intangibles with indefinite useful lives are allocated.
The assumptions used in this estimation of the
recoverable amount and the carrying amount of
intangibles with indefinite useful lives are discussed
in Note 17.
Long service leave provision
As discussed in Note 2, the liability for long service
leave is recognised and measured at the present
value of the estimated future cash flows to be
made in respect of all employees at balance date. In
determining the present value of the liability, attrition
rates and pay increases through promotion and
inflation have been taken into account.
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 4: Significant accounting judgments, estimates and assumptions (continued)
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical experience for plant and equipment. In
addition, the condition of the assets is assessed at least once per year and considered against the remaining useful
life. Adjustments to useful life are made when considered necessary. Depreciation charges are included in Note 8(b)
and Note 15.
Provision for adverse costs
The Group raises a provision for adverse costs when it has lost a matter which it has funded and no appeal from
that decision is to be made. When a matter is lost and an appeal is lodged, the Group raises a provision if the
judgment at first instance is not stayed pending the outcome of the appeal. The provision raised is the Group’s best
estimate of the amount of adverse costs it will have to remit following consultation with external advisors.
Note 5: Segment information
For management purposes, the Group is organised into one operating segment which provides only one service,
being litigation funding. Accordingly, all operating disclosures are based upon analysis of the Group as one
segment. Geographically, the Group operates in Australia and the United States of America. The Group also owns
50% of a joint venture operating in Europe (primarily the Netherlands and United Kingdom).
The Group continues to investigate other markets and has identified the following markets outside of Australia,
the United States and Europe as being favourable to litigation funding: Hong Kong, Canada and New Zealand.
Interest received from National Australia Bank Ltd of $1,798,931 (2013: $2,313,111) and Westpac Banking Group Ltd
of $443,754 (2013: $461,499) contributed more than 94% of the Group’s bank interest revenue (2013: 93%).
Other income can be represented geographically as follows:
Australia
United States
Total other income
Consolidated
2014
$
2013
$
25,153,181
21,020,545
143,728
3,604,790
25,296,909 24,625,335
Non-Current assets, excluding trade receivables and financial assets, can be represented geographically as follows:
Australia
United States
Net exposure
Note 6: Revenue
Revenue
Bank interest received and accrued
Fees from Joint Venture
Consolidated
2014
$
2013
$
81,036,580
81,825,859
19,323,681
4,923,881
100,360,261
86,749,740
Consolidated
2014
$
2013
$
2,375,879
2,971,843
251,670
–
2,627,549
2,971,843
41
ANNUAL REPORT 2014 Note 7: Other income
Other income
Litigation contracts in progress – settlements and judgments
Litigation contracts in progress – expenses
Litigation contracts in progress – written-down1
Net gain on derecognition of intangible assets
Net gain/(loss) on receivable measured at amortised cost & foreign exchange
translation
Other income/(loss)
Consolidated
2014
$
2013
$
75,907,640 43,906,400
(33,467,880) (18,783,625)
(16,485,727)
(1,359,067)
25,954,033 23,763,708
(684,273)
853,654
27,149
7,973
25,296,909 24,625,335
1
Included in this balance are costs related to cases lost by the Group, or not pursued by the Group due to the cases not
meeting the Group’s required rate of return. Further, it includes any adverse costs provision raised when a litigation
contract in progress has been written-off due to it being lost.
Note 8: Expenses
(a) Finance costs
Loss on remeasurement for early redemption of convertible notes
Other finance charges
(b) Depreciation
Depreciation expense
(c) Employee benefits expense
Wages and salaries
Superannuation expense
Directors' fees
Payroll tax
Long service leave provision
(d) Corporate and office expense
Insurance expense
Network expense
Marketing expense
Occupancy expense
Professional fee expense
Recruitment expense
Telephone expense
Travel expense
42
Consolidated
2014
$
2013
$
(941,880)
(198,414)
(1,140,294)
–
(146,508)
(146,508)
(222,654)
(246,362)
(4,919,020)
(3,022,955)
(665,717)
(619,661)
(286,285)
(242,136)
(469,850)
(790,125)
(282,658)
(6,623,530)
(17,738)
(4,692,615)
(279,849)
(305,956)
(137,799)
(112,657)
(546,666)
(414,322)
(118,408)
(106,556)
(728,486)
(370,663)
(286,102)
(8,117)
(102,798)
(86,077)
(548,794)
(2,748,902)
(242,765)
(1,647,113)
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED
Note 8: Expenses (continued)
(e) Other expenses
ASX listing fees
General expenses
Postage, printing and stationary
Repairs and maintenance
Share registry costs
Software supplies
Unrealised foreign exchange gain/(loss)
Net revaluation loss on shares held for trading
Impairment of receivables
Loss on derecognition of available-for-sale investments
Note 9: Income tax
The major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Adjustment in respect of current income tax expense of previous year
Deferred income tax
Relating to origination and reversal of temporary differences
Other
Adjustment in respect of deferred income tax of previous year
Consolidated
2014
$
2013
$
(158,816)
(63,058)
(326,433)
(328,814)
(113,559)
(97,773)
(16,823)
(30,786)
(267,752)
(112,124)
(22,284)
(14,961)
(21,600)
890,861
–
–
–
(2,296)
(957,224)
(7,522)
(927,266)
(723,697)
Consolidated
2014
$
2013
$
7,499,699
1,663,025
248,320
1,080,365
(1,763,667)
4,317,300
(62,395)
(16,741)
(182,216)
(717,133)
Income tax expense reported in the Statement of Comprehensive Income
5,739,741
6,326,816
A reconciliation between tax expense and the product of accounting profit before
income multiplied by the Group's applicable income tax rate is as follows:
Accounting profit before income tax
15,608,091
20,140,883
At the Group's statutory income tax rate of 30% (2013: 30%)
Adjustment in respect of income and deferred tax of previous years
Deferred tax assets not recognised
Other
4,682,427
6,042,265
66,105
363,232
797,462
–
193,747
(78,681)
Income tax expense reported in the Statement of Comprehensive Income
5,739,741
6,326,816
43
ANNUAL REPORT 2014 Note 9: Income tax (continued)
Deferred income tax
Statement of
Financial Position
Statement of
Comprehensive Income
2014
$
2013
$
2014
$
2013
$
Deferred income tax at 30 June relates to the following:
CONSOLIDATED
Deferred income tax liabilities
Intangibles
Convertible notes
24,071,707 24,364,388
(292,681)
4,563,122
–
427,754
(427,754)
(301,263)
Accrued interest & unrealised F/X
(834,410)
–
(834,410)
–
Receivables
–
(325,686)
325,687
(608,302)
Gross deferred income tax liabilities
23,237,297 24,466,456
(1,229,158)
3,653,557
Deferred income tax assets
Depreciable assets
–
73,066
73,066
(2,602)
Accruals and provisions/bond raising costs
1,448,376
637,886
(810,490)
(80,271)
Expenditure deductible for income tax over time
44,439
2,743
(41,696)
2,743
Gross deferred income tax assets
1,492,815
713,695
(779,120)
(80,130)
Net deferred income tax liabilities
21,744,482
23,752,761
Unrecognised temporary differences and tax losses
At 30 June 2014 the Group had no other unrecognised temporary differences and tax losses apart from the
$797,462 deferred tax asset (2013: nil).
