Annual
Report
2018
IMF Bentham Limited is
a leading global litigation
funding company with
an unparalleled record
of success, achieved over
17 years since listing on
the Australian Securities
Exchange in 2001.
IMF operates globally from
14 offices in Australia, USA,
Canada, Singapore, Hong Kong
and the United Kingdom providing
funding to plaintiffs, law firms and
corporations for legal disputes.
Our highly experienced team of
investment managers ensures the
strongest cases receive funding
and are managed to facilitate
their successful resolution.
Contents
Highlights ....................................................................... 2
Track Record of Success ............................................... 3
Chairman’s and Managing Director’s Report .................. 4
Directors’ Report .......................................................... 35
Auditor’s Independence Declaration ............................ 61
Statement of Comprehensive Income .......................... 62
Statement of Financial Position .................................... 63
Statement of Cash Flows ............................................. 64
Statement of Changes in Equity ................................... 65
Notes to the Financial Statements ................................ 66
About this Report ......................................................... 66
Significant Accounting Judgments,
Estimates and Assumptions ......................................... 68
A. RESULTS FOR THE YEAR
69
Note 1: Segment information .................................... 69
Note 2: Revenue ....................................................... 72
Note 3: Other income .............................................. 72
Note 4: Expenses ..................................................... 73
Income tax ................................................... 74
Note 5:
Note 6: Earnings per share ....................................... 76
Note 7: Dividends paid and proposed ..................... 78
Note 8: Statement of cash flows reconciliation ......... 79
B. INTANGIBLE ASSETS
80
Note 9:
Intangible assets .......................................... 80
C. CAPITAL STRUCTURE
82
Note 10: Financial risk management objective
and policies .................................................. 82
Note 11: Cash and cash equivalents .......................... 86
Note 12: Debt Securities ............................................. 86
Note 13: Contributed equity........................................ 87
Note 14: Retained earnings and reserves ................... 88
D. WORKING CAPITAL, OTHER ASSETS
AND OTHER LIABILITIES
89
Note 15: Trade and other receivables ........................ 89
Note 16: Other assets ................................................. 90
Note 17: Plant and equipment .................................... 90
Note 18: Trade and other payables ............................. 92
Note 19: Provisions ..................................................... 92
Note 20: Commitments and contingencies ................. 94
E. THE GROUP, MANAGEMENT
AND RELATED PARTIES
95
Note 21: Key management personnel......................... 95
Note 22: Share-based payment plan .......................... 96
Note 23: Parent entity information ............................. 98
Note 24: Material partly-owned subsidiaries .............. 99
Note 25: Discontinued operations ............................ 101
Note 26: Related party disclosure ............................. 101
Note 27: Auditor’s remuneration ............................... 101
Note 28: Events after the reporting date ................... 101
Directors’ Declaration ................................................. 102
Independent Auditor’s Report .................................... 103
Shareholder Information ............................................. 109
Corporate Information ................................................ 112
1
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Highlights
Cash
($ Million)
Investments
($ Million)
2
.
0
6
1
5
.
2
4
1
9
.
4
4
1
1
.
0
3
1
6
.
5
0
1
3
.
1
2
3
9
.
0
9
1
6
.
5
4
1
6
.
8
9
5
.
9
9
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Net Assets
($ Million)
Portfolio
($ Million)
8
.
7
6
3
4
.
1
0
2
3
.
6
0
2
1
.
1
9
1
9
.
5
8
1
3
4
6
,
5
2
8
7
,
3
8
3
4
,
3
7
6
0
,
2
2
0
0
,
2
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2
Track Record
of Success
144
d
e
l
t
t
e
S
Delivering
results for
over 17 years
14
W
o
n
L
o
s
t
17
Investments funded to completion at 30 June 2018. Does not include withdrawn investments.
$2.2 billion
total
recoveries
2.6 years
average investment
length
90%
success
rate
$1.4 billion
returns for funded
claimants
1.5x
return on
invested capital
175
investments funded
to completion
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
3
Chairman’s
and Managing
Director’s Report
Introduction
We are now three years into the five-year Strategic
Business Plan we commenced in 2015. We are delighted
to report the progress and completion of many of the
significant objectives in that plan. Over the past three
years, our focus has been to mitigate business risk
through diversification. Our risk diversification strategy has
involved expanding our geographic footprint and growing
our team, increasing the number and variety of cases
in which we invest and seeking alternative sources
of capital.
Before we delve into the detail of what we have achieved
in each of these areas, we set out the underlying
principles of our decision-making. Our company values
are transparency, innovation, entrepreneurship, fairness,
partnership and rigour. It is therefore important to us that
our stakeholders are clear about what underpins our
approach to doing business.
– We will take the long-term view over the
short-term, every time
This means preferring to maximise the value of future
cashflow over an immediate uplift in profitability.
It involves assessing risk and reward differently
from some other businesses. It necessarily
means analysing the industry and its continuing
transformation and making changes now that will
deliver value over time. Some of the decisions we
have implemented recently may not assist with short
term profitability but success in business, as in life,
usually comes down to choosing the pain of discipline
over the ease of short-term rewards. And that’s what
we are prepared to do.
Andrew Saker
Andrew Saker
MANAGING DIRECTOR AND
MANAGING DIRECTOR AND
CHIEF EXECUTIVE OFFICER
CHIEF EXECUTIVE OFFICER
– Fortune favours the bold… and wise
We will make bold decisions where it is prudent to do
so. Our Investment Committee (“IC”) is the forum in
which potential investments are analysed and debated
with rigour in the context of our corporate strategy.
Last financial year we welcomed to our IC former
Justice of the Supreme Court of South Australia,
Mr John Sulan QC, and former Chief Judge of the
Northern District of California, Mr Vaughn Walker.
Along with our in-house members, including Hugh
McLernon and Clive Bowman who have served since
the company was founded, our IC is a formidable
assembly where case merits and strategies are
discussed openly and robustly. It is the collective
heart of the company’s investment decisions.
– We are prioritising growth for long-term
profitability
We need to maintain strong positions in existing
markets while encouraging growth in emerging areas
of the rapidly evolving market. We are growing our
capacity through team and geographic expansion
and also growing our capability through new product
and service development. If we continue to execute
our services at the highest level and educate the
market about new developments and offerings we are
confident that long-term profitability will follow.
– Only the best will do
To be an Investment Manager or Legal Counsel
at IMF Bentham requires an exceptional formal
education, commercial acumen and a breadth and
depth of experience in law (particularly litigation
and alternative dispute resolution). Investment
Managers make decisions every day that involve
risk, and often carry some combination of financial,
legal, reputational, and personal repercussions.
They must be adept negotiators, because they are
frequently required to negotiate funding terms, pricing,
legal strategy, conditions of settlement and more.
Similarly, to be a member of IMF Bentham’s central
management team requires dedication to your field
of expertise and to the mission of building a business
and an industry. Each new addition to our team is
an occasion for celebration because each person
contributes to the ongoing shaping of our company
culture and its continued growth.
And now we turn to the details of this year’s activities
and outcomes.
4
Michael Kay
NON-EXECUTIVE CHAIRMAN
Capital Diversification
In February 2017, we established Bentham IMF 1 LLC
(“Fund 1”) solely for US investments. This year, we sold
the majority of our US investment portfolio to Fund 1 and,
at the same time, upsized Fund 1 to US$166.3 million
(with the potential to upsize further in future). The upsized
Fund 1 provided additional capital for US investments
without creating significant adverse deployment pressure.
This capital markets strategy converted the risk in our
US investments from balance sheet to a portfolio and
converted intangible assets to cash, enabling the cash to
be deployed elsewhere. Options for use of the remaining
sales proceeds include retiring debt, retaining cash
for management of existing large idiosyncratic risks,
expansion into Europe, or return of capital.
In October 2017, we launched two new investment
vehicles: IMF Bentham (Fund 2) Pty Ltd and IMF Bentham
(Fund 3) Pty Ltd. The two new funds, collectively known
as the Rest of World (“RoW”) Funds, provide non-
recourse leveraged capital for funding investments in
jurisdictions outside of the US. The RoW Funds will
underwrite investments in Australia, Asia, Canada and
Europe, and have a combined capacity of $150 million.
Although these decisions have had a short-term impact
on our profitability our long-term strategy should enable
us to more efficiently fund future growth and increase
our Return on Equity and Return on Assets.
Given the rate of commitment in both Fund 1 and the
RoW Funds, our focus for FY19 will be to launch new
funds for investments before we reach capacity in the
existing funds or the expiry of the Commitment Periods.
Each of these initiatives reflects our transition from
investing entirely on our own balance sheet to investing in,
and managing, fund structures and increasing our capital
resources to grow our investment portfolio.
Funding Applications (number of applications)
900
800
700
600
500
400
300
200
100
0
446
264
170
12
FY15
669
309
301
59
FY16
827
371
345
104
7
FY17
866
356
302
127
55
26
FY18
Consolidated
Australia
USA
Canada
Asia
Europe
Financial Year
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
5
Chairman’s
and Managing
Director’s Report
continued
Product Diversification
Over the past 17 years, we have built a successful
business providing access to justice for claimants, most
commonly the impecunious and the ill-matched ‘David
versus Goliath’, and we will continue to do so. However,
progress requires innovation, and we see potential in
expanding our product offering to include financing
commercial disputes for solvent businesses who wish
to pursue their legal claims without resorting to their
own balance sheet.
Today’s businesses are under pressure to do more with
less. Management teams must constantly innovate to
reduce risks and expenses while at the same time build
a sustainable organisation, improve profits, and maximise
value for stakeholders. In-house corporate legal teams
report their most significant challenge is resource and
budget limitations and legal expenditure is under review.
We know that litigation, arbitration and alternative dispute
resolution are one of the largest categories of legal
expense and one of the most likely areas of work to be
outsourced by businesses. Accordingly, we are fielding
enquiries and discussing dispute financing options
with corporates who are intrigued by the possibility
of de-risking their balance sheet and monetising
their legal claims.
Dispute financing for corporates may grow worldwide as
commercial enterprises become familiar with alternative
financing options and recognise the value of unlocking the
monetary value in their disputes and assuaging the risks.
It is difficult to reliably quantify the addressable market
for our range of products and services. Independent
research reports suggest the global market for legal
services exceeds $800 billion per annum, with litigation
representing approximately 40% of that figure. The
portion which comprises commercial disputes for
plaintiffs represents an attractive potential serviceable
market. And these estimates only factor in actual activity.
Market participants suggest there is an untapped
market of potential litigation which might be pursued
if costs and risks could be defrayed by a dispute
financier. The magnitude of the potential ‘shadow
market’ for our products and services is encouraging
and our team is engaging with corporate stakeholders
to raise awareness and progress opportunities.
We recognise that making, rather than taking, a new
market is a long-game which will require patience and
hard work and we will continue to work on this pursuit
throughout FY19 and beyond.
Litigation is now a permanent fixture
in the top five areas of in-house legal
work as businesses deploy legal means
as a business strategy tool 1
1. 2017, Benchmarks & Leading Practices Report, Association of Corporate Counsel Australia, p 117
6
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Geographic Diversification
This year we expanded our geographic footprint with the opening of new offices and the recruitment of new talent
in Hong Kong, Montreal and London. We also expanded our teams in existing locations with new hires in Australia,
Canada and the USA. We now have 78 people across 14 offices world-wide. Detailed biographies for our people are
available on our website.
Toronto
Montreal
London
San Francisco
Los Angeles
New York
Houston
80
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Hong Kong
Singapore
Brisbane
Perth
Sydney
Adelaide
Melbourne
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
7
Chairman’s
and Managing
Director’s Report
continued
Australia
In the Australian market, IMF Bentham
enjoys a pre-eminent position, and has done
so since its inception almost 17 years ago.
We have played a leadership role in the development of
the dispute finance industry and continue to do so as the
industry adapts to its dynamic landscape. During the year
we sought qualitative feedback from key stakeholders
in our market and were delighted and humbled by the
endorsement of our market leadership, the loyalty to our
brand and the acknowledgement of our differentiators.
Our team was applauded for its expertise, integrity and
likability - all essential ingredients for a business delivering
a product-service hybrid to a sophisticated clientele.
We continue to experience an increase in multi-party
(class action) proceedings in the Australian market.
Competition for opportunities to finance shareholder
class actions is intensifying and it is becoming common
in the Australian landscape in these cases for multiple
law firms, each with a different litigation funder, to back
proceedings against the same defendant (known as
“multiplicity”). There are a number of factors potentially
fuelling this dynamic.
In Money Max Int Pty Ltd (Trustee) v QBE Insurance
Group Limited [2016] FCAFC 148 the Federal Court of
Australia granted a “Common Fund” order directing all
group members of the class action to pay a portion of any
recoveries to a litigation funder as consideration for the
funder’s financing of the class action, even if they had not
already signed a funding agreement. This has arguably
encouraged more open classes (where the class is not
limited to persons who have signed a funding agreement)
and increased the likelihood of competing class actions,
as there is no material threshold in respect of claim size
to satisfy before commencing a shareholder class action.
The Courts are grappling with how to deal with multiple
claims against a common defendant for essentially the
same or similar sets of claims and we have seen one
case (the Get Swift case) Perera v GetSwift Limited
[2018] FCA 732 (currently on appeal) where the Court has
applied a number of factors to choose one funder/lawyer
group over others. This case did not involve IMF Bentham.
We believe IMF Bentham is well placed to win these types
of beauty parades.
This year we assessed 302 new investment opportunities
and invested in 7 class actions – an increase over
previous periods.
In December 2017, the Australian Government initiated
a Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry.
The Commission is uncovering misconduct in the
financial services sector which is pointing to potential
class actions. The first example of this is a number of
class actions against Australian financial services giant,
AMP, one of which IMF Bentham is financing. Retail and
institutional investors in AMP are seeking damages for
alleged disclosure contraventions by AMP. Four class
actions have been filed in the Federal Court and one has
been filed in the NSW Supreme Court, against AMP.
In addition to AMP, IMF Bentham is funding cases against
the Australian Government (contamination from RAAF
Base Tindal in Katherine, Northern Territory), Brambles
(an ASX-listed supply chain logistics company), the
Commonwealth Bank of Australia (Australia’s largest
retail bank), Murray Goulburn (one of Australia’s largest
dairy foods companies) and Sirtex Medical Limited
(an Australian-based medical device company),
among others.
During the year, the class action against Treasury Wine
Estates Limited (a global winemaking and distribution
business with headquarters in Melbourne, Australia) was
successfully settled for $49 million inclusive of costs and
interest. The trial in the Westgem investment (a Perth-
based property development company) commenced
and concluded in July 2018 and the Wivenhoe trial
(a compensation claim for financial loss or damage
caused by the alleged negligent operation of Wivenhoe
and Somerset dams in Queensland, Australia) is
continuing. Mediations were held in a number of cases,
which ultimately did not settle and those actions continue.
Total Estimated Addressable Market for Australia
Total Estimated Annual Market Legal Spend: $19.7b
81%
9%
19%
8
Estimated Litigation Portion of Total Legal Spend
Estimated Total Addressable Market as % of Total Legal Spend
To meet demand, our Australian team welcomed a new
Investment Manager, Gavin Beardsell, who brings a
wealth of expertise particularly in the insurance sector.
We are witnessing the internationalisation of the dispute
finance industry in Australia. Domestic law firms are
increasingly becoming part of larger international
operations and off-shore funders and After-the-Event
(“ATE”) insurers (which typically provide coverage for
adverse costs) are increasingly pursuing Australian-based
opportunities. This can be interpreted as an endorsement
of the potential in the Australian market. Australia’s legal
services market is estimated at $19.7 billion2 per annum
of which approximately 19%3 is attributed to litigation and
dispute resolution. On these figures, this translates into a
potential plaintiff pool of almost $1.9 billion annually - an
attractive potential market for funders given that estimated
penetration rates are likely to be no more than 5%.
In spite of increased
competition in the
Australian market, IMF
Bentham is very well
placed to win the conduct
of matters it wishes to
fund and to respond to
the changing dynamics
in the shareholder class
action space.
Clive Bowman
CHIEF EXECUTIVE –
AUSTRALIA AND ASIA
Do, K, 2017. IBISWorld Industry Report M6931, Legal Services in Australia, IBISWorld, p 5
2.
3. 2017 Australia: State of the Legal Market, Thomson Reuters & Melbourne Law School, p 11
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
9
Chairman’s
and Managing
Director’s Report
continued
Asia
Since the launch of our regional head
office in Singapore in early 2017, we have
experienced increasing interest in dispute
finance across Asia.
Demand is evident from a range of jurisdictions including
China, Europe, Hong Kong, India, Japan, Korea, Malaysia,
Thailand, the Philippines and Vietnam, as well as local
Singaporean parties.
Singapore is a leading global hub for international dispute
resolution (including international arbitration, insolvency
and restructuring, as well as international commercial
litigation). This year we financed our first international
commercial arbitration in Singapore, one of the first
known examples since the city-state passed new laws
in 2017 allowing the use of third-party dispute finance.
We have also signed our first Singapore insolvency
funding agreement (subject to Court approval). As in
other markets, we are increasingly working with solvent
corporates to help manage the risk and costs associated
with complex commercial disputes.
Building on the success of our Singapore experience,
in January 2018 we opened an office in Hong Kong
(another leading regional disputes hub) and welcomed
new Associate Investment Manager Cheng-Yee Khong
(formerly Director of Secretariat of the International
Chamber of Commerce (ICC) International Court of
Arbitration in Asia). We are currently the only significant
dispute financier with resources permanently on the
ground in Hong Kong. In recent years, we have had
success in funding Hong Kong insolvency matters, and
this continues to be a focus. This year, international
arbitration financing has been expressly endorsed in Hong
Kong under new legislation expected to come into force
shortly. We have also been involved in the first known
application for approval on access to justice grounds of a
funding agreement in Hong Kong commercial litigation.