Note 10: dividends paid and proposed
(a) Recognised amounts:
Declared and paid during the year
Dividends on ordinary shares
2014: 5.0 cents per share
2013: 5.0 cents per share
(b) Unrecognised amounts:
Dividends on ordinary shares
2014: Final 5.0 cents per share unrecognised
2013: Final 5.0 cents per share unrecognised
Consolidated
2014
$
2013
$
8,219,005
6,160,470
14,379,475
–
–
–
8,268,513
–
–
6,160,470
8,268,513
6,160,470
On 21 August 2014 the Directors declared a final fully franked dividend of 5.0 cents per share for the 2014
financial year, totalling $8,268,513. The record date for this dividend is 19 September 2014 and the payment date
will be 3 October 2014. Shareholders are able to elect to participate in the dividend reinvestment plan in relation
to this dividend.
44
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 10: Dividends paid and proposed (continued)
On 10 February 2014 an interim fully franked dividend of 5.0 cents per share was declared in respect of the 2014
financial year. The record date for this dividend was 21 March 2014 and the payment date was 4 April 2014.
On 21 August 2013 a final fully franked dividend of 5.0 cents per share was declared in respect of the 2013 financial
year. The record date for this dividend was 18 October 2013 and the payment date was 31 October 2013.
(c) Franking credit balance
The amount of franking credits for the subsequent financial year are:
– Franking account balance as at the end of the financial year at 30%
– Franking debits that arose from the payment of last year’s final dividend
Bentham IMF Limited
2014
$
2013
$
11,507,612
14,034,551
(2,640,201)
(5,280,329)
– Franking debits that arose from the payment of current year’s interim dividend
(3,522,432)
– Franking credits that arose from the payment of income tax payable during the
financial year
– Franking credits that will arise from the (refund)/payment of income tax (receivable)/
payable as at the end of the financial year
Impact of franking debits that will arise from the payment of the final dividend
3,046,853
4,293,754
4,705,516
(1,540,364)
13,097,349
11,507,612
(3,543,649)
(2,640,201)
9,553,700
8,867,411
(d) Tax rates
The tax rate at which paid dividends have been franked is 30% (2013: 30%).
Note 11: Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity
holders of the Parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders
of the Parent (after deducting interest on the convertible notes) by the weighted average number of ordinary
shares outstanding during the year plus the weighted average number of ordinary shares that would be issued
on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
(a) Earnings used in calculating earnings per share
Consolidated
2014
$
2013
$
For basic earnings per share
Net profit attributable to ordinary equity holders of the Parent
9,868,350
13,814,067
For diluted earnings per share
Net profit from continuing operations attributable to ordinary equity holders of the Parent 9,868,350
13,814,067
Tax effected interest expense on convertible notes
–
506,919
Net profit attributable to ordinary equity holders adjusted for the effect of convertible
note holders (used in calculating diluted EPS)
9,868,350
14,320,986
45
ANNUAL REPORT 2014 Note 11: Earnings per share (continued)
(b) Weighted average number of shares
Number
2014
2013
Weighted average number of ordinary shares outstanding for basic earnings per share 150,387,689 123,209,372
Effect of dilution:
Convertible notes
–
23,223,385
Weighted average number of ordinary shares adjusted for the effect of dilution
150,387,689 146,432,757
As at 30 June 2014 there are no new instruments on issue (e.g. share options) that could potentially dilute basic
earnings per share in the future. The convertible notes converted or redeemed during the period were found to
have an anti-dilutive impact on the calculation. Therefore, at 30 June 2014, the basic earnings per share is equal to
the diluted earnings per share. In the prior year the dilutive impact of the convertible notes has been presented.
There have been no transactions involving ordinary shares or potential ordinary shares that would significantly
change the number of ordinary shares outstanding between the reporting date and the date of completion of
these financial statements.
(c) Information on the classification of securities
(i) Options
As at 30 June 2014 there were no options issued over shares in the Company (2013: nil).
(ii) Convertible notes
The convertible notes as described in Note 20 were considered to be potential ordinary shares and were included
in the determination of diluted earnings per share in the 2014 financial year to the extent they were dilutive. These
convertible notes were repaid or converted during December 2013. The convertible notes were not included in the
determination of basic earnings per share in the 2014 financial year.
(iii) Bonds
The bonds are not considered to be dilutive.
Note 12: Current assets - cash and cash equivalents
Cash at bank
Short-term deposits
Consolidated
2014
$
2013
$
25,575,133
16,982,685
80,001,600
51,001,599
105,576,733 67,984,284
Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and
cash equivalents represent fair value.
Short-term deposits are made for varying periods depending on the immediate cash requirements of the Group.
As at 30 June all short term deposits had less than 90 days to mature and earn interest at the respective short-
term deposit rates.
46
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 12: Current assets - cash and cash equivalents (continued)
Reconciliation to Statement of Cash Flows
For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 30 June:
Cash at bank
Short-term deposits
Bank Guarantees
Consolidated
2014
$
2013
$
25,575,133
16,982,685
80,001,600
51,001,599
105,576,733 67,984,284
Bank guarantees have been issued by the Group’s bankers as security for leases over premises, banking
facilities and as security for adverse costs orders for matters funded under litigation contracts. As at 30 June
2014 guarantees of $1,682,108 were outstanding (2013: $1,650,819). The guarantees are secured by an offset
arrangement with a term deposit of $5,000,000 (2013: $5,000,000).
Set off of assets and liabilities
The Group has established a legal right of set off with two banks enabling it to set off certain deposits with the
banks against bank guarantees issued totalling $1,682,108 (2013: $1,650,819). The total of the bank guarantee
facilities is $5,000,000 (2013: $5,000,000). The guarantee facility is secured by an offset arrangement against
term deposits of $5,000,000 (2013: $5,000,000).
Note 13: Trade and other receivables
Current
Trade receivables
Interest receivable
Receivable from joint venture
Non current
Trade receivables
Consolidated
2014
$
2013
$
58,374,813
23,374,525
534,806
553,453
1,466,130
–
60,375,749
23,927,978
Consolidated
$
$
14,353,414
15,252,854
14,353,414
15,252,854
i.
Trade receivables are non-interest bearing and generally on 30-90 day terms. There is nil included in current
trade receivables which is subject to appeal (2013: $19,979,327).
ii.
Interest receivable is payable upon the maturity of the Group’s short term deposits (between 30 and 90 days).
iii. Non-current trade receivables are interest bearing and occur either as a result of settlements with a repayment
plan greater than 12 months or where a judgment is subject to appeal and the appeal is not expected to be
heard within the next 12 months. The total non-current trade receivable balance of $14,353,414 is subject to
appeal (2013: $15,252,854).
47
ANNUAL REPORT 2014 Note 13: Trade and other receivables (continued)
At 30 June, the aging analysis of trade and other receivables is as follows:
0-30
days
$
31-90
days
$
91-180
days1
$
+180
days1
$
Total
$
2014 Consolidated
2013 Consolidated
22,277,803
–
–
52,451,360
74,729,163
1,485,626
5,111,891
3,627,455 28,955,860
39,180,832
1 These amounts are not due and therefore not impaired.
During the year the Group did not write off any receivable balances (2013: $957,224).
(a) Fair value and credit risk
Due to the nature of these receivables, the carrying value of the current receivables approximates its fair value. The
carrying value of the non-current receivables are adjusted to reflect future cashflows and it is this adjusted carrying
value that approximates its fair value. The maximum exposure to credit risk is the carrying value of receivables.
Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables. Current receivables
greater than 180 days are expected to be received within the following twelve months.
Note 14: Current assets - other assets
Consolidated
2014
$
2013
$
251,581
94,015
251,581
94,015
Prepayments
48
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 15: Non current assets - plant and equipment
Reconciliation of carrying amounts at the beginning and end of the year
Cost
Accumulated depreciation
Net carrying amount
Cost
Balance as at 1 July 2012
Additions
Disposals
At 30 June 2013
Additions
Disposals
At 30 June 2014
Accumulated depreciation
Balance as at 1 July 2012
Depreciation charge for the year
Disposals
At 30 June 2013
Depreciation charge for the year
Disposals
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013
The useful life of the assets was estimated between 5 to 15 years for both 2013 and 2014.
Consolidated
2014
$
2013
$
2,453,779
2,282,838
(1,883,067)
(1,660,413)
570,712
622,425
Consolidated
Plant and
Equipment
$
2,212,718
70,120
–
2,282,838
170,941
–
2,453,779
(1,414,051)
(246,362)
–
(1,660,413)
(222,654)
–
(1,883,067)
570,712
622,425
49
ANNUAL REPORT 2014 Note 16: Non-current assets – financial assets
At fair value
Shares – United Kingdom listed – held for trading
Closing balance as at 30 June
Consolidated
2014
$
2013
$
–
–
18,890
18,890
(a) Listed shares
The fair value of listed financial assets has been determined based on quoted market prices (Level 1). Quoted
market price represents the fair value based on quoted prices on active markets as at the reporting date without
any deduction for transaction costs.
Note 17: Intangible assets
(a) Reconciliation of carrying amounts at the beginning and end of the period
Year ended 30 June 2013
Cost (gross carrying amount)
Additions
Disposals
Write-down of Litigation Contracts In Progress
At 30 June 2013, net of accumulated amortisation and impairment
Year ended 30 June 2014
Balance as at 1 July 2013, net of accumulated amortisation and impairment
Additions
Disposals
Write-down of Litigation Contracts In Progress
At 30 June 2014, net of accumulated amortisation and impairment
Consolidated
$
66,004,218
40,265,789
(18,783,625)
(1,359,067)
86,127,315
86,127,315
59,962,343
(33,467,880)
(13,985,728)
98,636,050
(b) Description of Group’s intangible assets
Intangible assets consist of Litigation Contracts In Progress. The carrying value of Litigation Contracts In Progress
includes the capitalisation of external costs of funding the litigation, such as solicitors’ fees, counsels’ fees and
experts’ fees, the capitalisation of certain directly attributable internal costs of managing the litigation, such
as certain wages, occupancy costs, other out of pocket expenses and the capitalisation of borrowing costs as
described in Note 17(e). The capitalised wages in 2014 equated to approximately 52% of the total salary costs
(2013: 61%). The other internal capitalised expenses equated to approximately 24% of overhead costs (2013: 24%).
50
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED
Note 17: Intangible assets (continued)
(b) Description of Group’s intangible assets (continued)
The carrying value of Litigation Contracts In Progress can be summarised as follows:
Capitalised external costs
Capitalised internal costs
Capitalised borrowing costs
Balance at 30 June
Consolidated
2014
$
2013
$
71,226,681
58,629,287
17,991,977
19,005,769
9,417,392
8,492,259
98,636,050
86,127,315
(c) Write off of intangible assets
The carrying amount of Litigation Contracts In Progress is written off when the case is lost by the Group or the
Group decides not to pursue cases that do not meet the Group’s required rate of return.
(d) Impairment testing of intangible assets
The recoverable amount of each of the Litigation Contracts In Progress is determined based on a value in use
calculation using cash flow projections based on financial budgets approved by management.
The following describes each key assumption on which management has based its cash flow projections when
determining the value in use of Litigation Contracts In Progress:
– The estimated cost to complete a Litigation Contract In Progress is budgeted, based on estimates provided by
the external legal advisors handling the litigation.
– The value to the Group of the Litigation Contracts In Progress, once completed, is estimated based on the
expected settlement or judgment amount of the litigation and the fees due to the Group under the litigation
funding contract.
– The discount rate applied to the cash flow projections is based on the Group’s weighted average cost of capital
and other factors relevant to the particular Litigation Contracts In Progress. The discount rate applied ranged
between 13.0% and 14.5% (2012: 13.5%).
Any reasonable changes in the key assumptions to the cash flow projections would not result in the carrying value
of the litigation contracts in progress exceeding its recoverable amount.
(e) Capitalised borrowing costs
The Group has determined that Litigation Contracts In Progress meet the definition of qualifying asset. The amount
of borrowing costs capitalised during the year ended 30 June 2014 was $925,133 (2013: $3,695,697). The rate used
to determine the borrowing costs eligible for capitalisation was 6.885% for the bonds and 13.5%, for the convertible
notes, both rates representing the effective interest rate.
51
ANNUAL REPORT 2014 Note 18: Current liabilities – trade and other payables
Trade payables1
Convertible note interest accrual
Wage accruals
Bond interest accrual
Consolidated
2014
$
2013
$
6,969,579
6,514,925
–
1,011,570
307,772
306,661
650,750
–
7,928,101
7,833,156
1 Trade payables are non-interest bearing and are normally settled on 30 day terms.
(a) Fair value
Due to the nature of trade and other payables, their carrying value is assumed to approximate their fair value.
Note 19: Current and non-current liabilities – provisions
Current
Annual leave and long service leave
Adverse costs (1)
Bonus
Non-Current
Long service leave
Consolidated
2014
$
2013
$
1,404,935
1,371,368
2,500,000
–
3,000,500
273,350
6,905,435
1,644,718
539,882
229,026
539,882
229,026
1
At 30 June 2014 the Group raised a provision of $2,500,000 for estimated adverse costs obligations incurred in
respect of the Bank of Queensland matter. The decision is the subject of an appeal and, if the appeal is successful,
adverse costs will not be payable.