Led by Tom Glasgow in Singapore and supported by
resources in Australia, our Asia team assesses and
manages investments across Asia. They traverse the
region to educate the market and forge relationships,
regularly presenting on third-party dispute finance to law
firms and at legal and industry conferences and publishing
in respected journals and media outlets. Our Asia team
is actively pursuing opportunities to fund commercial
parties, law firms and insolvency practitioners, with a brief
to build institutional relationships with global law firms
and multinational corporations.
Having Investment Managers assessing investments
on the ground in Singapore and Hong Kong means we
can respond quickly to business opportunities across
the region, build strong relationships through face to
face interaction, and provide superior service to funding
applicants and their legal advisers. This has helped us
to quickly become one of the leading brand names for
dispute finance in Asia.
It is particularly difficult to accurately assess the size of
the potential market for dispute finance in Asia, as it is
not a homogenous legal market. Perhaps one apposite
measure for part of our Asia business is the volume of
international arbitration cases appearing in the Singapore
and Hong Kong arbitral institutions. In 2017 arbitral
institutions in Singapore and Hong Kong managed
arbitration cases with total claim value approximating
$22.76 billion4. Adding China and India’s potential demand
for dispute finance would increase estimates for Asia
significantly. China’s legal services market is estimated
to be growing at a compound annual growth rate of
8.5%5 and liberalisation, and an appetite for international
arbitration, make this a potentially fertile ground for our
arbitration financing. India’s legal services market has
an estimated compound annual growth rate of 11.93%6,
mainly driven by foreign investments and cross-border
transactions with foreign companies - also fertile ground,
particularly for arbitration financing. We have cemented
our position as a leading brand for international dispute
finance in Hong Kong and Singapore, especially among
law firms and insolvency practitioners, and we continue
to build an understanding of our business model among
corporates and key legal services contacts across the
wider Asia region, including in developing markets such
as India and China.
SIAC (Singapore International Arbitration Centre), HKIAC (Hong Kong International Arbitration Centre), ICC (International Chamber of Commerce
International Court of Arbitration)
2018, Legal Services Global Market Report, The Business Research Company, p 156
2018, Legal Services Global Market Report, The Business Research Company, p 167
4.
5.
6.
10
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
This is an enormously exciting time to be
part of the third-party finance industry
in Asia. This is a very large and diverse
market, where dispute finance is relatively
new but the speed of growth is incredible.
The potential opportunities for the
business are immense.
Tom Glasgow
INVESTMENT MANAGER
HEAD OF IMF BENTHAM ASIA
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
11
Chairman’s
and Managing
Director’s Report
continued
Canada
We are enjoying the challenge of parlaying
the lessons learned from Australia and
other markets to the Canadian market,
a jurisdiction which shares some similarities
to the Australian justice system, language
and culture.
We are applying decades of experience in dispute
funding to develop our Canadian presence and have
recruited a strong team to meet growing demand.
This year, the Canadian team welcomed three new
members. In Montreal, seasoned litigator emeritus
George Hendy, Ad.E, joined the team as a Senior
Adviser, Nickolas Tzoulas joined our Toronto office as
Legal Counsel and Geoff Moysa joined as an Investment
Manager & Legal Counsel. At the start of FY19, we will
also welcome senior litigation practitioner, Pierre-Jérôme
Bouchard, as Investment Manager and Legal Counsel
to head the Montreal office.
In addition to servicing our active investments and
those in the pipeline, our newest team members have
brought with them referral sources and new business
opportunities. This year we received 127 applications
for funding. Not only is the volume of referrals increasing,
but they are also of higher quality, reflecting the refined
understanding among law firms of the types of cases
best suited to dispute finance.
The cases we funded during the year came from across
the country and from diverse sources spanning leading
national law firms (the ‘Seven Sisters’) to smaller litigation
boutique practices. Most of the cases involve risk-sharing
arrangements with clients and law firms. Amongst the
funded cases is a claim against a global pharmaceutical
company for alleged patent infringement. Two of the
cases – a class action and an insolvency related mater –
are funded on a conditional basis pending court approval.
We currently have another 30 cases in various stages of
due diligence.
It is fair to say the dispute finance industry in Canada
is in the ‘introduction’ phase of its lifecycle. Accordingly,
one of our team’s priorities is to explain our products
and services and their uses to clients and their legal
advisors. Generating curiosity and demonstrating
opportunity are important precursors to new business
leads, and these activities are best done face to face.
This year our team delivered presentations extensively
to our target audience via bespoke events and broader
industry conferences and gatherings. We are generating
significant positive coverage in respected business and
legal media - a reflection of the growing interest in dispute
funding - and are establishing our brand in Canada as the
pioneer in the market.
Having expanded our footprint this year to include
Montreal, there are sound reasons to consider
establishing a permanent presence in additional provinces
across Canada in the coming years. Our business model
is distinguished by Investment Managers being on-the-
ground close to funded parties and their lawyers and we
are exploring the merits of being more dispersed around
Canada, as we have in our other geographic markets.
Analysts estimate the value of the Canadian legal
services market at $25.72 billion7 per annum, of which
approximately $3.52 billion8 annually is litigation, rendering
an estimated $1.76 billion to plaintiff-side claims. While
there continues to be ad-hoc dispute financing activity
from US hedge funds, venture-capital firms and off-
shore funders, there are few systemic competitors on the
observable horizon and no other international funder has
a physical presence in Canada.
Total Estimated Addressable Market for Canada
Total Estimated Annual Market Legal Spend: $25.72b
86.4%
7%
13.7%
Estimated Litigation Portion of Total Legal Spend
Estimated Total Addressable Market as % of Total Legal Spend
7.
8.
Morea, S, 2017, IBISWorld Industry Report 54111CA. Law Firms in Canada, IBISWorld, p 5
Morea, S, 2017, IBISWorld Industry Report 54111CA, Law Firms in Canada, IBISWorld, p 13
12
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
It is gratifying to see the germination of the seeds of the
early work we have done educating the Canadian legal
and corporate communities about litigation funding.
I am proud of what our team has achieved in the two
and a half short years that we have been operating
in Canada. Clients and law firms are increasingly
seeing the many and varied benefits
of working with a litigation funder
to deal with complex cost and risk
mitigation issues. I am excited
to continue the work we have
started and to see Bentham’s
business and the industry
mature in Canada.
Tania Sulan
CHIEF INVESTMENT OFFICER
CANADA
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
13
Chairman’s
and Managing
Director’s Report
continued
USA
Since commencing in 2011, our US business
has expanded rapidly in a sophisticated
dispute finance market.
We bring a methodology and corporate wisdom road-
tested in Australia and we are one of the only funders
offering a multi-office regional approach, with offices in
New York, Houston, Los Angeles and San Francisco.
We have been building relationships across the legal
industry for many years and are now a preferred funder
for many leading law firms. We have active relationships
with 114 of the ‘AmLaw 1-200’ firms (70 of which are
in the AmLaw 100) and 113 of those 1-200 firms have
approached us or met with us for funding opportunities
(69 of those firms are in the AmLaw 100).
In May, the US team achieved a Tier 1 ranking from
Chambers and Partners9, reflecting the experience
of our Investment Managers and Legal Counsel,
who source and investigate investment opportunities
through to funding.
This year we launched a new specialised bankruptcy
dispute finance practice to assist stakeholders involved
in insolvency-related matters and welcomed Investment
Manager and Legal Counsel, Ken Epstein, to lead this
practice. There are stresses appearing in numerous
industry sectors and this is an appropriate time to
devote more resources and capital to investment
devote more resources and capital to investment
opportunities in this area.
opportunities in this area.
Charlie Gollow
CHIEF EXECUTIVE –
US
14
Our US team also welcomed Corporate Counsel
Christopher Young who advises our US and international
staff on US corporate legal issues. We also expanded the
team with two new Legal Counsel appointments - Amy
Geise in Houston and Sarah Jacobson in New York.
As FY19 commences, we will be augmenting our Los
Angeles team with new Legal Counsel, Connor Williams
and a new Investment Manager.
At 30 June 2018 our US team is managing 42 investments
comprising 219 separate cases constituting over
$187.3 million in capital commitments. These investments
(the details of which remain confidential) comprise law
firm portfolios and direct investments in commercial
disputes (with legal claims covering personal injury,
consumer class actions, intellectual property, anti-trust,
insurance, whistleblower and qui tam cases and anti-
terrorism to name a few).
We are sometimes asked about the ideal balance for our
business, between investing in single-party cases versus
investing in portfolios of cases. Portfolio investing allows
costs and risks to be collateralised across the cases
within the portfolio, with a commensurate reduction in
return. Investing in single-party cases generally involves
greater risk, given the binary nature of the outcome, but
concurrently delivers greater returns. Our Investment
Managers and Legal Counsel in the US have the skill set
to be able to identify single-party cases that meet our
investment criteria, and with our robust IC process we
will approve those single-party cases that satisfy our risk
parameters. As such, we are comfortable in being able
parameters. As such, we are comfortable in being able
to continue to invest in single-party cases, where others
to continue to invest in single-party cases, where others
may fear to tread, seeking those higher returns. However,
may fear to
we will continue to balance risk and returns for our
we will continue to balance risk and returns for
shareholders by investing in both types of investment
shareholders by investing in both types of investment
opportunities
opportunities
The US is the largest market in the world for legal
The US is the largest market in the world for legal
services and litigation, representing approximately
services and litigation, representing approximately
40%10 of the global legal market. The US legal services
40%10 of the global legal market. The US legal services
market is estimated at $357.6 billion annually11, of which
market is estimated at $357.6 billion annually
approximately 36% is attributed to commercial litigation.
approximately 36% is attributed to commercial litigation.
Furthermore, US spending on litigation reportedly rose in
Furthermore, US spending on litigation reportedly rose in
2017 and is expected to grow an additional 5.1% in 2018.
2017 and is expected to grow an additional 5.1% in 2018.
The potential of this market is energising and with every
The potential of this market is energising and with every
addition to our team, we increase our capacity to harness
addition to our team, we increase our capacity to harness
this opportunity.
this opportunity.
9.
9.
Independent global ranking Agency, benchmarking legal industry
Independent global ranking Agency, benchmarking legal industry
participants since 1990. Now
participants since 1990. Now covering 185 jurisdictions
10. 2018, Legal Services Global Market Report 2018, The Business
10. 2018, Legal Services Global Market Report 2018, The Business
Research Company, p
Research Company, p 69
11. 2018, Report on the State of the Legal Market, Thomson Reuters
11. 2018, Report on the State of the Legal Market, Thomson Reuters
Peer Monitor &
Peer Monitor & Georgetown Law, p 15
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Five or ten years ago this
industry barely existed in the
USA. Now it’s thriving and
Bentham is at the forefront
of the industry.
Allison Chock
CHIEF INVESTMENT OFFICER US
LEGAL COUNSEL
Total Estimated Addressable Market
for United States
Total Estimated Annual Market Legal Spend: $357.6b
64%
36%
18%
Estimated Litigation Portion of Total Legal Spend
Estimated Total Addressable Market as % of Total Legal Spend
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
15
Chairman’s
and Managing
Director’s Report
continued
United Kingdom and Europe
Following the dissolution of our joint
venture arrangement in Europe and the
expiry of our twelve-month restraint
on operating in the region, we resumed
activity in the UK and EU in July 2017.
This year Alistair Croft joined the company, and is
based in London, to source and manage investment
opportunities throughout the UK and Europe. In
addition, US-based Noah Wortman joined our team
as a Business Development Manager (Global Investor
Recoveries) responsible for institutional investor
relationships across Europe, as well as other parts of
our international network.
Over recent years, high-profile, multi-party matters
have become a prominent feature of the EU market.
Examples include the Volkswagen emissions case
in Germany, the Tesco accounting scandal and the
shareholder litigation against Royal Bank of Scotland
over its 2008 rights issue. Our objective is to apply
our global expertise in multi-party matters to re-
establish our brand and financing activity across
the UK and Europe.
Another key element of our growth plan is to provide
dispute finance for corporates (including for commercial
and investment arbitration) and we are engaged in
discussions with companies in sectors ranging from
energy and telecommunications to insurance.
The UK legal services market is the second largest
in the world, after the US, with an estimated value of
$54.9 billion12. Approximately 26%13 of this is attributed to
areas of law relevant to our business, presenting a sizable
addressable market for our products and services. Over
the next five years, the legal services market is expected
to grow at a compound annual rate of approximately
6.5%14, largely due to the impact of Brexit, globalisation
and increased M&A activity related to its large financial
centre in London. Market size and potential for the wider
EU is harder to quantify, but we believe that significant
opportunities exist.
As we move into FY19, we look forward to expanding our
continental footprint via organic growth and via strategic
partnerships with businesses in civil law jurisdictions
who offer the civil law expertise and cultural and linguistic
capabilities necessary to succeed in those markets.
Total Estimated Addressable Market
for United Kingdom
Total Estimated Annual Market Legal Spend: $54.9b
74%
13%
26%
Estimated Litigation Portion of Total Legal Spend
Estimated Total Addressable Market as % of Total Legal Spend
12. Clutterbuck, E, 2017, IBISWorld Industry Report M69.10, Legal Activities in the UK, IBISWorld, p 4
13. Clutterbuck, E, 2017, IBISWorld Industry Report M69.10, Legal Activities in the UK, IBISWorld, p 13
14. 2018, Legal Services Global Market Report, The Business Research Company, p 95
16
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
FY18 has been a reboot
for our European
business, following the
end of the joint venture
arrangement. The
UK funding market is
becoming increasingly
competitive, but we still
see significant upside
potential for our
business in certain
key sectors. FY19
should be an
exciting year as
we look to grow
our portfolio
and invest
in personnel
and strategic
partnerships.
Oliver Gayner
INVESTMENT MANAGER
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
17
Chairman’s
and Managing
Director’s Report
continued
Investment Portfolio
We are encouraged by our experience of year-on-year
growth in new funding applications across our investment
categories and (conditional and unconditional) funding
commitments, as evidenced in the accompanying
diagrams.
Our focus on transitioning away from idiosyncratic risk
to the systemic risk of a portfolio, is reflected in the
increased number of investments in our portfolio, across a
broader range of case types, sizes and jurisdictions. As at
30 June 2018, our global investment portfolio comprised
75 active investments spread between balance sheet and
fund structures. These investments (42 US and 33 RoW)
total $229 million in capital commitments. We also have
a strong pipeline with a further 5 matters conditionally
approved for funding, and opportunities in all jurisdictions.
This year we set a target to invest in 64 new cases and
deploy $138.0 million across our global portfolio. Whilst
we did not meet the first metric with 26 new investments
and funding extended on a further 14 investments, we
surpassed the second, with the total dollar value of new
investments including IC approved and conditionally
funded investments exceeding $147.0 million. The
cases in which we invest vary in size and overall, we
are witnessing an increase in the average size of those
cases. In the future, we propose to set a target for funds
committed for deployment, as the fund structures in
which we now operate impose concentration limits for
individual and portfolio investments, meaning that the
diversification targets we set in terms of case numbers
is now less relevant.
EPV by Investment Type ($m)
545
36
237
221
529
392
2,039
248
1,396
Group
Commercial
Patent
Appeal
Insolvency
Arbitration
Whistleblower
Law Firm
Other IP
18
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Actual and Budgeted Investments and Commitments15
)
m
$
(
d
e
t
t
i
m
m
o
c
s
d
n
u
F
250
200
150
100
50
0
Actual
FY2015
Actual
FY2016
Actual
FY2017
Actual
FY2018
Budgeted
FY2019
Budgeted
FY2020
Funds committed ($m)
Number of investments
IC approved and conditionally funded
90
80
70
60
50
40
30
20
10
0
s
t
n
e
m
t
s
e
v
n
i
f
o
r
e
b
m
u
N
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Since commencing the US Fund in February 2017, we
have committed US$137.6 million in investments (86.2%
of Fund 1), and already deployed US$110.5 million.
Since commencing the RoW Funds in October 2017,
we have committed $65.7 million in investments (53.4%)
and deployed $7.3 million. We are ahead of schedule in
terms of commitments, which has accelerated the need
to commence the consideration of new funds to meet
future investment opportunities.
When we embarked upon our new Strategic Plan
three years ago, our investment commitments totalled
$54.0 million per annum. In this short period of time we
have grown our Estimated Portfolio Value16 (“EPV”, as
defined in our quarterly portfolio announcements) from
$2.0 billion to $5.6 billion - a compounded annual growth
rate of 40.9%.
i
F
n
a
n
c
a
i
15. Invested and committed capital is equal to the total capital either invested or committed to investments, translated to Australian dollars at the
foreign exchange spot rate prevailing on the reporting date. Actual and budgeted investments and commitments is categorised as non-IFRS
information prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011.
This information has not been audited or reviewed.
16. EPV is IMF’s current best estimate (in Australian dollars) of a claim’s recoverable amount, which takes into account the perceived capacity
of the defendant to meet the claim. It is not necessarily the amount being claimed by the funded claimants in the investment and is not the
estimated return to IMF from the investment if it is successful. An EPV is subject to change over time for a number of reasons, including changes
in circumstances and knowledge relating to an investment, partial recovery and, where applicable, fluctuations in exchange rates between the
applicable local currency and the Australian dollar. EPV is categorised as non-IFRS information prepared in accordance with ASIC Regulatory
Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. This information has not been audited or reviewed.
19
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Finally, the VLRC recommended that the Victorian State
Government should advocate for stronger national
regulation and supervision of the third-party dispute
finance industry (also currently under consideration by the
ALRC, discussed below). The Victorian Government is
presently considering all of the VLRC’s recommendations.
In addition to the VLRC Inquiry, in December 2017 the
ALRC commenced a Federal Inquiry into Class Action
proceedings and third-party Litigation Funders. A
Discussion Paper was published at the beginning of
June 2018, stakeholder consultation followed and the
ALRC invited submissions by 30 July 2018. The ALRC
is due to report to the Commonwealth Attorney-General
by 21 December 2018.