52
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 19: Current and non-current liabilities – provisions (continued)
(a) Movement in provisions
As at 1 July 2013
Arising during the year
Utilised
As at 30 June 2014
Current 2014
Non-current 2014
Current 2013
Non-current 2013
Adverse
costs
$
Annual
leave
$
Employee
bonus
$
Long service
leave
$
Total
$
–
679,957
273,350
920,437
1,873,744
2,500,000
696,755
3,000,500
306,146
6,503,401
–
(634,990)
(273,350)
(23,488)
(931,828)
2,500,000
741,722
3,000,500
1,203,095
7,445,317
2,500,000
741,722
3,000,500
663,213
6,905,435
–
–
–
539,882
539,882
2,500,000
741,722
3,000,500
1,203,095
7,445,317
–
–
–
679,957
273,350
691,411
1,644,718
–
–
229,026
229,026
679,957
273,350
920,437
1,873,744
(b) Nature and timing of provisions
Adverse costs
During the 2014 financial year the Group raised a provision of $2,500,000 for its estimated adverse costs
obligations in respect of the Bank of Queensland matter, which is being appealed (2013: nil).
Annual leave and long service leave
Refer to Note 2 for the relevant accounting policy and discussion of significant estimations and assumptions
applied in the measurement of this provision.
Employee bonus
Refer to the Remuneration Report and Note 2 for the relevant accounting policy and discussion of significant
estimations and assumptions applied in the measurement of this provision.
53
ANNUAL REPORT 2014 Note 20: Non-current liabilities – debt securities
Bonds1
Convertible notes2
1
2
Included transaction costs of $2,326,739.
Included transaction costs of $1,366,366.
Consolidated
2014
$
47,758,026
2013
$
–
– 36,324,499
Bonds issued during the year
On 24 April 2014, the Company issued 500,000 Bentham IMF Bonds with a face value of $100 each. The interest
rate payable to Bondholders quarterly will be a variable rate based on the Bank Bill Rate plus a fixed margin of
4.20% per annum. The Bentham IMF Bonds will mature on 30 June 2019. The Bondholders have been granted
security over the Company’s assets.
The Company is required to pay the Bondholders interest payable quarterly in arrears, with the first interest quarter
being 30 June 2014. The application of AASB 123 Borrowing Costs (revised 2007) has resulted in the capitalisation
of $650,750 (2013: $nil) as part of the Litigation Contracts in Progress intangible assets deemed to be qualifying
assets post the application date of AASB 123 (revised) of 1 July 2009 (refer to Note 17).
Convertible notes
On 13 December 2010 the Company issued 23,702,415 convertible notes raising total capital of $39,108,985
(excluding costs). Each convertible note had a face value of $1.65 and had the right to convert into one ordinary
share. The Noteholders had been granted security over the Company’s assets.
The convertible notes were convertible at the option of the Noteholder by 31 December 2014. The Company had
the ability to request the Noteholder to elect to either convert or be repaid after 31 December 2012. On 14 October
2013 the Company issued an early redemption notice to all Noteholders to either convert their convertible notes
into shares by 13 December 2013 or the Company would redeem the convertible notes. During the redemption
period, 16,447,169 convertible notes were converted into ordinary shares.
On 20 December 2013, all of the outstanding convertible notes were redeemed. The security over the Company’s
assets was subsequently released.
The Company was required to pay the Noteholders interest of 10.25% per annum, payable quarterly in arrears, with
the first interest quarter being 31 December 2010. The application of AASB 123 Borrowing Costs (revised 2007)
has resulted in the capitalisation of $274,383 (2013: $3,695,697) as part of the Litigation Contracts in Progress
intangible assets deemed to be qualifying assets post the application date of AASB 123 (revised) of 1 July 2009
(refer to Note 17). At 30 June 2013, the carrying amount of the convertible notes approximated their fair values.
The application of AASB 132 Financial Instruments: Disclosure and Presentation has resulted in $4,068,682
(net of transaction costs before tax) of these convertible notes being classified as equity (refer to Note 22).
54
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 21: Contributed equity
Issued and fully paid ordinary shares
112,050,208
41,912,195
(a) Ordinary shares
Fully paid ordinary shares carry one vote per share and the right to dividends.
Consolidated
2014
$
2013
$
Movement in ordinary shares
As at 30 June 2012
Convertible notes converted
As at 30 June 2013
Shares issued during the year (Placement and SPP)
Transaction costs associated with share issue
Convertible notes converted
Shares issued under the Dividend Reinvestment Plan
As at 30 June 2014
Number
$
123,207,662 41,909,483
1,710
2,712
123,209,372
41,912,195
24,723,602
42,031,791
–
(1,198,499)
16,447,169
27,631,244
990,126
1,673,477
165,370,269 112,050,208
On 14 October 2013 the Company issued 18,481,406 shares to sophisticated and institutional investors at $1.70 per
share. On 1 November 2013 the Company issued 6,242,196 shares under its Share Purchase Plan at $1.70 per share.
Between 1 July 2013 and 18 December 2013 a total of 16,447,169 convertible notes were converted into shares at
$1.68 per share (see Note 20). On 4 April 2014 the Company issued 990,126 under its Dividend Reinvestment Plan
at $1.69 per share.
(b) Share options
At 30 June 2014, there were no unissued ordinary shares in respect of which options were outstanding (2013: nil).
(c) Capital management
Capital includes bonds (and in the prior year the convertible notes) and equity attributable to the equity holders of
the Parent. When managing capital, management’s objective is to ensure the Group continues as a going concern
as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims
to maintain a capital structure that ensures the lowest cost of capital available to the Group.
The earnings of the Group are lumpy and this is forecast to continue into the future. Management’s policy is to pay
dividends to shareholders from earnings where there is capital surplus to the needs of the business. The present
view of management is that the business requires a cash balance of $100 million.
At 30 June 2014 the cash balance of the Group was above its preferred optimum level of $100 million.
The Group is not subject to any externally imposed capital requirements. However, if the cash and receivables
balances of the Group fall below 75% of the principal due to bondholders, the Group is not permitted to pay
a dividend to ordinary shareholders (this calculation is to be undertaken both before and after the proposed
dividend).
55
ANNUAL REPORT 2014 Note 22: Retained earnings and reserves
(a) Movements in retained earnings were as follows:
Balance 1 July
Net profit for the year
Dividend paid
Dividend payable
Balance 30 June
(b) Movements in reserves were as follows:
At 1 July 2012
At 30 June 2013
Transfer to profit and loss
At 30 June 2014
(c) Nature and purpose of reserves
(i) Option premium reserve
Consolidated
2014
$
2013
$
76,356,253
62,542,186
9,868,350
13,814,067
(14,379,475)
–
–
–
71,845,128 76,356,253
Option
premium
reserve
$
Net
unrealised
gains
reserve
$
Convertible
notes
reserve
$
Total
reserves
$
3,403,720
30,332
3,832,216
7,266,268
3,403,720
–
3,403,720
–
–
–
3,832,216
7,235,936
–
–
3,832,216
7,235,936
This reserve is used to record the value of equity benefits provided to employees and directors, including Key
Management Personnel, as part of their remuneration. Refer to Note 26 for further details of these payments.
(ii) Net unrealised gains reserve
This reserve is used to record the unrealised gain on available-for-sale investments.
(iii) Convertible note reserve
This reserve is used to record the equity portion of the convertible notes.
56
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 23: Statement of cash flows reconciliation
(a) Reconciliation of net profit after tax to net cash flows used in operations:
Net profit attributable to members of the Parent
9,868,350
13,814,067
Consolidated
2014
$
2013
$
Adjustments for:
Net impact of the reclassification of litigation intangibles related cashflows to cashflows
to/(from) investing activities
Depreciation
Loss recognised on remeasurement to fair value
Convertible note accretion
Loss/(Profit) on sale of shares
Unrealised foreign exchange (gain)/loss
Share of loss in joint venture
Bond amortisation
Other
Changes in assets and liabilities
Decrease/(Increase) in receivables
Decrease/(Increase) in other current assets
Decrease/(Increase) in intangible assets
Increase/(Decrease) in trade creditors and accruals
Increase/(Decrease) in interest accruals
Increase/(Decrease) in provisions
Increase/(Decrease) in deferred tax liabilities
Increase/(Decrease) in current income tax liability
Increase/(Decrease) in non-current employee entitlements
Net cash (used in) operating activities
(b) Disclosure of financing facilities
Refer to Note 12 and Note 20.
14,893,372 (42,647,840)
222,654
246,362
–
(2,296)
2,487,502
1,381,953
3,833
37,854
52,287
(890,861)
653,721
84,765
(7,036)
–
(25,739)
(34,201,818) 43,577,383
(157,564)
286,341
(12,508,735) (20,123,097)
455,766
(4,445,357)
(360,820)
67,034
5,186,162
(6,224,895)
(2,008,281)
3,573,427
6,245,881 (15,429,490)
310,856
–
(8,779,105) (26,805,154)
57
ANNUAL REPORT 2014
Note 24: Related party disclosure
Transactions with director related entities
The following table provides the total amount of transactions that were entered into with related parties for the
relevant financial year.
Fee revenue from Joint Venture
Transactions with related parties
Consolidated
2014
$
251,670
356,371
608,041
2013
$
–
22,937
22,937
During the year the Group obtained legal advice from Hardy Bowen, a legal firm associated with Director Michael
Bowen. The legal advice was obtained at normal market prices.
Note 25: Key management personnel
(a) Details of Key Management Personnel
There were no changes to Key Management Personnel after the reporting date and before the date the financial
report was authorised for issue.
(b) Compensation of Key Management Personnel
Short-term employee benefits – salaries and wages
Short-term employee benefits – accrued and unpaid 1
Post-employment benefits
Long service leave accrued during the year
Consolidated
2014
$
2013
$
3,796,614
3,631,962
1,524,000
107,994
162,706
–
98,038
77,534
5,591,314
3,807,534
1 As at 30 June 2014 bonuses had been declared to be payable over the following nine month period.
Note 26: Share-based payment plan
(a) Recognised share-based payment expenses
There were no options issued to employees during the year and the last time options were issued to employees
was 1 July 2006.
(b) Types of share-based payment plans
In 2007 the Company implemented a STI, which replaced the ESOP, and which may also, at the discretion of the
Remuneration Committee, provide benefits to employees in the form of share based payments. STI payments to
date have been settled in cash.
Previously, the Company had an ESOP, which provided benefits to directors and employees in the form of share
based payments. The options were not quoted on the ASX and the granting of the options under the ESOP did not
entitle any option holder to any dividend or voting rights or any other rights held by a shareholder, until exercise of
the options. Each option entitled the option holder to one ordinary share in the Parent on exercise. There were no
cash settlement alternatives.
(c) Summaries of options
There are no options outstanding at 30 June 2014 or 30 June 2013.
58
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 27: Commitments and contingencies
(a) Operating lease commitments – Group as lessee
The Group has entered into commercial leases for its premises. These leases have a life of between one and five
years with renewal options included in the contracts. There are no restrictions placed upon the lessee by entering
into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:
Within one year
After one year but no more than five years
After more than five years
Total minimum lease payments
(b) Remuneration commitments
Commitments for the payment of salaries and other remuneration under long-term
employment contracts in existence at the reporting date but not recognised as
liabilities payable:
Within one year
After one year but no more than five years
Consolidated
2014
$
2013
$
983,985
697,292
2,309,360
–
3,293,345
1,122,354
–
1,819,646
Consolidated
2014
$
2013
$
5,257,348
–
5,257,348
4,419,257
–
4,419,257
Amounts disclosed as remuneration commitments include commitments arising from the service contracts of, and
bonuses payable to, directors and executives referred to in the Remuneration Report of the Directors’ Report that
are not recognised as liabilities and are not included in the compensation of Key Management Personnel.
(c) Contingencies
As at 30 June 2014, the Group has three cases that are under appeal (2013: four cases). The total income
recognised by the Group from the cases remaining on appeal in the current financial year is $nil (previous
financial years: $14,353,414). A provision has been raised in relation to the appeal in the Bank of Queensland case
(see Note 19). The total current and non-current receivables as at 30 June 2014 relating to cases under appeal is
$14,353,414 (2013: $35,232,181).
In certain jurisdictions litigation funding agreements contain an undertaking from the Company to the client that
the Company 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 addition the Company has insurance arrangements which,
in some circumstances, will lessen the impact of such awards. In general terms an award of adverse costs to a
defendant will approximate 70% of the amount paid by the plaintiff to pursue the litigation (although in some cases
there may be more than one defendant).
Accordingly, an estimate of the total potential adverse costs exposure of the Group which has accumulated from
time to time may be made by assuming all cases are lost, that adverse costs equal 70% of the amount spent by the
plaintiff and that there is only one defendant per case.
As at 30 June 2014 the total amount spent by the Company where undertakings to pay adverse costs have been
provided was $54,008,238 (2013: $54,265,117). The potential adverse costs orders using the above methodology
would amount to $37,805,767 (2013: $37,985,582). The Company does not currently expect that any of the matters
will be unsuccessful. The Company maintains a large cash holding in case one or more matters are unsuccessful
and an adverse costs order is made which is not covered by its insurance arrangements.
59
ANNUAL REPORT 2014 Note 28: Economic dependency
Bentham IMF Limited is not economically dependent on any other entity.
Note 29: Events after the reporting date
On 18 June 2014 the litigation funded by the Company against KPMG was settled in principle. IMF is unable to
estimate the revenue or profit from this settlement until certain steps in the settlement are undertaken. It is
envisaged these steps will be completed by the end of December 2014.
On 7 July 2014 the litigation funded by the Company by the Liquidator of ZYX Learning Centres Limited (Receivers
& Managers Appointed) (In Liquidation) (formerly ABC Learning Centres Limited) was settled in principle and a
Deed of Settlement has now been entered into. It is estimated that IMF will receive approximately $17,000,000
from the settlement and generate a total profit after capitalised overheads of approximately $5,000,000
(before tax) from this matter and the shareholder claims against ABC Learning that IMF is also funding.
Note 30: Auditor’s remuneration
The auditor of Bentham IMF Limited is EY.
Amounts received or due and receivable by EY for:
An audit or review of the financial report of the Parent and any other entity
in the Group
Other services in relation to the Parent and any other entity in the Group:
Tax compliance
Note 31: Parent entity information
Information relating to Bentham IMF Limited:
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Issued capital
Retained earnings
Option premium reserve
Convertible note reserve
Total shareholders’ equity
Profit or loss of the Parent
Total comprehensive income of the Parent
The Parent has not entered into any guarantees with any of its subsidiaries.