Chairman’s
and Managing
Director’s Report
continued
Regulatory Landscape
The dispute financing industry is in the process of reform
in many of the jurisdictions in which we operate.
We expect and embrace change and so we have
welcomed the regulatory reviews and oversight that are
taking place, and indeed have long called for appropriate
regulation as our industry matures and expands to the
mainstream.
Australia
In Australia, two regulatory reviews were underway
during FY18.
The Victorian Law Reform Commission (VLRC)
commenced an Inquiry into Litigation Funding and Group
Proceedings in January 2017, delivered its report (‘Access
to Justice: Litigation Funding and Group Proceedings’)
to the Victorian State Attorney-General in April 2018 and
published the report on 19 June 2018.
The VLRC Inquiry considered a number of issues related
to the use of dispute financing, particularly in class
actions (currently under consideration by the Australian
Law Reform Commission (ALRC), discussed below).
The VLRC recommended that Victorian lawyers be
permitted to charge contingency fees in class actions
and also recommended legislative amendments to
provide the Court with power to review and vary legal
costs, dispute finance fees and charges, and settlement
distribution costs to ensure they are fair and reasonable.
IMF Bentham has submitted to the VLRC that the Courts
consider introducing a costs budgeting procedure,
(similar to part of the UK Jackson civil procedure
reforms) requiring claimant and defendant lawyers to file
their estimated costs in court at an early stage. We will
continue to participate in the debate surrounding this
important industry development.
20
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
In its Discussion Paper, the ALRC proposed that litigation
funders be licensed. We strongly support this proposal,
which we have advocated for many years.
We are now seeing increasing competition for class action
funding as new (mainly overseas) funders have entered
the market. These funders often hold very few assets
in Australia and, where they are unlisted private entities,
their financial position is opaque.
It is important that dispute financiers can honour
the financial promises they make, including to pay
adverse costs if the litigation is lost. We believe that a
proportionate and effective licensing regime could ensure
these standards are met and reduce costs for litigants
by minimising the need for bespoke management of
funding arrangements by the courts. For many years
IMF Bentham operated under the licensing regime of
the Australian Securities and Investments Commission
(ASIC) and previously endorsed the 2014 Productivity
Commission’s recommendation to introduce minimum
capital adequacy requirements.
The ALRC also proposed that lawyers be permitted
to charge contingency fees in class actions.
IMF Bentham contributed a detailed submission
to the ALRC.
Asia
Demand for commercial financing of litigation, arbitration
and insolvency cases is growing across Asia. In some
jurisdictions, third-party dispute finance is neither
expressly permitted nor expressly prohibited. As demand
for litigation finance increases, we expect further judicial
and legislative reforms to expand permission for funding.
Singapore expressly endorsed third party financing
in international arbitration (and related proceedings)
in March 2017. The Singapore arbitration funding
market looks set to grow as a result and the
Singapore International Arbitration Centre (SIAC)
reports an ever-increasing caseload.
We recently provided feedback to the Singapore Ministry
of Law as part of its industry feedback-gathering to
assess the impact of the new legislation. The legal
community is positive about the benefits of third-party
dispute financing and we expect this to lead to further
opportunities to fund commercial litigation cases as well
as international arbitration and insolvency matters.
In Hong Kong, the Arbitration and Mediation Legislation
(Third Party Funding) (Amendment) Bill 2016 was passed
in June 2017, paving the way for third-party dispute
finance of international arbitration in Hong Kong.
The Department of Justice is now preparing a Code of
Practice, and once the Code is finalised, we anticipate
the provisions permitting third-party dispute finance in
international arbitration will come into effect in late 2018.
IMF Bentham participates actively, and respectfully, in
discussions around regulatory reform and development
in each of the Asian jurisdictions in which we operate.
We also take a leadership position in the development
of case law around dispute financing. In Hong Kong
we have been involved in an application to the High
Court, believed to be a market first, seeking approval for
funding of a commercial proceeding on the grounds of
access to justice.
Canada
The third-party dispute financing industry is unregulated
in Canada with no proposed reform on the horizon. This
reflects the nascent status of the industry. Consistent
with our position in other jurisdictions, we would welcome
appropriate and well-formulated regulation.
There have been a number of Canadian legal industry
studies and consultations released this year relevant to
our business, including the October 2017 British Columbia
Law Institute Study Paper on Financing Litigation, the
2018 Law Society of Ontario Contingency Fee Reform
Consultation Paper, the March 2018 Law Commission of
Ontario Consultation Paper on Class Actions: Objectives,
Experiences and Reform for which our company was
interviewed and made a submission.
This year there have been four Canadian reported
decisions on third-party dispute financing. These
decisions all arise from cases we have funded. This
new and evolving jurisprudence is shaping the landscape
and will determine how funders conduct business in
Canada in the future.
USA
In May 2018, a bill was introduced into the Senate
(The Litigation Funding Transparency Act of 2018),
proposing the disclosure of litigation funding
arrangements (including the funding agreements
themselves) in any federal class actions and federal
multi-jurisdiction litigation. Without accompanying
privilege protections, such disclosure would not be in the
best interests of claimants. Our assessment is that the
proposed legislation arguably imposes more barriers to
entry for claimants who are trying to bring meritorious
lawsuits against well-resourced opponents (often massive
corporations) as it is likely that such disclosure will result
in additional, and significant, interlocutory procedures
resulting in further costs for plaintiffs, and a significant
use of Court resources.
As the issue of litigation finance disclosure is already
under examination by the Federal Advisory Committee
on Rules of Civil Procedure, and there are existing
ethical rules governing attorney-client relationships to
avoid conflicts of interest, it remains to be seen whether
the Senate will accede to the Advisory Committee in
this instance.
21
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Chairman’s
and Managing
Director’s Report
continued
We have contributed a submission to the Federal
Advisory Committee on Rules of Civil Procedure on this
issue and we continue to speak to and lobby parties
with vested interests.
In a non-binding advisory opinion, the New York City
Bar Association recently opined that non-recourse
third party funding of law firm portfolios breaches the
New York Rules of Professional Conduct Rule 5.4(a)
(designed to preserve lawyers’ independence and prevent
lawyers sharing fees or forming partnerships with non-
lawyers). The advice we have obtained from legal ethics
experts and which is shared by others in the industry,
is that this opinion is a very literal reading of the Rule
which is incorrect and is contrary to various New York
court decisions. Law firm portfolio funding also forms
a minor part of Bentham’s funding in New York.
United Kingdom and Europe
In the UK, third-party dispute finance is growing as
investment capital flows into the sector. Under English law,
a dispute finance agreement is generally not considered
champertous, and whilst funders can be held liable to
pay adverse costs, the so-called “Arkin Cap” (after Arkin
v Borchard Lines & Others 2005 EWCA Civ 655) limits
that exposure to the amount of the funder’s investment.
A voluntary code of conduct was introduced as part of
the Jackson civil procedure reforms by the Association of
Litigation Funders (ALF Code). A wide range of financing
options are permitted under English law.
There were no material changes to the regulatory climate
in the UK during this financial year.
In the context of international arbitration, a comprehensive
report by the International Council for Commercial
Arbitration and The School of Law at Queen Mary
University of London embraced the use of third-
party financing in arbitration and made a number of
recommendations for arbitration tribunals to follow.
In continental Europe, third-party financing is permitted
and growing in many civil law countries.
Competitive Landscape
In the ‘emergence’ phase of our industry’s life cycle, we
were rewarded with the high margins and low competition
that came with being a first-mover. As our industry enters
its next phase of growth, it is natural to expect increased
competition and some price pressure.
However we do not expect significant price compression
as returns promised by newly-launched competitor funds
are high and they will strive to maintain the margins they
have promised their investors. In addition, IMF Bentham
has a differentiated business model - in addition to
providing capital, we bring recognised value to each
investment, enabling us to earn higher margins.
22
In some of our markets we are the pioneer and market
leader and in others we are among an exclusive set of
leading players. Competition has generally increased
in each of the jurisdictions in which we operate. Our
competitors include domestic and international funders
as well as substitutes such as contingency law firms
and hedge funds. Some fields, such as securities
class actions in Australia, are experiencing healthy
competition at present (for reasons covered earlier),
while other domains, such as Canada, are still relatively
unrecognised by potential competitors.
Competition will always emerge, but success in this
industry requires the confluence of many factors, and
some of the most critical (financial and human resources)
are also the most challenging for competitors to master.
It is a delicate recipe to invest wisely and profitably in
litigation, and we have seen numerous market entrants
come and go. New operators can be lured by the promise
of a growth industry and attractive financial returns,
but ultimately, they can become submerged by the
significant challenges.
Over the years, only a coterie of legitimate competitors
has risen to the top. Although we are never complacent
or hubristic, we are very aware of the significant
barriers to entry in this industry, as we have faced and
surmounted each one. Our diversification strategy has
involved deliberately and steadily developing defensive
positions on each front.
– Financial Capital: Significant capital reserves are
necessary to invest in large claims whose returns are
potentially significant, but perhaps more importantly,
a sizeable war chest is essential to achieve portfolio
diversification. We believe that portfolio diversification
is essential to off-setting the risks associated with
dispute financing. In addition to the quantum of
capital, the way we have structured our capital in
funds enables us to be flexible in the way we deploy
that capital.
– Human Capital: Evaluating and determining which
disputes to invest in requires skills that are not easily
replicable. It takes years to build a talented team
and, once established, there is no facsimile. Not only
is IMF Bentham home to one of the founders of the
industry, but we have been amassing an entire team
over 17 years, whose collective wisdom is now
a comparative advantage.
– Global Coverage: In an increasingly global industry,
having an expansive geographic footprint is essential.
The diversification assists with risk mitigation and the
local presence facilitates jurisdictional understanding
and relationships which in turn drive new business.
We have been assiduously expanding our global
presence for a number of years and are now well-
resourced on the ground in each of the important
funding jurisdictions, with more to come in the
growth markets.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
– Relationships: Dispute financing requires
relationships across commerce, finance,
insurance, academia, government, media, and
of course all layers of the legal industry (including
private practice, the Bar and the judiciary). Good
relationships take time, patience and commitment
and we have been cultivating ours over a lifetime
(individually and institutionally), forming a deep and
broad global network of ‘clients’, referrers, expert
advisers and suppliers.
– Innovation and Product Development: From our
early days of insolvency funding, we have expanded
our market offering to include financing for group/
class actions, arbitration, law firm portfolios and all
manner of commercial disputes and are now actively
engaged in developing dispute financing solutions
for corporates.
– Technology and Systems: We have developed our
own proprietary technology platforms and business
processes for case evaluation and management
and leverage these every day, as well as continually
improving them for future return.
Risk Management
We are in the business of risk assessment, management
and mitigation, and we are comfortable with this mantle.
Every day we navigate risk on behalf of others - balancing
caution with entrepreneurialism to achieve commercial,
legal and ethical objectives - and as a result, we
have become an entrusted ‘safe pair of hands’ for many.
For our own organisation, we face some risks that are
unique to our industry and some that are common
across sectors. We have systems to identify and
address each one.
Portfolio Concentration
There is always the risk that a case in which we invest
may be lost. Despite the best case-selection, case
strategy and execution, litigation is not a perfect science
and is sometimes subject to the vagaries of economics,
emotions, judicial proclivities and other influences.
The first step of our risk mitigation here is to have a
skilled Investment Management team and experienced
Investment Committee who identify and select the cases
in which to invest. We have achieved a 90% success
rate, across 175 cases over our 17-year history because
we understand the above ingredients in litigation and are
good at identifying and accounting for the nuances of
litigation. We minimise the risk of exposure to potential
individual case losses through portfolio diversification -
increasing the size and geographic spread of our global
portfolio and varying the type of cases we fund.
Although we currently have portfolio concentration
risk associated with investments in Wivenhoe and
Westgem, our diversification strategy has reduced
concentration risk for future periods. Our views on the
prospects of those two cases have been communicated
to investors throughout the year and have not changed.
However, if one or both cases were to be lost, they would
have a material impact on IMF Bentham’s financial results
and its cash position. We have taken steps, including
co-funding and ACO insurance cover, to mitigate in part
these impacts but IMF Bentham retains material adverse
cost risk on these investments.
Our diversification strategy has sought to reduce portfolio
concentration risk in future periods. We are mitigating the
impact of potential case losses in the future by switching
to funding vehicles to finance our investments.
We have robust internal risk management protocols
which are reviewed and pressure-tested periodically by
external independent consultants. From there we are
able to make educated and calculated decisions of what
insurable risks are deemed necessary to be transferred
to insurance policies where available and what retentions
are to be carried. Whether negotiating insurance for our
global portfolio or other aspects of our operations, we
team with the best in the business to achieve world-class
cover. The collaboration and ongoing dialogue between
our highly experienced team and our strategic insurance
partners often results in innovative approaches and
bespoke insurance solutions, not previously conceived
or available to others on the market.
Competition
‘If you build it they will come’…
When you conceive a new industry and demonstrate its
viability, it is inevitable, almost flattering, that competition
will follow. The proper response to competition is
differentiation and innovation.
Fortunately, our business has many differentiators,
including our track record, capital adequacy, adverse
costs coverage and provision of security for costs,
transparency through public listing, reputation for integrity
and fairness (and the brand equity that follows), talented
people who bring strategic insights and hands-on project
management to each investment and our Perth-based
Client Liaison Team who run class action administration.
Innovation is also a mindset we have exhibited since
inception. Although what it meant to innovate seventeen
years ago when we started is different to what it means
to innovate today, it is in our corporate DNA to develop
products, services and methodologies that never existed
before and in so doing define the market and the industry.
23
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Chairman’s
and Managing
Director’s Report
continued
We are not
building a
business, we
are building
an industry.
Hugh McLernon
EXECUTIVE DIRECTOR
24
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Regulatory Reform
Reform and disruption are inevitable in every industry
today and ours is no different. Regulation in our key
markets may change in the future and impact our
business model. Indeed there are proposed regulatory
reforms in several of our markets right now. Common law
developments can also alter the landscape.
Our best response to change is awareness, involvement
and leadership - to keep abreast of potential changes, to
have a seat at the table in any discussions and to continue
to innovate. We are doing all of these.
Key-person dependency
We are privileged to have one of the industry’s pioneers
as an executive director and many senior executives
whose skills and industry knowledge are unparalleled.
We value the contribution of our executive directors,
senior management and key personnel to oversee the
day-to-day operations and the strategic management of
the company and protect our corporate know-how.
We like to think of each of our people as a ‘key person’
as everyone plays a role in our business’s overall success.
Our business has now reached a size and sophistication
that the whole is greater than the sum of its individual
parts. Today it is our combined know-how and business
processes that are key to our performance.
Of course, we protect ourselves with the usual non-
compete, confidentiality and IP protection agreements
for our people and we actively engage in coaching,
mentoring, professional development and other
measures to build, transfer and safe-guard our
corporate knowledge, plus we have an attractive Long
Term Incentive Plan (“LTIP”) which rewards loyalty and
engagement. We are fortunate to experience low turnover,
high engagement and loyalty and our recipe stays within
the family.
IT and Data Security
We invest in security hardware, software, systems and
policies to remain abreast of constantly-evolving IT
threats. We undergo audits by external security and
IT providers and continuously adjust our approaches.
We are also careful to protect the confidentiality of our
IT security systems and consequently, provide only
an outline here.
What we can say, is that IT and data security today
focuses as much on threats from social engineering
as it does on threats posed by external penetration or
‘hacking’. Those who seek to illegally obtain or corrupt
the confidential or competitive information of others, often
now do so by inveigling themselves into the world of
unsuspecting innocents (including customers, employees,
suppliers and the like). Accordingly, in addition to the
security measures taken by our IT team, everyone in our
organisation is tasked with responsibility for protecting
data and commercially-sensitive know-how. Vigilance
cannot be delegated. From our Board of Directors to
our newest recruit, all of our people are part of our
armour and we conduct ongoing awareness and training
campaigns to ensure our people are cognisant of potential
threats and their role in protecting our organisation.
IT threats are ever-present in today’s world and we are
committed to doing everything we can to protect our
organisation.
Fortunately, our business captures very limited
information about claimants, so our obligations under
privacy and data protection regulations are minimal.
This year Europe’s new Global Data Protection
Regulations (GDPR) impacted many global businesses
and, like others, we reviewed our procedures but as our
EU footprint is presently confined, the new regulations
had minimal impact for our business.
Brand and Reputation
Every business is exposed to the threat of damage to
its reputation, name or brand, and ours is not immune.
The sources can be multifarious but the impact is often
homogenous - when an institution’s reputation is sullied,
stakeholder trust and loyalty is eroded and brand equity
and financial value is usually compromised. The effects
can be long-lasting - trust can be lost quickly but can
take a lifetime to regain and will never be as robust.
Given the nature of some of the cases we fund, we
regularly see the impact of institutional reputational damage
and are acutely aware of the risk facing every business.
We have a strong risk management culture and
numerous policies and practices in place to safe-
guard our reputation including escalation procedures
throughout our organisation structure and regular
and clear communication with all stakeholders.
25
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Chairman’s
and Managing
Director’s Report
continued
They’re really diligent.
They master their brief.
Engage on a case in a way
that’s informed. [We] feel
like partners.
PARTNER, AUSTRALIAN LAW FIRM
Corporate Governance and Compliance
As a publicly-traded company on the Australian Securities
Exchange, and a business with experienced financiers
and lawyers at the helm, we are acutely aware of our legal
and regulatory obligations. Full details of our Corporate
Governance program are available on our website.
Tax
Our business is predominantly tax-domiciled in Australia
and the United States and contributes via taxes to the
communities in which we live and work. Naturally, as a
publicly-listed, for-profit organisation, we seek to meet
our tax obligations while maximising the interests of our
shareholders. Accordingly, we welcomed recent tax
reform in the United States, which reduced our corporate
tax rate there for the second half of the financial year.
Realised and Unrealised Gains
IMF’s investments in litigation assets are recognised
in our financial statements as intangible assets. This
means our investments are recorded at cost as funds
are outlaid on each investment, and do not include any
movements in the embedded value of the assets. At
an investment’s conclusion, the associated intangible
asset is derecognised and is offset by the proceeds
(if any) from the investment, resulting in a profit or loss
on the investment. Some litigation funders’ accounting
policies allows for fair value adjustments over the
investment’s life, resulting in unrealised gains and losses
being recognised in the profit and loss statement and
associated movements in the carrying value of the
investment in the balance sheet.
26
Our People
Our business sits neatly on the continuum between
finance and professional services. We provide a monetary
product accompanied by a service which is delivered by
sophisticated knowledge workers. And like all knowledge-
based, service businesses, our people are our key asset
and competitive advantage.
We are fortunate to be able to attract and retain
talented people who are best-of-breed in their field.
Our investment managers are typically graduates from
leading universities, who then go on to develop successful
careers at top-tier law firms, as in-house corporate
counsel, barristers, business leaders and company
directors. The role requires people who can straddle the
unique skills of financier, legal strategist and portfolio
manager, carrying significant accountability in doing so.
Investment mandates are determined by our Investment
Committee, a formidable ‘brains trust’ comprising our
most senior and seasoned executives as well as former
members of the judiciary and legal profession.
Our investment team is supported by dedicated experts
in finance, marketing and technology, including our
market-leading Client Group who manage book-builds
and settlement administrations for multi-party actions.
Overseeing the entire talent pool are Executive and
Non-Executive Directors whose international careers
span investment banking, finance and capital markets,
insurance, law, education, human rights, public
health, overseas aid and development, conservation,
heritage and media.
We recognise and incentivise our people with a
combination of extrinsic and intrinsic rewards that
acknowledge team performance and individual
contribution. These include competitive remuneration,
long and short-term incentive plans (detailed later
in our Directors’ Report), investments in their
learning and development and career progression.
We also know that to sustain peak performance and
retain talent requires an alignment of individual and
organisational values so we work hard to foster a
culture that reflects our values. We want our people
to feel valued and inspired every day.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
27
We recruit and promote on merit, while
striving for inclusion and diversity (in its
many forms). Women occupy many of
our senior leadership positions, including
two Board Directors, our Chief Financial
Officer, our Chief Investment Officers for
Canada and the USA, the heads of our
Hong Kong and Adelaide offices, our
two Chief Marketing Officers, the head
of our Client Liaison Team, lawyers in
our corporate in-house legal team, 35%
of our Investment Managers and Legal
Counsel, as well as Managers in our
finance team.
One of the reasons I joined this
company and continue to love this
job is being part of an organisation
that is ethically trying to create a
sustainable dispute financing industry
and making a positive difference in
the world. I continue to be impressed
with our senior people in terms of
character, talent, and creativity.
Being intellectually challenged every
day is hugely rewarding. There’s
never a dull moment.
Allison Chock
CHIEF INVESTMENT OFFICER, USA
Chairman’s
and Managing
Director’s Report
continued
Corporate Social Responsibility
Across the jurisdictions in which we operate, we are actively involved in thought leadership and the advancement of
the industry. We contribute to research initiatives about access to justice and the effective operation of civil litigation.
We believe this is an important social investment as well as being good for our own business.
University of New South Wales, Sydney, Australia
In Australia, we have a strategic alliance with the
University of New South Wales (UNSW) Class Action
Research Initiative, which explores and solves key issues
in class actions practice through academic research
and analysis. During FY18 our alliance with the UNSW
generated research and publications in relation to class
actions settlement distributions and achieving finality in
class actions. We collaborated on continuing education
workshops for leading industry members (including the
judiciary, private legal practice, academia and corporate
counsel). At the end of FY17 we co-hosted with UNSW
an industry Class Actions Conference and will do so
again in FY19.
Civil Justice Research Initiative,
University of California, USA
In the US we are a founding supporter of the Civil
Justice Research Initiative (CJRI), a ‘think tank’ chaired
by Erwin Chemerinsky, Dean of Berkeley Law School
and Founding Dean of the UC Irvine School of Law. The
CJRI’s goal is to ensure that leaders, legislators and
courts have the factual research and data they need to
set policy to ensure continued access to the courts, by
systematically identifying and producing highly credible,
unbiased research on critical issues concerning the civil
justice system. Allison Chock, Chief Investment Officer-
US, is a member of the CJRI’s Advisory Board, which
also includes prominent attorneys in private practice from
around the United States as well as established legal
scholars and researchers from prominent law schools
around the country.
Monash University, Melbourne, Victoria, Australia
As we have done for several years, we also supported
substantial, independent empirical research conducted
by academics at Monash University in Victoria, Australia.
Research conducted during FY18 explored the use of
‘opt-in’ devices for claimants in funded class actions
in Australia. The research explored the proportion of
claimants who fail to register as members in a funded
action, and consequently impact the value of the overall
claims pursued in the class action.
Public Counsel, Los Angeles, California, USA
We are also an ongoing supporter of Public Counsel, the
United States’ largest pro bono law firm. Public Counsel’s
activities are far-ranging and impact a wide spectrum of
people, many of whom live at or below the poverty level.
Allison Chock is a member of the Board of Directors.
Osgoode Hall Law School, York University,
Toronto, Ontario, Canada
Our team in Canada lectures to J.D. and LLM students
at Osgoode Hall Law School (at York University),
including students involved in the Investor Protection
Clinic and also supports the University of Ottawa’s
2018 career day for tomorrow’s legal leaders.
28
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Financing Cases which advance Public Interest
IMF Bentham also supports a number of cases which
promote wider public interest. For example, we are
funding cases seeking redress for property damage
in the Australian towns of Williamtown, Oakey and
Katherine, due to PFAS chemical contamination
of water supplies.
It is intrinsically rewarding to
finance claims which advance
public interest and deliver
recompense for aggrieved
parties who are representative
of the wider community.
Laura Maytom
ASSOCIATE INVESTMENT
MANAGER
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Laura Maytom, Associate Investment Manager
on funded case seeking redress for chemical
contamination in Williamtown NSW Australia
29
Chairman’s
and Managing
Director’s Report
continued
FY18 Results
Our financial results this year are reflective of executing
the final phases of our business transition strategy. This
year we actioned key elements of that transition strategy
and understandably, our actions had a financial impact for
FY18. By selling assets into the newly-established Fund 1,
any income to us from those investments will be deferred
to future reporting periods. Had we retained those assets
on our own balance sheet, the short-term scenario
might look quite different. However, we anticipated and
accept the immediate consequence of our long-term
strategic approach.
Our FY18 financial results were also impacted by the
loss of a US-funded case, ‘Case 003’, the deferred
completion of a number of significant investments
(including Wivenhoe) and a number of case completions
whose returns were modest. The case prospects on
one of our investments in Hong Kong changed, as can
happen in the ‘art’ of litigation, and we were required to
modify our financial expectations accordingly, salvaging
a narrower margin than initially forecast. These case
situations resulted in unusually high expenses for the
period and also impacted our Return on Invested Capital
(ROIC)17. Our ROIC for US matters decreased from 1.0x
to 0.8x (reflecting the loss of ‘Case 003’ and a small
sample of completions in US investments) and our ROIC
for completions since 2011 of non-US investments has
remained stable at 1.5x.
Net profit after tax
Add litigation contracts - expenses
Add depreciation
Net cash increase from sale of US portfolio
to US Fund 1
Distributions to non-controlling interests
2014
$’000
9,868
50,638
223
–
–
Some of the key investments in our portfolio are yet to
achieve resolution and therefore the potential earnings
have been deferred to future years. On average, the
cases in which we invest typically have a gestation period
of 2.6 years between the initial commitment of funds
to the time of resolution and return on our investment.
Our financial performance in any given year is therefore
reflective of investment commitments made years earlier,
and our most current investment decisions will not come
to fruition for several years.
Our employee benefits expense increased this
reporting period, compared to last, due to growing
our team. On the other hand, these expenses were
off-set by a corresponding decrease in corporate
and office expenses.
This year we also incurred and booked an accounting
adjustment for tax expense associated with a one-off
adjustment in the US tax rate.
Although we reported a net loss in our P&L this year,
our operating cash flows before new investments were
the highest they have been in the past five years and
we generated the second-best free cashflow after
investments. This achievement reflects that we are also
transitioning to a capital light position, as we can grow
investments materially, without using all of our own capital.
Free Cash Flow Reconciliation
2015
$’000
8,580
77,755
228
–
–
2016
$’000
20,760
46,826
451
–
–
2017
$’000
15,440
59,206
591
–
–
2018
$’000
(7,847)
54,703
621
61,271
(9,694)
Working capital
(27,317)
(6,133)
5,470
(9,861)
(16,209)
Operating Cash Flow, including receipts from
litigation contracts, net of distributions to NCI
Net investments in litigation18
Capital expenditure
Free Cash Flow19
33,412
(57,085)
(171)
(23,844)
80,430
(49,199)
(406)
30,825
73,507
(82,605)
(1,109)
(10,207)
65,376
(84,240)
(979)
(19,843)
82,845
(59,834)
(236)
22,775
17. ROIC (return on invested capital) is calculated as gross income to IMF (litigation contracts – settlements and judgements) less all reimbursed costs,
divided by total expenditure (excluding overheads but including any adverse costs on lost cases). ROIC is categorised as non-IFRS information
prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. This
information has not been audited or reviewed.
18. Net investments in litigation is calculated as investments in litigation less receipts from non-controlling interests funding. Net investments
in litigation is categorised as non-lFRS information prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing
non-IFRS financial information, issued in December 2011. This information has not been audited or reviewed.
19. Free cash flow represents our IFRS operating cash flow combined with our cash flows from litigation, non-controlling interests and capital
expenditures. Movements in free cash flow highlight the increases and decreases in cash from our core operations that are attributable to ordinary
shareholders. Our long term focus is to generate growth in free cash flow, which is primarily driven by growth in earnings, effective management of
working capital and leveraging our transition to a funds management operation. Free cash flow is categorised as non-IFRS information prepared
in accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. This information has
not been audited or reviewed.
30
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
We have experienced a significant increase in net assets during the period, reflecting a material increase in investments
and a material decrease in deferred tax liability. Following the sale of assets into Fund 1, cash and net assets increased on
a pro-forma basis to $193.5 million and $299 million respectively. As a result, the net asset backing per share increased by
76% during FY18.
Earnings versus free cash flow
s
n
o
i
l
l
i
m
$
34
34
24
24
14
14
4
4
-6
-6
-16
-16
-26
-26
30.8
9.9
8.6
20.8
(10.2)
(23.8)
2014
2015
2016
22.8
(7.8)
2018
15.4
(19.8)
2017
Earnings from continuing operations
Free Cash Flow
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Intangible Assets
($ Million)
Total Assets
($ Million)
EPV
($ Million)
3
.
1
2
3
3
.
9
3
5
9
.
1
9
3
5
.
9
3
3
9
.
0
8
2
2
.
1
8
2
9
.
0
9
1
6
.
5
4
1
6
.
8
9
5
.
9
9
3
4
6
,
5
2
8
7
,
3
8
3
4
,
3
7
6
0
,
2
2
0
0
,
2
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
31
Chairman’s
and Managing
Director’s Report
continued
As Managing Director,
my focus is on setting and
executing strategy. We have a
truly wonderful, magnificent
team. If we focus on executing
our strategy to the best of our
ability, the results will take
care of themselves.
Andrew Saker
MANAGING DIRECTOR
AND CHIEF EXECUTIVE OFFICER
32
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Future Initiatives
And now we turn our focus and energy to the year ahead.
New Funding Vehicles
FY19 will see us launch additional funding vehicles
to facilitate the funding of new investments in the
jurisdictions in which we operate. We expect to complete
the roll out of these new funds by the end of FY19 in a
continuation of our strategy to move from balance-sheet
investing to investing via fund structures. For our new
‘Fund 4’ (for US investments), we are targeting a total
of US$500 million in capital for deployment. Once Fund
4 is established, we will be targeting additional funding
in a new RoW Fund (for non-US investments).
Geographic Expansion
We will continue to build our presence and strengthen
our foothold in the developing markets of Asia and
Canada, both of which provide extraordinary and
exciting investment opportunities.
We are equally passionate about our return to the
European market and are exploring options for growth
via organic means, or mergers and acquisitions. FY19
will see us execute that strategy and round out the
completion of our diversification agenda by filling our
last points of geographic expansion.
Building on our existing strengths, we will actively be
pursuing opportunities for investments in multi-party
actions in jurisdictions such as Australia, Canada
and Europe.
Proprietary Infrastructure
Over the years we have invested in creating proprietary
IT, infrastructure and know-how for the cost-effective and
efficient administration of multi-party group actions. Our
infrastructure and business processes provide a cost
advantage over other dispute financiers and also deliver
time and expertise benefits to the law firms we team with.
We will continue to refine and enhance this important
business platform in FY19.
Corporate Financing
Today’s high performing businesses are starting to
explore new financing models. As the dispute finance
industry continues to mature and transition from the
fringe to the mainstream, corporate decision makers
are increasingly aware of the utility of third-party
dispute finance.
From our discussions with corporates and their legal
advisers, a portrait is emerging of the type of business
ideally suited to dispute financing and, for those
businesses, the upside can be transformational. Our
finance enables commercial enterprises to pursue legal
claims while preserving their cash for business-as-usual
or growth, helps them level the playing field against
well-resourced opponents, enables them to finance
their disputes without depressing their financial results
or inhibiting their company’s valuation, manage the risk
associated with litigating, derive independent strategic
input from our team and relieve the workload of their in-
house legal teams.
Although the legal industry has a reputation for being
conservative and slow to change, today’s decision-
makers are increasingly seeking innovation. We hope to
work with today’s corporate influencers and their legal
advisers to help them pursue their legal rights, unlock the
monetary value in their disputes and de-risk their balance
sheets. We are working on building this part of our
business in each of our markets.
Conclusion
On behalf of the Board, we would like to thank
our shareholders for their continued support and
endorsement and we would like to thank our dedicated
team who work tirelessly to achieve our strategic
objectives. FY19 will be another busy and demanding
year for our team and we are excited and energised by
the challenge. We look forward to the year ahead and
the exciting opportunities FY19 presents.
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Andrew Saker
Managing Director and Chief Executive Officer
Michael Kay
Michael Kay
Non-Executive Chairman
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
33
Financial
Report
Directors’ Report .......................................................... 35
Auditor’s Independence Declaration ............................ 61
Statement of Comprehensive Income .......................... 62
Statement of Financial Position .................................... 63
Statement of Cash Flows ............................................. 64
Statement of Changes in Equity ................................... 65
Notes to the Financial Statements ................................ 66
About this Report ......................................................... 66
Significant Accounting Judgments,
Estimates and Assumptions ......................................... 68
A. RESULTS FOR THE YEAR
69
Note 1: Segment information .................................... 69
Note 2: Revenue ....................................................... 72
Note 3: Other income .............................................. 72
Note 4: Expenses ..................................................... 73
Income tax ................................................... 74
Note 5:
Note 6: Earnings per share ....................................... 76
Note 7: Dividends paid and proposed ..................... 78
Note 8: Statement of cash flows reconciliation ......... 79
B. INTANGIBLE ASSETS
80
Note 9:
Intangible assets .......................................... 80
C. CAPITAL STRUCTURE
82
Note 10: Financial risk management objective
and policies .................................................. 82
Note 11: Cash and cash equivalents .......................... 86
Note 12: Debt Securities ............................................. 86
Note 13: Contributed equity........................................ 87
Note 14: Retained earnings and reserves ................... 88
D. WORKING CAPITAL, OTHER ASSETS
AND OTHER LIABILITIES
89
Note 15: Trade and other receivables ........................ 89
Note 16: Other assets ................................................. 90
Note 17: Plant and equipment .................................... 90
Note 18: Trade and other payables ............................. 92
Note 19: Provisions ..................................................... 92
Note 20: Commitments and contingencies ................. 94
E. THE GROUP, MANAGEMENT
AND RELATED PARTIES
95
Note 21: Key management personnel......................... 95
Note 22: Share-based payment plan .......................... 96
Note 23: Parent entity information ............................. 98
Note 24: Material partly-owned subsidiaries .............. 99
Note 25: Discontinued operations ............................ 101
Note 26: Related party disclosure ............................. 101
Note 27: Auditor’s remuneration ............................... 101
Note 28: Events after the reporting date ................... 101
Directors’ Declaration ................................................. 102
Independent Auditor’s Report .................................... 103
Shareholder Information ............................................. 109
Corporate Information ................................................ 112
34
Directors’
Report
The directors of IMF Bentham Limited (“IMF” or “the Company” or “the Parent”) submit their report for the year ended
30 June 2018.
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
Andrew Saker
Managing Director and CEO
Andrew Saker was appointed Managing Director and
CEO on 5 January 2015. Mr Saker holds a Bachelor of
Commerce degree in Accounting and Finance. He is a
Member of the Institute of Chartered Accountants and
was an Official Liquidator of the Supreme and Federal
Courts until his appointment at IMF.
Mr Saker was a partner at a leading provider of corporate
recovery, insolvency management and restructuring
services throughout Australia and Asia for 16 years.
Mr Saker is a member of the nomination committee.
During the past three years he has not served
as a director of any other listed company.
Michael Kay
Non-Executive Chairman
Michael Kay was appointed the Company’s Non-Executive
Chairman on 1 July 2015. Mr Kay holds a Bachelor of
Laws degree from the University of Sydney. Mr Kay brings
a wealth of commercial experience to IMF. Most recently
he was Chief Executive Officer and managing director of
listed salary packaging company McMillan Shakespeare
Ltd, a position he held for six years. Previously Mr Kay
had been CEO of national insurer AAMI after serving in
a variety of senior roles with that company. Prior to joining
AAMI he had spent 12 years in private legal practice.