Consolidated
2014
$
2013
$
292,277
259,566
129,448
421,725
109,301
368,867
2014
$
2013
$
165,093,474
86,585,654
275,313,909 198,639,840
(21,246,355)
(22,521,126)
(91,419,217) (83,032,440)
183,894,692
115,607,400
112,050,208
41,912,195
64,608,548
66,459,269
3,403,720
3,403,720
3,832,216
3,832,216
183,894,692
115,607,400
12,528,756
13,825,053
12,528,756
13,825,053
60
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED Note 31: Parent entity information (continued)
Details of the contingent liabilities of the Parent are contained in Note 27(c). There are no contingent liabilities in
relation to the subsidiaries.
Details of the contractual commitments of the Parent are contained in Notes 27(a) and 27(b). There are no
contractual commitments in relation to the subsidiaries.
Tax consolidation
(i) Members of the tax consolidated group
IMF and its 100% owned Australian subsidiary have formed a tax consolidated group with effect from 1 July 2002.
IMF is the head of the tax consolidated group.
(ii) Tax effect accounting by members of the tax consolidated group
Members of the tax consolidated group have not entered into a tax sharing/funding agreement. Under UIG
1052: Tax Consolidation Accounting, where a tax consolidated group has not entered into a tax sharing/funding
agreement, the assumption of current tax liabilities and tax losses by the Parent is recognised as a contribution/
distribution of the subsidiary’s equity accounts. The Group has applied the group allocation tax payer approach
in determining the appropriate amount of current and deferred taxes to allocate to the members of the tax
consolidated group.
Tax consolidation contributions/(distributions)
IMF has recognised the following amounts as tax-consolidation contribution adjustments:
Total increase in tax liability and cost of investment in subsidiaries of
Bentham IMF Limited
Bentham IMF Limited
2014
$
2013
$
(945)
(3,398)
The consolidated financial statements include the financial statements of IMF and the subsidiaries listed in the
following table:
Name
Financial Redress Pty Ltd
Bentham Holdings Inc
Bentham Capital LLC
Security Finance LLC
Country of
Incorporation
Australia
USA
USA
USA
Percentage owned
2014
%
100
100
100
100
2013
%
100
100
100
100
61
ANNUAL REPORT 2014 Note 32: Interest in a joint venture
The Group has a 50% interest in Bentham Ventures B.V. a jointly controlled entity principally involved in the funding
of litigation throughout Europe but primarily in the United Kingdom and the Netherlands. Bentham Ventures B.V. is
the parent entity of Bentham Europe Limited which is principally involved in marketing the funding services offered
by its parent and the investigation and monitoring of the litigation funded by its parent.
The Group’s interests in Bentham Ventures B.V., is accounted for using the equity method in the consolidated
financial statements. Summarised financial information of the joint venture, based on its Australian Accounting
Standards financial statements, and reconciliation with the carrying amount of the investment in the consolidated
financial statements are set out below:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Proportion of the Group's ownership
Carrying amount of the investment
Summarised statement of profit or loss of Bentham Ventures B.V.
Revenue
Other Income
Corporate and office expense
Other expenses
Loss before tax
Income tax expense
Loss for the year
Share of loss in joint venture entity
Bentham IMF Limited
2014
2013
4,813,167
5,833
(2,512,003)
–
2,306,997
50%
1,153,499
–
–
(913,915)
(393,528)
(1,307,443)
–
(1,307,443)
(653,721)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Bentham Ventures B.V. joint venture was incorporated during March 2014.
The joint venture had no contingent liabilities and a total of $51,228 in commitments as at 30 June 2014.
62
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 (continued)BENTHAM IMF LIMITED DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of Bentham IMF Limited, we state that:
In the opinion of the Directors:
a. the financial statements and notes of Bentham IMF Limited for the financial year ended 30 June 2014 are in
accordance with the Corporations Act 2001, including:
i. giving a true and fair view of its financial position as at 30 June 2014 and performance for the year ended on
that date; and
ii. complying with Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
b. the financial statements and notes also comply with International Financial Reporting Standards as disclosed in
Note 2;
c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
d. this declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2014.
On behalf of the Board
Robert Ferguson
Chairman
Sydney 21 August 2014
Hugh Mclernon
Managing Director
63
ANNUAL REPORT 2014
INDEPENDENT AUDITOR’S REPORT
64
BENTHAM IMF LIMITED INDEPENDENT AUDITOR’S REPORT
65
ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Bentham IMF Limited (“IMF”) is responsible for the corporate governance of the Group.
The Board guides and monitors the business and affairs of IMF on behalf of the shareholders by whom they are
elected and to whom they are accountable. The following table is a summary of the ASX Corporate Governance
Principles and Recommendations and the Group’s compliance with these guidelines and should be read in
conjunction with the further details and rationale of the Company’s corporate governance practices in this report.
Recommendation
Comply Yes / No
1.1
Companies should establish the functions reserved to the Board and those delegated to
senior executives and disclose those functions.
1.2 Companies should disclose the process for evaluating the performance of senior executives.
1.3 Companies should provide the information indicated in the Guide to reporting on Principle 1.
2.1 A majority of the Board should be independent directors.
2.2 The chair should be an independent director.
2.3 The roles of chair and chief executive officer should not be exercised by the same individual.
2.4 The Board should establish a nomination committee.
2.5 Companies should disclose the process for evaluating the performance of the Board, its
committees and individual directors.
2.6 Companies should provide the information indicated in the Guide to reporting on Principle 2.
3.1
Companies should establish a code of conduct and disclose the code or a summary of the
code as to:
– the practices necessary to maintain confidence in the Company’s integrity;
– the practices necessary to take into account their legal obligations and the reasonable
expectations of their stakeholders; and
– the responsibility and accountability of individuals for reporting and investigating reports
of unethical practices.
3.2 Companies should establish a policy concerning diversity and disclose the policy or a
summary of that policy. The policy should include requirements for the Board to establish
measurable objectives for achieving gender diversity for the Board to assess annually both
the objectives and progress in achieving them.
3.3 Companies should disclose in each annual report the measurable objectives for achieving
gender diversity set by the Board in accordance with the diversity policy and progress
towards achieving them.
3.4 Companies should disclose in each annual report the proportion of women employees in the
whole organisation, women in senior executive positions and women on the Board.
3.5 Companies should provide the information indicated in the Guide to reporting on Principle 3.
4.1
The Board should establish an audit committee.
4.2 The audit committee should be structured so that it:
– consists of only non-executive directors:
– consists of a majority of independent directors;
– is chaired by an independent chair, who is not chair of the Board; and
– has at least three members.
4.3 The audit committee should have a formal charter.
4.4 Companies should provide the information indicated in the Guide to reporting on Principle 4.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
66
BENTHAM IMF LIMITED Recommendation
Comply Yes / No
5.1
Companies should establish written policies designed to ensure compliance with ASX
Listing Rule disclosure requirements and to ensure accountability at a senior executive level
for that compliance and disclose those policies or a summary of those policies.