Mr Kay:
– is a non-executive director of RAC Insurance Pty
Limited (appointed 20 February 2009);
– is chairman and non-executive director of Lovisa
Holdings Limited (appointed 13 April 2016); and
– is chairman and executive director of ApplyDirect
Limited (appointed 6 March 2015).
Mr Kay is a member of the audit and risk committee,
remuneration committee, corporate governance
committee and nomination committee.
During the past three years he has not served as a director
of any listed company other than IMF Bentham Limited,
Quintis Limited, Lovisa Holdings Limited, ApplyDirect
Limited and McMillan Shakespeare Ltd.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
35
Directors’
Report
continued
Hugh McLernon
Executive 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.
Michael Bowen
Non-Executive Director
Michael Bowen graduated from the University of Western
Australia with Bachelors of Laws, Jurisprudence and
Commerce. He has been admitted as a barrister and
solicitor of the Supreme Court of Western Australia and
is a Certified Practicing Accountant of CPA Australia.
Mr Bowen is a partner of the law firm DLA Piper practicing
primarily corporate, commercial and securities law with
an emphasis on mergers, acquisitions, capital raisings
and resources.
Mr Bowen was appointed to the board as a non-executive
director in December 2001 and is chair of the remuneration
committee, chair of the audit and risk committee and a
member of the corporate governance committee and
nomination committee.
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 and retired from that
role on 5 January 2015.
Mr Bowen is also a non-executive director of Trek Metals
Limited (appointed 22 February 2017). During the past
three years he has not served as a director of any listed
company other than IMF Bentham Limited and Trek
Metals Limited.
During the past three years he has not served
as a director of any other listed company.
36
Directors’
Report
continued
Karen Phin
Non-Executive Director – Appointed 25 August 2017
Karen Phin was appointed to the board as a non-executive
director in August 2017. Ms Phin holds a Bachelor of Arts/
Law (Honours) from the University of Sydney and is a
graduate of the Australian Institute of Company Directors.
Ms Phin brings a vast array of experience in capital
markets and the financial services industry, including
experience with regulators and assessing regulatory
frameworks, corporate advisory, and broad expertise
in capital management.
Ms Phin has over 20 years’ experience analysing
and advising Australian listed companies on capital
management, capital raisings and mergers and
acquisitions. Until 2014, Karen was Managing Director
and Head of Capital Management Advisory at Citigroup
in Australia and New Zealand. From 1996 to 2009, she
worked at UBS where she was also a Managing Director
and established and led the Capital Management Group.
Prior to joining Citigroup, Karen spent 12 months at
ASIC as a Senior Specialist in the Corporations group.
Ms Phin is a member of IMF’s audit and risk committee,
remuneration committee, corporate governance
committee and nomination committee.
Ms Phin is also a non-executive director of Magellan
Financial Group Ltd (appointed 23 April 2014) and has
been a member of the Takeovers Panel since 2015.
Wendy McCarthy AO FAICDLIFE
Non-Executive Director
Wendy McCarthy AO started her career as a secondary
school teacher, graduating from the University of
New England with a Bachelor of Arts and Diploma of
Education. She moved out of the classroom into public
life in 1968 and since then has worked for change across
the business, government and not-for-profit sectors, in
education, family planning, human rights, public health,
overseas aid and development, conservation, heritage,
and media.
She has held many significant leadership roles in key
national and international bodies including eight years as
deputy chair of the Australian Broadcasting Corporation,
ten years as Chancellor of the University of Canberra, and
12 years of service to Plan Australia as chair, with three
years as global deputy chair for Plan International. From
2008 to 2016 she was chair of headspace, the National
Youth Mental Health Foundation.
Ms McCarthy recently retired from her role as chair
of Circus Oz., Australia’s leading circus.
She is currently the deputy-chair of Goodstart Early
Learning, Patron of the Sydney Women’s Fund and
Ambassador for 1 Million Women. Ms McCarthy was
appointed an Officer of the Order of Australia for
outstanding contributions to community affairs, women’s
affairs and the Bicentennial celebrations, and received
a Centenary of Federation Medal for business leadership.
She was also awarded an Honorary Doctorate from the
University of South Australia.
In March 2017 the Australian Institute of Company
Directors awarded her a life Fellow.
Ms McCarthy was appointed to the board as a non-
executive director in December 2013 and is chair of the
corporate governance committee, chair of the nomination
committee and a member of the audit and risk committee
and remuneration committee.
During the past three years she has not served
as a director of any other listed company.
37
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Alden Halse
Non-Executive Director – Retired 24 November 2017
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:
– is an associate member of the Institute of
Chartered Accountants and the Australian Institute
of Company Directors;
– is a past president and current councillor of the
Royal Automobile Club of WA (Inc);
– is a non-executive chairman of RACWA Holdings
Pty Ltd; and
– is non-executive chairman of RAC Insurance
Pty Limited, Western Australia’s largest home
and motor insurer.
Mr Halse was appointed to the board as a non-executive
director in December 2001 and until 24 November 2017
was chair of the audit and risk committee and nomination
committee and a member of the remuneration committee
and corporate governance committee.
During the past three years he has not served
as a director of any other listed company.
38
Officers
Julia Yetsenga
Chief Financial Officer
Julia Yetsenga has been a member of Chartered
Accountants Australia and New Zealand for over 25 years.
She holds a Bachelor of Economics from the Australian
National University and a graduate diploma in Applied
Finance and Investment from FINSIA. She has a wealth
of experience in senior finance roles for private and ASX
listed companies both in Australia and overseas.
Jeremy Sambrook
General Counsel and Company Secretary
Jeremy Sambrook is an experienced corporate lawyer
having practised in the United Kingdom, Hong Kong and
the Channel Islands before moving to Australia. He holds
a Bachelor of Laws degree from the University of Bristol,
United Kingdom, and has a broad based in-house legal
and private practice background.
Following seven years working at a leading London law
firm, Mr Sambrook moved to one of Europe’s largest
international hedge fund managers as Corporate Legal
Counsel with responsibility for a wide variety of corporate
group projects, becoming a partner in 2010 and going on
to manage the off-shore head office prior to moving with
family to Australia in 2013. Immediately prior to joining IMF,
Mr Sambrook was a Special Counsel in the Corporate
team at DLA Piper Australia in Perth.
Directors’
Report
continued
Interests in shares, bonds and performance rights of the Company
As at the date of this report, the interests of the directors in shares, IMF Bentham Bonds, Fixed Rate Notes and share
performance rights of the Company were:
Michael Kay
Andrew Saker
Hugh McLernon
Alden Halse
Michael Bowen
Wendy McCarthy
Karen Phin
Total
Number of
ordinary
shares
Number of
IMF Bentham
Bonds
Number of
Fixed Rate
Notes
Number of
performance
rights
307,692
163,506
5,299,045
879,780
1,009,264
–
23,256
–
–
7,500
750
1,500
–
–
–
–
100
1,438,271
–
–
–
–
–
1,356,276
–
–
–
–
7,682,543
9,750
100
2,794,547
Further details of the interests of the Directors in the shares, bonds and options of the Company as at the date of this
report are set out in the Remuneration Report included within the Directors’ Report.
Dividends
Dividends paid in the year:
Interim for the year
On ordinary shares
Final for 2017, as recommended
in the 2017 financial report
Declared
date
Record
date
Payment
date
Cents
$m
22/2/18
26/3/18
24/4/18
3.0
5.188
On ordinary shares
24/8/17
26/9/17
20/10/17
4.0
6.882
Shareholders were able to elect to participate in the dividend reinvestment plan in relation to these dividends.
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
12-month period. The Company has put in place a dividend reinvestment plan and, on appropriate occasions, may
arrange underwriting to reduce the impact a particular dividend might otherwise have on cash.
39
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Operating and financial review
Principal activities
The principal activities of the entities within the
consolidated group during the financial year were the
investigation, management and funding of litigation.
The Group enters into funding agreements with claimants
or law firms to provide these services. The Group does
not provide legal advice. 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 from
the recovery amount and, depending on the jurisdiction,
may also be reimbursed the costs it has paid during the
course of the funded litigation. The fee is structured as
either a multiple of funds provided or a percentage of
the settlement or judgment proceeds and may 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 any
adverse costs ordered in respect of the costs incurred
by the defendant(s) during the period of funding.
Nature of operations
The Group undertakes these activities through 14 offices
in six countries around the world. Originating in Australia in
2001, the Group expanded into the USA opening an office
in New York in 2011. Since that time, IMF has also opened
offices in Los Angeles in 2014, San Francisco in 2015 and
Houston in early 2017.
In January 2016, the Group expanded into Canada opening
an office in Toronto followed by a presence in Quebec in
early 2018. A Singapore branch was established early in
2017 following the introduction of legislation permitting
litigation funding for international arbitration, and a Hong
Kong office was added in early 2018.
The Group had a 50% interest in a jointly controlled entity
principally involved in the funding of litigation through
Europe but primarily in the United Kingdom and the
Netherlands in which it sold its interest in June 2016.
The 12 month restriction on operating in the region
expired in July 2017 and the Group resumed activity
there in July 2017.
In February 2017, the Group launched its first fund,
Bentham Fund No 1 for US investments. The Group and
affiliated entities of Fortress Credit Advisers LLC committed
up to US$200.0 million to this Fund to be deployed on US
cases over a three year period. US Fund 1 was initially
sized at US$133.3 million with commitments of US$100.0
million from Fortress and US$33.3 million from IMF.
While IMF retains control over the Fund’s investments,
Fortress is entitled to a priority return on invested capital
and a further preferred return on committed but undrawn
capital, after which IMF is entitled to a manager return.
40
The residual net cash flows are to be distributed 85%
to IMF and 15% to Fortress. Benefits to IMF include
diversification of risk through a larger investment portfolio
while leveraging this portfolio with non-recourse capital
and freeing up IMF capital for redeployment into other
jurisdictions.
In February 2018, IMF sold the majority of existing cases
funded by its US subsidiary into Fund 1, generating cash
for the Group of $61.3 million. At the same time, the Fund
was upsized from US$133.3 million to US$166.3 million.
At 30 June 2018, the Fund was committed to 86.2% of
available capacity as shown graphically below. As the rate
of deployment is significantly ahead of the target three-year
deployment, IMF is focused on establishing a new US fund
in the 2019 financial year.
US$5.9m
US$22.9m
US Fund
86.2% Committed
Start Date – 10 Feb 2017
Fund Size – US$ 166.3m
US$110.5m
US$137.5m
Remaining
Investment Commitments
Investment Deployments
Other Costs
The RoW Funds were launched in October 2017. The
RoW Funds’ investment partners include Partners
Capital Phoenix Fund II Limited, a fund managed by
Partners Capital, and a special purpose vehicle advised
and managed by Amitell Capital Pte Ltd, a Singapore
based private investment firm. The RoW Funds will invest
in litigation in Australia, Asia, Canada and Europe and
have a combined capacity of $150.0 million. The Funds’
return profile is similar to US Fund 1, but the residual net
cash flows are distributed 80% to IMF and 20% to the
investment partners.
Directors’
Report
continued
Operating and financial review (continued)
At 30 June 2018, the RoW Funds were committed to
53.4% of capacity as shown diagrammatically below:
Total Committed Amount by Region ($m)
$14.4m
$7.3m
$69.9m
2%
1%
Funds 2 & 3
53.4% Committed
Start Date – 3 Oct 2017
Fund Size – $150m
42%
55%
$65.7m
Remaining
I/C Approved Commitments
Investment Commitments
$9.5m
Investment Deployments
Other Costs
In any given year, the Group’s profitability is dependent
upon the outcome of funded investments resolved in that
year, however the successful completion of an investment
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 law
firm portfolios, patent and intellectual property claims,
commercial, insolvency and arbitration claims, appeal and
whistleblower claims and group actions. The expansion
overseas also creates diversification across jurisdictions.
The Group discloses the material investments it funds
to the ASX as those cases are funded and material
settlements as they occur. The Group also provides, on
a quarterly basis, an investment portfolio report providing
information about the composition and structure of its
investment portfolio and its Funds. For investments in the
USA, IMF reports information based on committed and
deployed capital as investments in that jurisdiction are
generally for capped amounts and usually earn revenue
by reference to a multiple of investment.
Australia
Canada
United States
Asia
For investments in other jurisdictions, IMF reports on the
EPV as investments are generally uncapped and revenues
are based on a percentage of proceeds. The EPV is
IMF’s current best estimate of the claim’s recoverable
amount (or remaining recoverable amount if there has
been partial recovery). It considers, where appropriate,
the perceived capacity of the defendant to meet the
claim. It is not necessarily the same as the amount being
claimed by the funded claimants in the case and it is also
not the estimated return to the Group from the case if
it is successful. IMF also provides case updates on its
website: www.imf.com.au/cases.
41
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Operating and financial review (continued)
Investment portfolio report at 30 June 2018
Global
Estimated Portfolio Value
IMF Group (RoW), Fund 2 and Fund 3
IMF Group (USA) and Fund 1
Total portfolio
IMF Group (RoW), Fund 2 and Fund 3
Estimated Portfolio Value
IMF Group (RoW)
Fund 2 and Fund 3
Total portfolio
IMF Group (USA) and Fund 1
Invested Capital
IMF Group (USA)
Fund 1
Total
Remaining Commitment to be deployed
IMF Group (USA)
Fund 1
Total
Total Invested and Committed Capital
Number of
investments
Estimated
portfolio value
$m
Percentage of
total estimated
portfolio value
33
42
75
2,832
2,811
5,643
50%
50%
100%
Number of
investments
Estimated
portfolio value
$m
Percentage of
total estimated
portfolio value
24
9
33
1,520
1,312
2,832
54%
46%
100%
Number of
investments
Estimated
capital value
$m
Percentage of
total estimated
capital value
5
37
42
5
37
42
42
8.5
146.5
155.0
–
32.3
32.3
187.3
5%
95%
100%
0%
100%
100%
IMF commenced 26 new investments during the year and extended funding on a further 14 investments. The 15 new non-
USA investments had a total Estimated Portfolio Value at 30 June 2018 of $1.4 billion. The 11 new USA investments had
capital commitments of $60.1 million at 30 June 2018.
During the financial year, IMF concluded 16 investments (2017: 11). 11 were settled (2017: 10), there were no wins (2017: 1),
two losses (2017: 0) and three withdrawals (2017: one withdrawn). Two investments are currently on appeal (2017: 3).
42
Directors’
Report
continued
Operating and financial review (continued)
While the Group has implemented a risk mitigation and diversification strategy by expanding geographically and
diversifying its product offering across jurisdictions, case updates to its two largest investments are below:
The trial in the Wivenhoe Dam class action commenced on 4 December 2017 and is continuing. The investment
concerns the persons who suffered loss in the Brisbane floods of 2011, who allege the increased flooding was caused by
the negligence of the Dam operators. There is a participation agreement between IMF and the co-funder to share equally
the costs (including any adverse costs) of and any return from this claim.
The Westgem investment concerns a property developer alleging improper conduct in relation to loans for a property
development by a bank. The trial commenced in April 2018 and concluded in July 2018. Judgment is reserved.
USA
The Group’s US operations (Bentham) funded 11 new investments (2017: 13) in the US during the reporting period, all in
the US Fund (2017: 8). Bentham has now funded a total of 64 investments since being established in August 2011, with
42 current investments.
Seven US investments were resolved during the year (2017: 2), one of which was a loss (2017: 0), and one withdrawn
(2017: 0). There is currently one case in the US on appeal. Income was also received in relation to seven continuing
investments (2017: 9 investments) involving funding law firms across a portfolio of investments. Gross income generated
from these investments during the current financial year was $4.0 million (2017: $1.0 million).
The US business now has 18 staff including six investment managers and six legal counsel (2017: 15). The investment
managers are all former senior litigation attorneys, each of between 15 to 25 years’ legal experience. This enables
significant case analysis to be performed in-house, whilst providing great networks to attract new business.
Although uncertainty in US law concerning whether funders’ communications are protected from disclosure inhibits
IMF’s usual transparency about the investments it funds, we can say that Bentham’s US business now contains a diverse
group of litigation and arbitration investments. These involve commercial, patent and multi-party cases across a variety
of different jurisdictions. It is worth noting that there are clear signs of growing competition in the US market, but market
knowledge of litigation funding remains at a relatively early stage and so we consider there remain good prospects for
the future growth of our US business.
Employees
At 30 June 2018, IMF employed 73 permanent staff (full time equivalents), including the two executive directors,
providing investigative, information technology, accounting and management expertise (2017: 63 full time equivalent
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 2018:
Shareholder Returns
Basic (loss)/earnings per share (cents per share)
Diluted (loss)/earnings per share (cents per share)
Return on assets (NPAT/average assets)
Return on equity (NPAT/average equity)
Net debt/equity ratio %*
2018
(6.40)
(6.40)
(1.7%)
(2.7%)
nil
2017
9.04
8.68
4.2%
7.6%
nil
*
Net debt (cash and short term deposits less total debt) is positive as cash and short term deposits are greater than total debt.
43
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Operating and financial review (continued)
Six investments (2017: six) generated income greater than $0.5 million during 2018. A summary of the investment
completions is below:
Litigation contract
investment name
Treasury Wine Estates
Confidential settlement
USA Fund Case 006
Canada Case 001
USA Case 036
Confidential Hong Kong Matter
ROW Fund Case 006
ROW Fund Case 002
USA Case 028
USA Fund Case 022
USA Fund Case 037
USA Case 044
ASAS (Smith)
USA Fund Case 003
Other – 2 investments
Further recoveries on completed investments
Further recoveries on continuing investments
Other1
Total
litigation
contract
expenses
(including
capitalised
overheads)
Net gain/
(loss) on
disposal of
intangible
asset
Total
litigation
contract
income
$’000
$’000
$’000
22,479
(11,051)
11,428
4,151
3,652
2,776
2,917
(648)
(1,477)
(938)
(1,180)
17,370
(16,580)
152
319
–
2,100
2,228
1,559
–
–
–
3,650
7,861
9
(26)
(198)
(93)
(2,274)
(2,505)
(2,027)
(1,834)
(4,036)
(690)
(811)
(7,643)
(905)
3,503
2,175
1,838
1,737
790
126
121
(93)
(174)
(277)
(468)
(1,834)
(4,036)
(690)
2,839
218
(896)
71,223
(54,916)
16,307
The Group has finalised 175 (2017: 162) investments since listing, excluding withdrawals, with an average investment
period of 2.6 years (2017: 2.6 years). The Group has generated a return of 1.47 times (excluding overheads)
(2017: 1.55 times) on invested capital. MF has a target to complete cases within 2.5 years and to generate
a return on every dollar invested of 2 times (excluding overheads).