5.2 Companies should provide the information indicated in the Guide to reporting on Principle 5.
6.1 Companies should design a communication policy for promoting effective communication
with shareholders and encouraging their participation at general meetings and disclose their
policy or a summary of that policy.
6.2 Companies should provide the information indicated in the Guide to reporting on Principle 6.
7.1
7.2
Companies should establish policies for the oversight and management of material business
risks and disclose a summary of those policies.
The Board should require management to design and implement the risk management
and internal control system to manage the Company’s material business risks and report
to it on whether those risks are being managed effectively. The Board should disclose that
management has reported to it as to the effectiveness of the Company’s management of its
material business risks.
7.3 The Board should disclose whether it has received assurance from the Chief Executive
Officer and the Chief Financial Officer that the declaration provided in accordance with
Section 295A of the Corporations Act is founded on a sound system of risk management
and internal control and that the system is operating effectively in all material respects in
relation to reporting risks.
7.4 Companies should provide the information indicated in the Guide to reporting on Principle 7.
8.1
The Company should establish a remuneration committee.
8.2 The remuneration committee should be structured so that it:
– consists of a majority of independent directors;
– is chaired by an independent chair; and
– has at least three members.
8.3 Companies should clearly distinguish the structure of non-executive directors’ remuneration
from that of directors and senior executives.
8.4 Companies should provide the information indicated in the Guide to reporting on Principle 8.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
The Company’s corporate governance practices were in place throughout the year ended 30 June 2014.
Various corporate governance practices are discussed within this statement. For further information on corporate
governance policies adopted by the Company refer to our website www.benthamimflimited.com.au.
67
ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT
CONTINUED
Other functions reserved to the Board include:
– approval of the annual and half-yearly financial
reports;
– approving and monitoring the progress of major
capital expenditure, capital management, and
acquisitions and divestitures;
– ensuring that any significant risks that arise are
identified, assessed, appropriately managed and
monitored; and
– reporting to shareholders.
Structure of the Board
The skills, experience and expertise relevant to the
position of director held by each director in office
at the date of the annual report is included in the
Directors’ Report. Directors of IMF are considered
to be independent when they are independent of
Management and free from any business of other
relationship that could materially interfere with, or
could reasonably be perceived to materially interfere
with, the exercise of their unfettered and independent
judgement.
The composition of the Board consists of three
executive directors and four independent non-
executive directors. The Board believes that the
majority of the individuals on the Board can, and do,
make independent judgements in the best interests
of the Group on all relevant issues.
The Board has in place a number of policy measures
to ensure that independent judgment is achieved
and maintained in respect of its decision-making
processes, including:
– the Chairman is an independent director and has a
casting vote at Board meetings where the votes of
the directors are tied;
– the Chairman has been appointed for a fixed term
ending on 4 November 2014;
– the directors are able to obtain independent
professional advice at the expense of the Group;
– Directors who have a conflict of interest in relation
to a particular item of business must absent
themselves from the Board meeting before
commencement of discussion on the topic; and
– at least half of the Board consists of independent
directors.
Board Functions
The Board seeks to identify the expectations of the
shareholders, as well as other regulatory and ethical
expectations and obligations. In addition, the Board
is responsible for identifying areas of significant
business risk and ensuring arrangements are in place
to adequately manage those risks.
To ensure that the Board is well equipped to discharge
its responsibilities it has established guidelines for
the nomination and selection of directors and for the
operation of the Board.
The responsibility for the operation and administration
of the Company is delegated, by the Board, to the
Managing Director and the executive management
team. The Board ensures that this team is
appropriately qualified and experienced to discharge
their responsibilities and has in place procedures to
assess the performance of the Managing Director and
the executive management team.
Whilst at all times the Board retains full responsibility
for guiding and monitoring the Group, in discharging
its stewardship it makes use of sub-committees.
Specialist committees are able to focus on a particular
responsibility and provide informed feedback to the
Board.
To this end the Board has established the following
committees:
– Audit;
– Remuneration; and
– Nomination.
The roles and responsibilities of these committees are
discussed in this Corporate Governance Statement.
In addition to the above committees, a Corporate
Governance Committee was established on 13 August
2014.
The Board is responsible for ensuring that
Management’s objectives and activities are aligned
with the expectations and risks identified by the Board.
The Board has a number of mechanisms in place to
ensure this is achieved including:
– Board approval of a strategic plan designed to meet
stakeholders’ needs and manage business risk;
– ongoing development of the strategic plan and
approving initiatives and strategies designed to
ensure the continued growth and success of the
Group; and
– implementation of budgets by Management and
monitoring progress against budget – via the
establishment and reporting of both financial
and non financial key performance indicators.
68
BENTHAM IMF LIMITED In the context of director independence, ‘materiality’
is considered from both the Group and individual
director perspective. The determination of materiality
requires consideration of both quantitative and
qualitative elements. An item is presumed to be
quantitatively immaterial if it is equal to or less than
5% of the appropriate base amount. It is presumed
to be material (unless there is qualitative evidence
to the contrary) if it is equal to or greater than
10% of the appropriate base amount. Qualitative
factors considered include whether a relationship is
strategically important, the competitive landscape, the
nature of the relationship and the contractual or other
arrangements governing it and other factors that point
to the actual ability of the director in question to shape
the direction of the Group.
In accordance with the definition of independence
above, and the materiality thresholds set, the following
directors of IMF are considered to be independent:
Name
Robert Ferguson
Alden Halse
Michael Bowen
Position
Chairman
Non-Executive Director
Non-Executive Director
Wendy McCarthy
Non-Executive Director
There are procedures in place, agreed by the Board, to
enable directors in furtherance of their duties to seek
independent professional advice at the Company’s
expense.
The position held by each director in office at the date
of this report is as follows:
Name
Robert Ferguson
Hugh McLernon
John Walker
Clive Bowman
Alden Halse
Michael Bowen
Position
Non-Executive Chairman
Managing Director
Executive Director
Executive Director –
Director of Operations
Non-Executive Director
Non-Executive Director
Wendy McCarthy
Non-Executive Director
For additional details regarding Board appointments,
please refer to the Group’s website.
Trading Policy
Under the Company’s Securities Trading Policy, an
executive or director must not trade in any securities
of the Company at any time when they are in
possession of unpublished, price-sensitive information
in relation to those securities.
The policy allows dealing in the Company’s securities
except during defined closed periods, being:
– the four weeks prior to and the 24 hours after the
release of the Company’s half-yearly results;
– the four weeks prior to and the 24 hours after the
release of the Company’s preliminary final results;
– the four weeks prior to and the 24 hours after the
release of the Company’s final results; nor
– the two weeks prior to and 24 hours after the
holding of the Annual General Meeting;
As required by the ASX Listing Rules, the Company
notifies the ASX of any transaction conducted by
directors in the securities of the Company. A copy of
the Company’s trading policy can be obtained from
its website.