The investment portfolio as at 30 June 2018 has a mixture of both mature and new investments, with 44% of the
investment portfolio estimated to finalise over the next 12 months (2017: 31%). IMF is focused on replacing and
growing the investment portfolio within its conservative investment protocols.
1. Other investments include due diligence expenses for cases not funded.
44
Directors’
Report
continued
Operating and financial review (continued)
IMF’s share price closed at $3.00 per share on 30 June 2018 (2017: $1.89). IMF entered the ASX top 300 companies
on 20 March 2009, when its share price was $1.15. Since entering the index, IMF has outperformed the major indices
on an annualised basis from 30 June 2011 to 30 June 2018 as detailed below:
IMF, ASX200 and All Ordinaries Annualised Return 30 June 2011 – 30 June 2018
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
s
n
r
u
t
e
R
d
e
s
i
l
a
u
n
n
A
2.0%
0.0%
IMF Share Price
ASX 200 AXIO
ASX All Ordinaries AORD
Annualised Return with
Dividend Reinvestment
17.5%
9.2%
9.1%
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 2018 of $9.9 million (2017: increase of $4.4 million). Operating activities used $63.6 million of net
cash outflows (2017: net cash outflow of $50.9 million), whilst cash flows used in investing activities were $23.5 million
(2017: net cash inflow of $22.2 million), and financing activities raised $97.1 million (2017: $33.0 million) principally as
a result of cash inflows from non-controlling interests in 2018 and the Fixed Rate Note capital raise in 2017.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
45
Directors’
Report
continued
Operating and financial review (continued)
Asset and capital structure
Cash and short term deposits
Total debt1
Net debt
Total equity
Working Capital Ratio2
2018
$’000
160,231
(120,462)
39,769
367,836
2.3:1
2017
$’000
Change
%
144,891
(119,469)
25,422
206,253
4.2:1
11%
1%
56%
78%
(44%)
In April 2014, the Company issued 500,000 IMF Bentham 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 4.2% per annum. The Bonds are due
to mature on 30 June 2019 and are secured by a security interest over all present and after-acquired property of IMF.
In April 2017, the Company issued 40,000 Fixed Rate Notes with a face value of $1,000 each raising $40.0m to form a
single series with the Notes issued in the prior financial year. In April 2016, the Company issued 32,000 Fixed Rate Notes
with a face value of $1,000 each, raising $32.0m.
Interest of 7.4% per annum is payable to Noteholders half yearly. The Fixed Rate Notes are due to mature on 30 June 2020
and are secured by a security interest over all present and after-acquired property of IMF. IMF has an early redemption
option on these Notes at 30 June 2019.
Profile of debts
The profile of the Group’s debt finance is as follows:
Current
IMF Bentham Bonds
Non-current
IMF Bentham Bonds
Fixed Rate Notes
Total debt1
2018
$’000
2017
$’000
Change
%
49,553
49,553
–
70,909
70,909
120,462
–
–
49,104
70,365
119,469
119,469
100%
100%
(100%)
(41%)
(41%)
1%
1.
Total debt is $122.0 million. $50.0 million relates to the IMF Bentham Bonds issued in April 2014, while during the 2017 financial year, the Company
issued Fixed Rate Notes to the value of $40.0 million to form a single series with $32.0 million issued in the prior financial year. The carrying value
of the debt is net of $1.5 million of unamortised transaction costs and debt premium (See Note 12).
2.
The working capital ratio is calculated by dividing current assets by current liabilities. The ratio is categorised as non-IFRS information prepared in
accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. This information has not
been audited or reviewed.
46
Directors’
Report
continued
Operating and financial review (continued)
Shares issued during the year
On 24 April 2018, the Company issued 916,449 shares at
$2.3510 per share and on 20 October 2017, the Company
issued 900,253 shares at $2.0239 per share under its
Dividend Reinvestment Plan.
Capital expenditure
There has been a decrease in capital expenditure
during the year ended 30 June 2018 to $0.2 million from
$1.0 million in the year ended 30 June 2017. The capital
expenditure in 2018 relates primarily to computer and
office equipment while in the prior year, new offices
in Sydney and New York were fitted out.
Risk management
The Group’s major risk continues to be the choice of
cases to be funded. The extent of the mitigation of that
risk can best be identified by reference to the fact that in
its 17 years of operation IMF has lost only 17 cases out
of 175 investments funded and completed (excluding
withdrawals). 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 the adverse costs order exposure
in relation to investments on its own balance sheet and all
investments in the RoW Funds are covered by an After-
The-Event insurance policy.
Another risk which requires constant management
is liquidity. IMF’s strategic plan addresses this risk
through the introduction of innovative fund structures
reducing IMF’s direct capital exposure to potential
investment losses. The board of directors has authorised
management to identify options for raising capital to fund
further expansion of IMF’s business, as required.
Although there is currently portfolio concentration risk
associated with the Wivenhoe and Westgem investments,
the company’s diversification strategy has reduced this
risk for future periods.
In addition, IMF constantly monitors proposed legislative,
regulatory, judicial and policy changes that may affect
litigation funding in the markets in which it operates. The
Australian Law Reform Commission (ALRC) is conducting
an enquiry into class action proceedings and third-
party litigation funders. IMF has provided a submission
in the consultation phase. The ALRC is due to report
by 21 December 2018. At the present time, although
the review is not expected to result in any changes
which would have a material impact on IMF’s Australian
operations, it is too early to be definitive.
The Victorian Law Reform Commission (VLRC) also
commenced an enquiry into Litigation Funding and
Group Proceedings in January 2017. The Victorian
State Government is currently considering the VLRC’s
recommendations which include; that Victorian lawyers be
permitted to charge contingency fees in class actions and
that the Court has the power to review and vary legal costs
and dispute finance fees and charges and settlement
distribution costs.
In September 2015, IMF responded to a letter from the
United States Senate Committee on the Judiciary seeking
information in relation to third party litigation financing. IMF
is not aware of any further developments since that letter
was issued. State based legislation in the area of litigation
funding remains a risk factor for IMF to monitor. While a
number of legislative initiatives have focused on consumer
related actions, there remains potential for these to have a
non-material impact on IMF’s US operations. More recent
activity in the US includes the introduction of a bill which
was introduced into the Senate in May 2018 proposing
the disclosure of litigation funding arrangements in any
federal class actions and federal multi-jurisdiction litigation.
We continue to speak with and lobby the relevant parties
as IMF believes that such disclosure is not in the best
interests of claimants.
Legislation introduced in Singapore in March 2017
abolished champerty and maintenance in relation
to arbitration funding and similar legislation is being
codified in Hong Kong.
IMF, like all businesses, faces the risk of damage to
its reputation, name or brand which could materialise
from various sources. The Group aspires to maintain
an excellent reputation for strong risk management
discipline, a client-centric approach and an ability to
be flexible and innovative. The Group recognises the
serious consequences of any adverse publicity or
damage to reputation, whatever the underlying cause.
We have various policies and practices to mitigate
reputational risk, including strong values that are regularly
and proactively reinforced. Strategic and reputational
risk is mitigated as much as possible through detailed
processes and governance involving escalation
procedures from investment managers to management
and from management to the board, and from regular,
clear communication with shareholders, clients and
all stakeholders. Whilst seeking to clearly differentiate
itself in the industry, IMF may suffer indirect reputational
damage from the actions of other participants that draw
criticism of the industry more broadly.
The Company has considered its exposure to economic,
environmental and social responsibility risks and further
detail of this assessment and the mitigations in place
is included in the Directors’ Report. The Company has
determined that it does not, at this time, have a material
exposure to environmental or social sustainability risks
but will continue to monitor this position.
47
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Significant changes in the state of affairs
Total equity increased 78% to $367.8 million from
$206.3 million at 30 June 2017. 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
There have been no significant events after reporting date.
Likely developments and expected results
Approximately 44% of the investment portfolio at 30 June
2018 is expected to complete over the next 12 months.
The estimated completion period is IMF’s current best
estimate of the period in which the case may be finalised.
The case may finalise earlier or later than the identified
period for various reasons. Completion means finalisation
of the litigation by either settlement, judgment or arbitrator
determination, for or against the funded client. It may
not follow that the financial result will be accounted for in
the year of finalisation. Completion period estimates are
prepared at case inception and reviewed and updated
where necessary on a quarterly basis.
The Group does not provide forecasts in light of the
difficulty in estimating the finalisation of its investments,
but provides an indication of its view of the possible
completion dates and estimated recoverable amounts in
the quarterly portfolio reports.
IMF expects demand for its funding to continue in
Australia, particularly as we are the leading funder in this
market. The establishment of our subsidiaries in the United
States of America, Canada and Singapore has resulted in
increased funding opportunities. 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 14,355,887 share
performance rights 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,
amongst others:
(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 $456,000 during the
current financial year (2017: $449,700).
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.
48
Directors’
Report
continued
Dear Shareholder,
On behalf of the board and as Chairman of the Remuneration Committee, I am pleased to present IMF’s 2018
Remuneration Report.
Following the initiation of our five-year Strategic Business Plan in 2015, we implemented a new variable remuneration
framework designed to align executive reward and shareholder value and to incentivise the achievement of our strategic
vision over the longer term. This framework was outlined to shareholders in the 2015 annual report and approved as
required by shareholders at our AGM in November 2015.
We have continued to monitor our remuneration structure and policies and while we remain comfortable with the
overarching framework introduced in 2015, in light of the developments in our business the Remuneration Committee has
fine-tuned the specific performance hurdles in the Short Term Incentive Plan (“STIP”) for the coming financial year. Further
detail is provided in the following report.
The levels of fixed remuneration of IMF’s senior employees are reflective of the private practice professional services
market within which the company competes for talent. Investment managers are invariably at or around the partner level
prior to joining IMF. The variable remuneration framework applies to the whole Group and was developed to reflect industry
standards. Under these remuneration arrangements, a material portion of remuneration is ‘at-risk’ and linked to both
short-term and long-term performance. The structure is designed to ensure that Key Management Personnel (“KMP”)
and executives are rewarded for delivering sustained Group performance.
The Group’s variable remuneration framework for KMP, senior executives and investment managers (collectively “Senior
Staff”) consists of two components:
– A Short Term Incentive Plan which provides for an annual cash payment, subject to the achievement of key financial
and non-financial performance objectives. The target STIP payment has been amended for the 2019 financial year
from 35% to 40% of an employee’s Total Fixed Remuneration (“TFR”), but with the removal of the potential for stretch
performance.
– An equity-based Long Term Incentive Plan (“LTIP”) that provides for an annual grant of performance rights. Vesting
of awards is contingent on performance against two metrics, positive relative Total Shareholder Return (“TSR”) and
Compound Annual Growth Rate (“CAGR”) of the intangible asset balance (“Funds Deployed”), both measured over
a three-year performance period.
The LTIP for Senior Staff, adjusted for FY2019 from 65% to 60% of TFR, is designed to complement the STIP as a form
of ‘at-risk’ remuneration tied to long-term performance for the key contributors to the business. The LTIP directly aligns
shareholders and participants interests. We are pleased to report that the metrics for the performance rights granted in
the first year of the plan’s rollout for FY2016, have been well exceeded and we anticipate 100% vesting will occur.
IMF’s result for the 2018 financial year reflects our continuing commitment to the long term growth and development
of our business and our position at the midpoint of our five year strategic plan. As a result of the financial loss, no STIP
has been awarded to our Senior Staff for the current financial year, notwithstanding the achievement of some major
strategic milestones.
The board is confident that IMF’s remuneration policies support the Group’s financial and strategic goals and we will
continue to review the target metrics to ensure the consistent alignment of employees’ and business focus with those
of shareholders. We are committed to transparency and an ongoing dialogue with shareholders on remuneration.
On behalf of the board, I invite you to review the full report and thank you for your continued interest.
Yours faithfully
Michael Bowen
Chairman of the Remuneration Committee
49
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Remuneration Report (Audited)
This Remuneration Report outlines the director and KMP
remuneration arrangements of the Group in accordance
with the requirements of the Corporations Act 2001 and
its Regulations. For the purposes of this report KMP 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.
The Group embodies the following principles in its
remuneration framework:
– determination of appropriate market rates for the fixed
remuneration component recognising that the majority
of investment professionals are most comparable
to partners in private practice professional services
business; 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 KMP remuneration
is separate and distinct. In 2015, the Committee engaged
an external remuneration consultant to assist with a
review of our variable remuneration structure. The STIP
and LTIP are the product of that review and are reflective
of industry standards.
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 $517,500 (including
superannuation), as disclosed in the following tables. At
the 2016 Annual General Meeting shareholders approved
payments up to $700,000 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.
Key management personnel
Details of IMF’s Key Management Personnel are:
(i) Directors
Michael Kay
Andrew Saker
Chairman and Non-Executive
Director
Managing Director and Chief
Executive Officer
Hugh McLernon
Executive Director
Michael Bowen
Non-Executive Director
Alden Halse
Non-Executive Director
(resigned 24 November 2017)
Wendy McCarthy
Non-Executive Director
Karen Phin
Non-Executive Director (appointed
25 August 2017)
(ii) Executives
Clive Bowman
Chief Executive – Australia and Asia
Charlie Gollow
Chief Executive – USA
There were no other changes to IMF’s Key Management
Personnel after the reporting date and before the financial
report was authorised for issue.
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 KMP.
The Remuneration Committee assesses the
appropriateness of the nature and amount of the
emoluments of the directors and KMP 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 KMP.
Remuneration philosophy
The performance of the Group is heavily dependent upon
the quality of its directors and KMP. Accordingly, the
Company must attract, motivate and retain highly skilled
directors and executives.
50
Directors’
Report
continued
Remuneration Report (Audited) (continued)
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
(see Executive Employment Contracts).
Compensation consists of the following key elements:
– fixed remuneration; and
– variable remuneration.
Fixed remuneration
The levels of fixed remuneration of IMF’s senior employees
are reflective of the private practice professional services
market within which the company competes for talent.
Investment managers are invariably at or around the
partner level prior to joining IMF.
Fixed compensation is reviewed annually by the
Remuneration Committee. The process consists of a
review of group and individual performance, relevant
comparative compensation in the market and internally
and, where appropriate, external advice on policies
and practices. There have been no changes in the fixed
remuneration for the KMPs for this financial year.
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
Short Term Incentive Plan
The purpose of STIP is to provide an annual ‘at-risk’
incentive to participants linked to the achievement of
specific financial and non-financial performance objectives.
Key features of the STIP include:
– All applicable employees will be eligible to be
considered by the Remuneration Committee to
participate in the STIP, which will be delivered as an
annual cash payment.
– Each participant will have their STIP opportunity
expressed as a percentage of their total fixed
remuneration.
– At the beginning of the financial year, financial and non-
financial performance objectives will be set.
– The non-financial objectives will be specific to the role
of the individual.
– At the end of the financial year, actual performance
will be assessed against the pre-set financial and non-
financial performance objectives set at the beginning
of the year.
The target STIP payment was initially set at 35% of TFR
with the possibility of earning a further 10% if growth in
global net profit before tax and bonus, exceeded 15%.
The STIP metrics for the 3 years since the implementation
of the Plan and including the year ended 30 June 2018
comprised 4 objectives as follows:
– Target 1 – 30% of the STIP opportunity (or 10.5% of the
employees’ salary) will be awarded to employees if the
Group achieves 5% growth in global net profit before
tax (before bonus),
– Target 2 – 30 % of the STIP opportunity (or 10.5%
of the employees’ salary) will be awarded if the
employees’ region achieves 5% growth in net profit
before tax (before bonus),
– Target 3 – 20% of the STIP opportunity (or 7% of
the employees’ salary) will be awarded if the Group
achieves 5% growth in the total claim value of the
investment portfolio,
– Target 4 – 20% of the STIP opportunity (or 7% of the
employees’ salary) will be awarded if they achieve their
individual non-financial objectives,
– Target 1 attracted an additional outperformance stretch
payment if growth in global net profit before tax (before
bonus) exceeded 5%. This additional award was up
to 10% of the employees’ salary if growth in global net
profit before tax (before bonus) exceeds 15%.
In light of the Group’s continued geographic expansion
into new markets and the initiation of Fund structures
across geographic lines, the Remuneration Committee
has simplified the targets and adjusted the maximum
STIP incentive to 40% of TFR. The STIP metrics set for
the 2019 financial year are:
– Target 1 – 50% of the STIP opportunity (or 20% of the
employees’ salary) will be awarded to employees if the
Group achieves 5% growth in global net profit before
tax (before bonus),
– Target 2 – 50% of the STIP opportunity (or 20% of
the employees’ salary) will be awarded if employees
achieve their non-financial objectives (which are set
individually).
Long Term Incentive Plan
The LTIP complements the STIP as a form of ‘at-risk’
remuneration tied to long-term performance. The
LTIP encourages equity ownership and directly aligns
shareholders’ and participants interests.
51
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Remuneration Report (Audited) (continued)
Key features of the LTIP include:
– Only key senior employees are eligible to participate in
the LTIP. This will generally be investment managers
and above.
– Awards will be granted annually as performance rights
over IMF ordinary shares.
– The LTIP opportunity will be expressed as a
percentage of TFR.