Audit Committee
The Board has established an Audit Committee,
which operates under a charter approved by the
Board. It is the Board’s responsibility to ensure that
an effective internal control framework exists within
the Group. This includes internal controls to deal with
both the effectiveness and efficiency of significant
business processes, the safeguarding of assets, the
maintenance of proper accounting records, and the
reliability of financial information as well as non-
financial considerations such as the benchmarking of
operational key performance indicators. The Board
has delegated responsibility for establishing and
maintaining a framework of internal control and ethical
standards to the Audit Committee.
The Committee also provides the Board with
additional assurance regarding the reliability of
financial information for inclusion in the financial
reports. All members of the Audit Committee are non-
executive directors.
The members of the Audit Committee during the year
were: Alden Halse (Chairman), Michael Bowen, and
Robert Ferguson.
For details on the number of meetings of the Audit
Committee held during the year and the attendees
at those meetings, refer to the Directors’ Report.
69
ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT
CONTINUED
Managing Director and Chief Financial Officer
Certification
The Managing Director and Chief Financial Officer
have provided a written statement to the Board that:
– their view provided on the Group’s financial report
is founded on a sound system of risk management
and internal compliance and controls which
implements the financial policies adopted by the
Board; and
– the Group’s risk management and internal
compliance and control system is operating
effectively in all material respects.
Performance
The performance of the Board and key executives
is reviewed regularly against both measurable and
qualitative indicators. The performance criteria against
which directors and executives are assessed are
aligned with the financial and non-financial objectives
of the Group.
In order to ensure that the Board continues to
discharge its responsibilities in an appropriate manner,
the performance of directors is to be reviewed
annually by the chairperson.
The Board of Directors aims to ensure that
shareholders are informed of all information necessary
to assess the performance of the directors. Information
is communicated to shareholders through:
– the annual report which is distributed to all
shareholders;
– the half-yearly report circulated to the Australian
Securities Exchange and the Australian Securities
& Investments Commission; and
– the Annual General Meeting and other shareholder
meetings so called to obtain approval of Board
action as appropriate.
Risk
The Board determines the Group’s risk profile
and is responsible for overseeing and approving
risk management strategy and policies, internal
compliance and internal controls. The Company’s
process of risk management and internal compliance
and control includes:
– establishing the Company’s goals and objectives,
and implementing and monitoring strategies and
policies to achieve these goals and objectives;
– continuously identifying and measuring risks
that might impact upon the achievement of the
Company’s goals and objectives, and monitoring the
environment for emerging factors and trends that
affect these risks;
– formulating risk management strategies to manage
identified risks, and designing and implementing
appropriate risk management policies and internal
controls; and
– monitoring the performance of, and continuously
improving the effectiveness of, risk management
systems and internal compliance and controls,
including an annual assessment of the effectiveness
of risk management and internal compliance and
controls.
To this end, comprehensive practices are in place
that are directed towards achieving the following
objectives:
– effectiveness and efficiency in the use of the
Company’s resources;
– compliance with applicable laws and regulations;
and
– preparation of reliable published financial
information.
The Board oversees an annual assessment of the
effectiveness of risk management and internal
compliance and control. The responsibility for
undertaking and assessing risk management
and internal control effectiveness is delegated to
Management. Management is required by the Board
to assess risk management and associated internal
compliance and control procedures and report back
on the efficiency and effectiveness of the Group’s risk
management.
70
BENTHAM IMF LIMITED Remuneration
It is the Company’s objective to provide maximum
stakeholder benefit from the retention of a high quality
Board and executive team by remunerating directors
and key executives fairly and appropriately with
reference to relevant employment market conditions.
To assist in achieving this objective, the Remuneration
Committee links the nature and amount of executive
directors’ and officers’ remuneration to the Company’s
financial and operational performance. The expected
outcomes of the remuneration structure are:
– retention and motivation of key executives;
– attraction of high quality management to the Group;
and
– performance incentives that allow executives to
share in the success of the Group.
For a full discussion of the Company’s remuneration
philosophy and framework and the remuneration
received by directors and executives in the current
period please refer to the Remuneration Report, which
is contained within the Directors’ Report.
There is no scheme to provide retirement benefits to
non-executive directors.
The Board is responsible for determining and
reviewing compensation arrangements for the
directors themselves and the Managing Director
and executive team. The Board has established a
Remuneration Committee, comprising three non-
executive directors. Members of the Remuneration
Committee throughout the year were:
Michael Bowen (Chairman)
Alden Halse
Robert Ferguson
Wendy McCarthy has now been appointed to the
Remuneration Committee. For details on the number
of meetings of the Remuneration Committee held
during the year and the attendees at those meetings,
refer to the Directors’ Report.
Diversity
It is the Company’s objective to support female
representation at senior leadership and Board
levels. Although the Company advocates greater
transparency and measurability of progress, it does
not endorse female participation quotas.
The Company has implemented policies that promote
the following:
– equal opportunity based upon capabilities and
performance;
– attraction and retention of a diverse range of
talented people;
– awareness of the differing needs of a diverse range
of employees;
– provision of flexible work practices and policies to
support all employees; and
– promotion of a culture that is free from
discrimination, harassment and bullying.
The Board receives a report on an annual basis that
provides the following information:
– total female employees: 14 (2013: 12); total
employees: 32 (2013: 28);
– total female investment managers: 3 (2013: 2); total
investment managers: 13 (2013: 12); and
– total female Key Management Personnel: 1 (2013: 1);
total Key Management Personnel: 5 (2013: 5).
The IMF Nomination Committee will endeavour
to improve the diversity of the Board at any time
nominations are required to fill a Board position, and
were pleased to improve the Board’s diversity with
the appointment of Wendy McCarthy to the Board
on 11 December 2013.
71
ANNUAL REPORT 2014 SHAREHOLDER INFORMATION
Additional information required by the Australian Securities Exchange and not shown elsewhere in this report
is as follows. The information is current as at 31 July 2014.
(a) Distribution of Shareholders
Ordinary Share Capital
165,370,269 fully paid ordinary shares are held by 6,058 individual shareholders. All issued ordinary shares
carry one vote per share and carry the right to dividends.
Bonds
There are 500,000 bonds issued held by 258 individual bond holders.
Options
There are no options issued over ordinary shares.
The number of shareholders by size of holding, in each class are as at 31 July 2014:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Number
961
2,151
1,278
Fully paid
ordinary
shares
504,597
6,177,586
9,457,702
1,554
37,530,946
114
111,699,438
Number
Bonds
207
38
4
9
–
81,376
67,259
31,980
319,385
–
6,058
165,370,269
258
500,000
(b) Substantial Shareholders
The names of the substantial shareholders listed in the Company’s register as at 31 July 2014 are:
Shareholder
Acorn Capital Limited
Ellerston Capital Limited
Number of
ordinary
Shares
9,567,088
8,770,756
18,337,844
% of
issued
capital
5.79%
5.30%
11.09%
72
BENTHAM IMF LIMITED (c) 20 Largest Holders of Quoted Equity Securities as at 31 July 2014
Ordinary Shares
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
MCLERNON GROUP SUPERANNUATION PTY LTD
LEGAL PRECEDENTS PTY LIMITED
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