– The Remuneration Committee has adjusted the value
of the LTIP opportunity from 65% to 60% applicable
from the start of the 2019 financial year.
– Awards will vest subject to performance against two
metrics over a three-year period, which are ascribed
equal weighting:
1. Relative TSR; and
2. CAGR of the Funds Deployed
The LTIP metrics set for the performance rights granted
during the 2018 financial year, which are unchanged from
the 2017 and 2016 financial years, are as follows:
– The LTIP opportunity has been set at 65% of TFR
calculated on face value by reference to a volume
weighted average share price at the start of the
applicable period.
– For the first time, senior executives now have the
option of foregoing their STIP allocation and electing
to receive 100% of their at risk remuneration in
performance rights, under the same terms as the
existing LTIP structure.
– Two performance metrics have been set and the
performance rights, or a portion thereof, will vest in
three years if:
– Target 1 – TSR measurements will comprise 50%
of the LTIP opportunity:
– TSR must be positive overall between the
issuance of the performance rights and the
vesting date.
– The Company’s TSR will then be compared
to a peer group, which will include ASX-listed
entities in the Diversified Financials industry
group, which are between 50% and 200%
of IMF’s market capitalisation.
– The TSR component will vest in accordance
with the following vesting schedule:
TSR Percentile Ranking
Percentage Vesting
Less than the 50th percentile
Nil vesting
Equal to the 50th percentile
50% vesting
Between the 50th and 75th
percentile
Equal to the 75th percentile
or above
Between 50% and 100%,
determined on a straight-line
basis
100% vesting
– Target 2 – The Group will measure the compound
annual growth rate of Funds Deployed which will
comprise 50% of the LTIP opportunity:
– CAGR of the Funds Deployed component will
vest in accordance with the following schedule:
Funds Deployed CAGR
Percentage Vesting
Below 5% CAGR
At 5% CAGR
Between 5% CAGR
and 7% CAGR
Nil vesting
50% vesting
Between 50% and
100%, determined on
a straight-line basis
7% CAGR and above
100% vesting
These performance conditions have been chosen to
ensure the remuneration of executives are aligned with
the Group’s strategy to increase the IMF portfolio, invest
in future income and potential earnings capacity, and
creation of shareholder wealth.
Group Performance
The objectives and philosophy of the Remuneration
Committee are based upon aligning the performance
of the Group’s employees with increasing value to
shareholders. The graph on page 45 shows the
performance of the Group as measured by its share
price and compared to other shares listed on the ASX.
52
Directors’
Report
continued
Remuneration Report (Audited) (continued)
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/(loss) per share (cents per share)
Diluted earnings/(loss) per share
(cents per share)
Executive Employment Contracts
Andrew Saker, Managing Director and CEO:
2014
1.84
6.56
6.56
2015
1.72
3.78
2016
1.53
12.38
3.78
12.38
2017
1.89
9.04
8.68
2018
3.00
(6.40)
(6.40)
– rolling 12 month contract commenced 5 January 2015;
– gross salary package of $1,200,000 pa plus super;
– salary may be reviewed by the board from time to time;
– notice period by the employee is 6 months and 12 months’ notice by the Company; and
– no other termination payment arrangements (excluding statutory entitlements) apply other than the notice periods
specified above.
Hugh McLernon, Executive Director:
– 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 2018 review determining there should be a 0% increase in salary
(2017: 0% increase);
– notice period is 12 months; and
– no other termination payment arrangements (excluding statutory entitlements) apply other than the notice period
specified above.
Clive Bowman, Chief Executive – Australia and Asia:
– rolling 12 month contract commenced 1 July 2012;
– gross salary package of $925,000 pa including super;
– salary to be reviewed annually, with the 2018 review determining there should be a 0% increase in salary
(2017: 0% increase);
– notice period is 12 months; and
– no other termination payment arrangements (excluding statutory entitlements) apply other than the notice period
specified above.
Charlie Gollow, Chief Executive - USA:
– contract commenced 22 April 2003;
– gross salary package of $600,000 pa including super;
– salary to be reviewed annually, with the 2018 review determining there should be a 0% increase in salary
(2017: 0% increase);
– notice period by the employee is 3 months and 6 months’ notice by the Company; and
– no other termination payment arrangements apply other than the notice periods specified above.
53
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Remuneration Report (Audited) (continued)
(a) Remuneration of Key Management Personnel
Table 1: Remuneration for the year ended 30 June 2018
Short-term benefits
Salary &
fees
$
Cash
bonus
accrued1
$
Post-
employment
Long term
benefits
Share based
payments
Super-
annuation
$
Long
service
leave
$
Share
performance
rights
$
Termination
payments
$
Total
Remuneration
$
Performance
related
%
2018
Directors
Michael Kay
Andrew Saker
205,384
1,200,000
Hugh McLernon 1,129,951
82,192
36,426
Michael Bowen
Alden Halse
Wendy
McCarthy
Karen Phin
82,192
66,409
Executives
Clive Bowman
Charlie Gollow
904,951
579,951
Total
4,287,456
–
–
–
–
–
–
–
–
–
–
19,616
20,049
20,049
7,808
3,460
7,808
6,309
–
13,202
35,039
–
–
–
576,323
543,456
–
–
–
–
–
–
20,049
20,049
25,684
19,223
432,783
280,723
–
–
–
–
–
–
–
–
225,000
1,809,574
1,728,495
90,000
39,886
90,000
72,718
1,383,467
899,946
0%
32%
31%
0%
0%
0%
0%
31%
31%
125,197
93,148
1,833,285
–
6,339,086
1. No bonus in respect of the 2018 financial year has been accrued for key management personnel.
Table 2: Remuneration for the year ended 30 June 2017
Short-term benefits
Salary &
fees
$
Cash
bonus
accrued2
$
Post-
employment
Long term
benefits
Share based
payments
Super-
annuation
$
Long
service
leave
$
Share
performance
rights
$
Termination
payments
$
Total
Remuneration
$
Performance
related
%
2017
Directors
Michael Kay
Andrew Saker
205,384
1,200,000
Hugh McLernon 1,130,384
88,373
82,192
Michael Bowen
Alden Halse
–
170,746
161,000
–
–
19,616
19,616
19,616
1,627
7,808
–
7,460
17,211
–
–
–
389,517
367,375
–
–
Wendy
McCarthy
Executives
Clive Bowman
Charlie Gollow
82,192
–
7,808
–
–
905,384
580,384
129,500
78,000
19,616
19,616
15,771
9,952
291,152
188,855
Total
4,274,293
539,246
115,323
50,394
1,236,899
2. The accrued 2017 bonus was paid in the 2018 financial year.
54
–
–
–
–
–
–
–
–
–
225,000
1,787,339
1,695,586
90,000
90,000
90,000
1,361,423
876,807
6,216,155
0%
31%
31%
0%
0%
0%
31%
30%
Directors’
Report
continued
Remuneration Report (Audited) (continued)
The following table outlines the proportion of maximum STIP earned by KMP in the 2018 financial year.
Andrew Saker
Hugh McLernon
Clive Bowman
Charlie Gollow
Maximum
STIP
opportunity
(% of TFR)
% of
maximum
earned
45%
45%
45%
45%
0%
0%
0%
0%
In light of the financial performance of the Group, the Remuneration Committee has determined that no STIP is payable for
the financial year.
(b) Share performance rights awarded, vested and lapsed during the year
Tranche 1
performance
rights
awarded
during the
year
Number
Fair value of
Tranche 1
performance
rights at
award date1
$
Tranche 2
performance
rights
awarded
during the
year
Number
Fair value of
Tranche 2
performance
rights at
award date1
$
Total
performance
rights
awarded
during the
financial
year
Number
Value of
performance
rights
granted
during the
year
$
Award
date
Vesting
date
Expiry
Date
2018
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Wendy
McCarthy
Karen Phin
Executives
Clive Bowman
Charlie Gollow
–
–
–
–
–
–
–
–
–
210,052
0.948
210,052
1.720
420,104 24 Nov 2017 30 Jun 2020 1 Jul 2032
560,419
197,992
0.948
197,992
1.720
395,984 24 Nov 2017 30 Jun 2020 1 Jul 2032
528,243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
159,255
0.948
159,255
1.720
318,510 24 Nov 2017 30 Jun 2020 1 Jul 2032
424,892
103,300
0.948
103,300
1.720
206,600 24 Nov 2017 30 Jun 2020 1 Jul 2032
275,604
Total
670,599
670,599
1,341,198
1,789,158
1.
The fair value of performance rights is determined at the time of grant as prescribed in AASB 2. For details on the valuation of performance rights,
including models and assumptions used, refer to Note 22.
55
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Remuneration Report (Audited) (continued)
Tranche 1
performance
rights
awarded
during the
year
Number
Fair value of
Tranche 1
performance
rights at
award date 1
$
Tranche 2
performance
rights
awarded
during the
year
Number
Fair value of
Tranche 2
performance
rights at
award date 1
$
Total
performance
rights
awarded
during the
financial
year
Number
Value of
performance
rights
granted
during the
year
$
Award
date
Vesting
date
Expiry
Date
2017
Directors
Michael Kay
Michael Bowen
Alden Halse
Wendy
McCarthy
Executives
Clive Bowman
Charlie Gollow
Total
Andrew Saker
271,794
Hugh McLernon
256,344
–
–
–
–
–
1.188
1.188
–
271,793
256,344
–
–
–
–
–
–
206,190
133,745
868,073
1.188
1.188
206,190
133,745
868,072
–
1.553
1.553
–
–
–
1.553
1.553
–
–
–
–
–
543,587 18 Nov 2016 30 Jun 2019 1 Jul 2031
744,987
512,688 18 Nov 2016 30 Jun 2019 1 Jul 2031
702,639
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
412,380 18 Nov 2016 30 Jun 2019 1 Jul 2031
565,167
267,490 18 Nov 2016 30 Jun 2019 1 Jul 2031
366,595
1,736,145
2,379,388
1.
There have been no alterations to the terms and conditions of the performance rights awarded as remuneration since their award date.
(c) Share performance rights holdings of Key Management Personnel
Performance rights holdings of KMP
Balance
1 July 2017
Number
Granted as
remuneration
Number
Performance
rights
exercised
Number
Balance
30 June 2018
Number
Exercisable
Number
Not
exercisable
Number
–
1,018,167
960,292
–
–
–
–
420,104
395,984
–
–
–
772,410
501,022
318,510
206,600
3,251,891
1,341,198
–
–
–
–
–
–
–
–
–
–
1,438,271
1,356,276
–
–
–
–
474,580
447,604
–
–
–
–
963,691
908,672
–
–
–
1,090,920
707,622
360,030
233,532
730,890
474,090
4,593,089
1,515,746
3,077,343
2018
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Wendy McCarthy
Karen Phin
Executives
Clive Bowman
Charlie Gollow
Total
56
Directors’
Report
continued
Remuneration Report (Audited) (continued)
2017
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Alden Halse
Wendy McCarthy
Executives
Clive Bowman
Charlie Gollow
Total
Balance
1 July 2016
Number
Granted as
remuneration
Number
Performance
rights
exercised
Number
Balance
30 June 2017
Number
Exercisable
Number
Not
exercisable
Number
–
474,580
447,604
–
–
–
–
543,587
512,688
–
–
–
360,030
233,532
412,380
267,490
1,515,746
1,736,145
–
–
–
–
–
–
–
–
–
–
1,018,167
960,292
–
–
–
772,410
501,022
3,251,891
–
–
–
–
–
–
–
–
–
–
1,018,167
960,292
–
–
–
772,410
501,022
3,251,891
(d) Shareholdings of Key Management Personnel
2018
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Alden Halse
Wendy McCarthy
Karen Phin
Executives
Clive Bowman
Charlie Gollow
Total
Balance
1 July 2017
Received as
remuneration
Share
performance
rights exercised
Net change
other1
Balance
30 June 2018
307,692
158,317
5,299,045
977,234
879,780
–
–
–
533,172
467,058
8,622,298
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,189
–
32,030
–
–
23,256
307,692
163,506
5,299,045
1,009,264
879,780
–
23,256
–
–
533,172
467,058
60,475
8,682,773
57
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
continued
Remuneration Report (Audited) (continued)
2017
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Alden Halse
Wendy McCarthy
Executives
Clive Bowman
Charlie Gollow
Total
Balance
1 July 2016
Received as
remuneration
Share
performance
rights exercised
Net change
other1
Balance
30 June 2017
307,692
149,254
7,299,045
921,289
879,780
–
–
1,013,941
467,058
11,038,059
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,063
(2,000,000)
55,945
–
–
307,692
158,317
5,299,045
977,234
879,780
–
(480,769)2
–
533,172
467,058
(2,415,761)
8,622,298
1. Net changes relate to shares obtained or sold on market.
2. Adjusted in 2018 financial report to include associated holdings.
All equity transactions with KMP other than those arising from the exercise of share performance rights have been entered
into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm’s length.
(e) Loans to Key Management Personnel
There have been no loans provided to Key Management Personnel in 2018 (2017: nil).
(f) Transactions with Key Management Personnel
During the year the Group obtained legal advice from DLA Piper, a legal firm associated with Michael Bowen, totalling
$470,272 (2017: $160,797). The legal advice was obtained at normal market prices. Refer to Note 26 for details.
– End of Remuneration Report –
58
Directors’
Report
continued
Directors’ Meetings
Committee membership
As at the date of this report, the Company had an Audit and Risk Committee, a Remuneration Committee, a Nomination
Committee and a Corporate Governance Committee. Directors acting on committees of the board during the year were
as follows:
Audit and Risk Committee
Remuneration Committee
Nomination Committee
Corporate Governance Committee
M Bowen (Chair)3
M Bowen (Chair)
W McCarthy (Chair)4
W McCarthy (Chair)
M Kay
W McCarthy
K Phin1
A Halse2
M Kay
W McCarthy
K Phin1
A Halse2
M Kay
M Bowen
K Phin1
A Saker
A Halse2
M Kay
M Bowen
K Phin1
A Halse2
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:
M Kay
A Saker
H McLernon
M Bowen
W McCarthy
K Phin1
A Halse2
Board
Meetings
Audit
and Risk
Committee
Remuneration
Committee
Nomination
Committee
Corporate
Governance
Committee
8
8
8
8
8
6
7
3
2
2
–
–
2
2
1
1
3
3
–
–
3
2
2
3
2
2
2
–
2
2
2
–
2
2
–
–
2
2
1
1
1.
2.
Ms Phin was appointed as a director on 25 August 2017 and was appointed to the Audit & Risk Committee, Remuneration Committee, Nomination
Committee and Corporate Governance Committee on the same date.
Mr Halse retired as director on 24 November 2017. Mr Halse retired as Chair of the Audit & Risk Committee and the Nomination Committee and as
a member of the Remuneration Committee and Corporate Governance Committee on the same date.
3. Mr Bowen was appointed as Chair of the Audit & Risk Committee on 24 November 2017.
4. Ms McCarthy was appointed as Chair of the Nomination Committee on 24 November 2017.
Rounding
The amounts contained in this report have been rounded to the nearest $1,000 (where rounding is applicable) under the
option available to the Company under ASIC Corporations Instrument 2016/191. The Company is an entity to which the
Instrument 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 2018. This Independence Declaration can be found at page 61.
59
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
t
i
o
n
Directors’
Report
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 $60,000 (2017: $149,000).
Corporate Governance
The Company has an extensive Corporate Governance Manual which enables the Company to interact with its clients
and the public in a consistent and transparent manner. For further information on corporate governance policies and
procedures adopted by the Company please refer to our website http://www.imf.com.au/shareholders/corporate-
governance.
Signed in accordance with a resolution of the directors.
Michael Kay
Chairman
Perth, 22 August 2018
Andrew Saker
Managing Director
60
Auditor’s
Independence
Declaration
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of IMF Bentham
Limited
As lead auditor for the audit of IMF Bentham Limited for the financial year ended 30 June 2018, I declare
to the best of my knowledge and belief, there have been:
a)
b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of IMF Bentham Limited and the entities it controlled during the financial
year.
Ernst & Young
Robert A Kirkby
Partner
22 August 2018
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:045
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
61
Statement of
Comprehensive Income
for the year ended 30 June 2018
Continuing Operations
Revenue
Other income
Total Income
Finance costs
Depreciation expense
Employee benefits expense
Corporate and office expense
Other expenses
(Loss)/Profit Before Income Tax from Continuing Operations
Income tax (benefit)/expense
Net (Loss)/Profit from Continuing Operations
Attributable to:
Equity holders of the parent
Non-controlling interests
Other Comprehensive Income
Movement in foreign currency translation reserve
Other comprehensive income net of tax
Total Comprehensive Income for the Year
Attributable to:
Equity holders of the parent
Non-controlling interests
Note
2
3
4(a)
4(b)
4(c)
4(d)
4(e)
5
24
14(b)
Consolidated
2018
$’000
2017
$’000
6,610
16,520
23,130
86
621
2,985
54,123
57,108
90
591
22,055
20,968
7,212
1,516
(8,360)
(513)
(7,847)
8,646
1,077
25,736
10,296
15,440
(11,017)
3,170
15,440
–
6,027
6,027
(1,820)
(4,932)
(4,932)
10,508
24
(4,990)
3,170
10,508
–
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)
Earnings per share attributable for continuing operations (cents per share)
Basic profit (cents per share)
Diluted profit (cents per share)
6
6
6
6
(6.40)
(6.40)
(6.40)
(6.40)
9.04
8.68
9.04
8.68
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
62
Statement of
Financial Position
as at 30 June 2018
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Income tax receivable
Total Current Assets
Non-Current Assets
Trade and other receivables
Plant and equipment
Intangible assets
Other assets
Deferred tax assets
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Trade and other payables
Income tax payable
Provisions
Debt securities
Other liabilities
Total Current Liabilities
Non-Current Liabilities
Provisions
Debt securities
Deferred income tax liabilities
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
TOTAL EQUITY
Consolidated
2018
$’000
2017
$’000
Note
11
15
16
15
17
9
16
5
18
19
12
19
12
5
160,231
25,690
1,411
5,455
144,891
45,205
1,260
–
192,787
191,356
–
1,332
1,580
1,700
321,268
190,876
11,509
12,355
346,464
539,251
388
6,037
200,581
391,937
18,047
–
14,656
49,553
658
22,141
4,341
18,672
–
531
82,914
45,685
277
70,909
17,315
88,501
171,415
240
119,469
20,290
139,999
185,684
367,836
206,253
13
14(b)
14(a)
127,630
123,654
16,110
48,592
8,554
71,679
192,332
203,887
24
175,504
2,366
367,836
206,253
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
63
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Statement of
Cash Flows
for the year ended 30 June 2018
Consolidated
2018
$’000
2017
$’000
Note
Cash flows from operating activities
Payments to suppliers and employees
Interest income
Interest paid
Income tax paid
Net cash flows (used in) operating activities
8
Cash flows from investing activities
Proceeds from litigation funding - settlements, fees and reimbursements
Payments for litigation funding - external costs
Payments for litigation funding - capitalised overhead and employee costs
Purchase of plant and equipment
Loans made to third parties
Fund establishment costs
Investment in joint venture
Net cash flows from/(used in) investing activities
Cash flows from financing activities
Dividends paid
Notes proceeds
Cost of issuing notes
Distributions to non-controlling interests
Contributions from non-controlling interests
Net cash flows 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
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
64
(44,316)
(35,136)
2,225
(8,303)
(13,231)
(63,625)
2,742
(6,919)
(11,567)
(50,880)
94,893
116,256
(106,999)
(85,540)
(6,419)
(5,909)
(236)
(521)
(4,226)
–
(23,508)
(8,093)
–
–
(9,694)
114,855
97,068
9,935
5,405
(979)
(9)
(7,450)
5,850
22,219
(13,311)
40,400
(1,253)
–
7,209
33,045
4,384
(2,022)
144,891
142,529
11
160,231
144,891
Statement of
Changes in Equity
for the year ended 30 June 2018
CONSOLIDATED
As at 1 July 2017
Profit for the year
Other comprehensive income
Total Comprehensive Income
for the Year
Equity Transactions:
Dividend paid
Share based payments
–
–
–
–
–
Shares issued under the
Dividend Reinvestment Plan
3,976
Contributions from
non-controlling interests
Distributions to non-controlling
interests
Changes in the proportion of
equity held by non-controlling
interests
Transaction costs - disposal of
non-controlling interest,
net of tax
–
–
–
–
Share
based
payments
reserve
$’000
Foreign
currency
translation
reserve
$’000
Issued
capital
$’000
Other
capital
reserves
$’000
Retained
earnings
$’000
Non-
controlling
interest
$’000
Total
$’000
Total
equity
$’000
123,654
5,962
(4,644)
7,236
71,679 203,887
2,366
206,253
–
–
–
6,027
–
6,027
–
9,289
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,760)
–
(11,017)
–
(11,017)
3,170
(7,847)
6,027
–
6,027
(11,017)
(4,990)
3,170
(1,820)
(12,070)
(12,070)
–
–
–
(12,070)
9,289
3,976
175,017
175,017
(9,694)
(9,694)
9,289
3,976
–
–
(7,760)
7,760
–
–
(3,115)
(3,115)
–
–
–
–
–
–
As at 30 June 2018
127,630
15,251
1,383
(524)
48,592 192,332
175,504
367,836
As at 1 July 2016
119,122
658
288
7,236
74,084 201,388
– 201,388
Profit for the year
Other comprehensive income
Total Comprehensive Income
for the Year
Equity Transactions:
Dividend paid
Share based payments
–
–
–
–
–
Shares issued under the
Dividend Reinvestment Plan
4,532
Contributions from
non-controlling interests
Transaction costs - disposal of
non-controlling interest
–
–
–
–
–
–
5,304
–
–
–
–
(4,932)
–
–
15,440
15,440
–
(4,932)
–
–
15,440
(4,932)
(4,932)
–
15,440
10,508
–
10,508
–
–
–
–
–
–
–
–
–
–
(17,845)
(17,845)
–
5,304
–
4,532
–
–
–
–
–
–
–
(17,845)
5,304
4,532
7,209
7,209
(4,843)
(4,843)
As at 30 June 2017
123,654
5,962
(4,644)
7,236
71,679 203,887
2,366
206,253
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
65
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
for the year ended 30 June 2018
About this Report
The financial report of IMF Bentham Limited (“IMF”, “the
Company” or “the Parent”) for the year ended 30 June
2018 and its subsidiaries (“the Group” or “consolidated
entity”) was authorised for issue in accordance with a
resolution of the directors on 22 August 2018.
IMF Bentham 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).
IMF Bentham Limited is not economically dependent on
any other entity.
This section sets out the basis upon which the Group’s
Financial Statements are prepared. Specific accounting
policies are described in their respective notes to the
Financial Statements. This section also shows information
on new or amended accounting standards and their
impact on the financial position and performance of
the Group.
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,
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 $1,000 (where rounding is
applicable) under the option available to the Company
under ASIC Corporate Instrument 2016/191.
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.
c. New accounting standards and interpretations
The accounting policies adopted are consistent with those
of the previous financial year.
The following accounting standards relevant to the
Company and/or the Group have been issued but are not
yet effective and have not been applied in these financial
statements.
66
AASB 9 Financial Instruments (‘AASB 9’)
The AASB issued the final version of AASB 9 in December
2014. When operative, this standard will replace AASB 139.
Financial Instruments: Recognition and Measurement.
AASB 9 addresses recognition and measurement
requirements for financial assets and financial liabilities,
impairment requirements that introduce an expected
credit loss impairment model and general hedge
accounting requirements which more closely align with risk
management activities undertaken when hedging financial
and non-financial risks. AASB 9 is not mandatorily effective
for the Group until 1 July 2018. The Group has assessed
the impact of AASB 9 and does not envisage it will have
a material impact on the Group’s current financial assets
and liabilities as at 30 June 2018.
AASB 15 Revenue from Contracts with Customers
(‘AASB 15’)
The AASB issued AASB 15 in October 2015. The standard
is not mandatorily effective for the Group until 1 July 2018.
AASB 15 contains new requirements for the recognition of
revenue and additional disclosures about revenue. AASB
138 Intangible Assets has been amended to ensure that
for reporting periods beginning on or after 1 January 2018,
the derecognition of intangible assets are subject to the
principles of AASB 15. It is expected that this standard will
not materially change the revenue recognition of the Group,
except where cases have become under appeal. AASB 15
may disallow the recognition of revenue where cases are
under appeal due to the more prescriptive requirements
within the standard for recognition of revenue. Refer to
Note 15 for details of revenue receivable at 30 June 2018
where cases are still under appeal.
AASB 16 Leases (‘AASB 16’)
The AASB issued the final version of AASB 16 in February
2016. The standard is not mandatorily effective for the
Group until 1 July 2019. AASB 16 requires a lessee to
recognise a right-of-use asset representing its right to
use the underlying leased asset and a lease liability
representing its obligation to make lease payments. AASB
16 substantially carries forward the lessor accounting
requirements in AASB 117 Leases. The Group is in the
process of assessing the impact of AASB 16 and is not
yet able to reasonably estimate the impact on its financial
statements.
AASB Interpretation 23 Uncertainty over Income
Tax Treatments (“Interpretation 23”)
Interpretation 23 is applicable for reporting periods
beginning on or after 1 January 2019 and therefore
will be effective for the Group for its reporting period
beginning 1 July 2019. Interpretation 23 clarifies the
application of the recognition and measurement criteria
in AASB 112 Income Taxes where there is uncertainty
over income tax treatments. It requires assessment of
each uncertain tax position as to whether it is probable
that a taxation authority will accept the position.
Notes to the
Financial Statements
continued
About this Report (continued)
Where it is not probable, the effect of the uncertainty will
be reflected in determining the relevant taxable profit or
loss, tax bases, unused tax losses, unused tax credits
or tax rates. The amount will be determined as either the
single most likely amount or the sum of the probability
weighted amounts in a range of possible outcomes,
whichever better predicts the resolution of the uncertainty.
Judgements will be reassessed as and when new facts
and circumstances come to light. The Group is in the
process of assessing the impact of Interpretation 23 and
is not yet able to reasonably estimate the impact on its
financial statements.
AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of Share-
based Payment Transactions
This Standard amends AASB 2 Share-based Payment,
clarifying how to account for certain types of share-based
payment transactions. It was not mandatorily effective
for the Group until 1 July 2018. The amendments provide
requirements on the accounting for:
– The effects of vesting and non-vesting conditions
on the measurement of cash-settled share-based
payments
– Share-based payment transactions with a net
settlement feature for withholding tax obligations
– A modification to the terms and conditions of a share-
based payment that changes the classification of the
transaction from cash-settled to equity-settled.
The Group has reviewed the impact of the amendments
and do not believe it will have a material impact on the
current financial statements.
d. Basis of consolidation
The consolidated financial statements comprise the
financial statements of IMF Bentham Limited and its
subsidiaries as at 30 June 2018. 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 Group includes fund investment vehicles which invest
in litigation over which IMF Bentham Ltd controls the
related activities and has exposure to variable returns from
the fund investment vehicles. See Note 23.
The financial statements of the subsidiaries are prepared
for the same reporting period as the Company, using
consistent accounting policies.
A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
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
The Group’s consolidated financial statements are
presented in Australian dollars, which is also the Parent’s
functional currency. For each entity, the Group determines
the functional currency and items included in the financial
statements of each entity are measured using that
functional currency. The Group uses the direct method of
consolidation and on disposal of a foreign operation, the
gain or loss that is reclassified to profit or loss reflects the
amount that arises from using this method.
Transactions and balances
Transactions in foreign currencies are initially recorded by
the Group’s entities at their respective functional currency
spot rates at the date the transaction first qualifies for
recognition. Monetary assets and liabilities denominated in
foreign currencies are translated at the functional currency
spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary
items are recognised in profit or loss with the exception of
monetary items that are designated as part of the hedge
of the Group’s net investment of a foreign operation.
These are recognised in other comprehensive income
until the net investment is disposed of, at which time, the
cumulative amount is reclassified to profit or loss. Tax
charges and credits attributable to exchange differences
on those monetary items are also recorded in other
comprehensive income.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of gain
or loss on change in fair value of the item (i.e. translation
differences on items whose fair value gain or loss is
recognised in other comprehensive income or profit or
loss are also recognised in other comprehensive income
or profit or loss, respectively).
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into Australian dollars at
the rate of exchange prevailing at the reporting date
and their statements of profit or loss are translated at
exchange rates prevailing at the dates of the transactions.
The exchange differences arising on translation
for consolidation purposes are recognised in other
comprehensive income. On disposal of a foreign operation,
the component of other comprehensive income relating
to that particular foreign operation is recognised in profit
or loss.
67
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
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.
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.
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.
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 in 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.
68
Intangible Assets - Litigation Contracts In Progress
Litigation Contracts in Progress are recognised by the
Group as an intangible asset in the financial statements as
the Group does not have an unconditional right to receive
cash. Rather, it provides the entity with a right to a share
of litigation proceeds which may be in the form of cash
or other non-financial asset.
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 9).
Share based payments
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation
model, which depends on the terms and conditions of the
grant. This estimate also requires determination of the most
appropriate inputs to the valuation model including the
expected life of the share performance right, volatility and
dividend yield and making assumptions about them. For the
measurement of the fair value of equity-settled transactions
with employees at the grant date, the Group uses the
Monte-Carlo simulation model for Tranche 1 grants, and the
Black-Scholes model for Tranche 2 grants. The assumptions
and models used for estimating fair value for share-based
payment transactions are disclosed in Note 22.
Long service leave provision
As discussed in Note 19, 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.
Provision for adverse costs
The Group raises a provision for adverse costs when
it has lost an investment which it has funded. When an
investment is lost and an appeal is lodged, the Group
raises a provision. 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.
Measurement of non-controlling interests (“NCI”)
Profits and losses are allocated to non-controlling interests
in line with the allocation of profit distributions under the
terms of the respective agreements. Therefore, at the end
of each reporting period, the allocation of non-controlling
interests will be represented by the Class B shareholders’
share of net assets, as would be distributed under the
agreements.
Notes to the
Financial Statements
continued
A. RESULTS FOR THE YEAR
Note 1: Segment information
The Group provides only one service, being litigation funding. For management purposes, the Group is organised into
operating segments comprising wholly owned operations and the Group’s fund structures.
– The Group’s wholly owned subsidiaries manage historical wholly owned investments and employ personnel who
provide investment management services to the Group’s fund structures in the following locations:
– Australia
– United States
– Canada
– Asia
– Europe
– Funds – The Group’s Fund investment vehicles include:
– US Fund – This comprises the consolidated group of Bentham IMF 1 LLC, Security Finance 1 LLC and HC 1 LLC.
The US Fund invests in litigation in the United States; and
– ROW Funds – This comprises IMF Bentham (Fund 2) Pty Ltd and IMF Bentham (Fund 3) Pty Ltd. The two entities
jointly invest in litigation in all jurisdictions IMF operates, except for the United States.
The funds comprise Class A and B stock. The non-controlling interest comprises Class B stock which carries an
entitlement to receive a priority return on invested capital and a further preferred return on committed but undrawn capital.
IMF retains control and ownership of the Funds via its interest in Class A stock. Upon satisfaction of the Class B priority
returns, the Class A stock held by IMF is entitled to a manager return. After satisfaction of the priority return and the
manager return residual net cash flows are to be distributed 85% to IMF and 15% to Class B for the US Fund and 80%
to IMF and 20% to Class B for the RoW Funds.
Wholly owned operations
Funds
Consolidation
Australia
$’000
United
States
$’000
Canada
$’000
Asia
$’000
US Fund
$’000
ROW
Funds
$’000
Adjustments
and
eliminations
$’000
Consolidated
$’000
Summarised statement
of profit or loss for 2018
Revenue
Other income
Total Income
10,411
(309)
13,382
(3,232)
23,793
(3,541)
166
(62)
104
Expenses
29,173
15,895
2,376
(Loss)/profit before tax
(5,380)
(19,436)
(2,272)
Income tax
1,948
1,820
501
36
–
36
763
(727)
133
(1)
1,178
1,177
25
2,979
3,004
(3,718)
2,275
(1,443)
6,610
16,520
23,130
35
55
(16,807)
31,490
1,142
2,949
(36)
(885)
15,364
(2,968)
(8,360)
513
Net (loss)/profit from
Continuing Operations
Attributable to:
(3,432)
(17,616)
(1,771)
(594)
1,106
2,064
12,396
(7,847)
Equity holders of the parent
(3,432)
(17,616)
(1,771)
(594)
–
–
12,396
(11,017)
Non-controlling interests
–
–
–
–
1,106
2,064
–
3,170
69
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 1: Segment information (continued)
Wholly owned operations
Funds
Consolidation
Australia
$’000
United
States
$’000
Canada
$’000
Asia
$’000
US Fund
$’000
ROW
Funds
$’000
Adjustments
and
eliminations
$’000
Consolidated
$’000
Summarised statement
of financial position as
at 30 June 2018
Current assets
153,586
4,582
Non-current assets
224,838
49,465
Total assets
378,424
54,047
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity attributable to:
78,145
84,320
162,465
1,264
(1,738)
(474)
1,184
1,431
2,615
273
6,393
6,666
94
1
95
58
804
862
13,504
20,994
(1,157)
192,787
193,744
19,205
(142,220)
346,464
207,248
40,199
(143,377)
539,251
1,000
3,331
(1)
8
999
3,339
(1,157)
(1,285)
(2,442)
82,914
88,501
171,415
215,959
54,521
(4,051)
(767) 206,249
36,860
(140,935)
367,836
Equity holders of the parent 215,959
54,521
(4,051)
(767)
59,298
8,307
(140,935)
Non-controlling interest
–
–
–
– 146,951
28,553
–
192,332
175,504
Total equity
215,959
54,521
(4,051)
(767) 206,249
36,860
(140,935)
367,836
Wholly owned operations
Funds
Consolidation
Australia
$’000
United
States
$’000
Canada
$’000
Asia
$’000
US Fund
$’000
ROW
Funds
$’000
Adjustments
and
eliminations
$’000
Consolidated
$’000
Summarised statement
of profit or loss for 2017
Revenue
Other income
Total Income
6,180
53,173
2,154
942
59,353
3,096
(156)
(93)
(249)
Expenses
26,926
16,259
2,419
Profit/(loss) before tax
32,427
(13,163)
(2,668)
Income tax
(9,317)
1,969
1,013
–
–
–
249
(249)
42
Net profit/(loss) from
Continuing Operations
Attributable to:
23,110
(11,194)
(1,655)
(207)
Equity holders of the parent
23,110
(11,194)
(1,655)
(207)
Non-controlling interests
–
–
–
–
–
155
155
34
121
–
121
121
–
–
–
–
–
–
–
–
–
–
(5,193)
(54)
(5,247)
(14,515)
9,268
(4,003)
2,985
54,123
57,108
31,372
25,736
(10,296)
5,265
15,440
5,265
15,440
–
–
70
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 1: Segment information (continued)
Wholly owned operations
Funds
Consolidation
Australia
$’000
United
States
$’000
Canada
$’000
Asia
$’000
US Fund
$’000
ROW
Funds
$’000
Adjustments
and
eliminations
$’000
Consolidated
$’000
Summarised statement
of financial position
as at 30 June 2017
Current assets
180,800
3,329
Non-current assets
218,220
92,401
Total assets
399,020
95,730
Current liabilities
39,897
3,841
Non-current liabilities
138,605
13,079
Total liabilities
178,502
16,920
1,496
330
1,826
427
3,959
4,386
88
–
88
–
295
295
5,561
10,332
15,893
1,438
–
1,438
Net assets
220,518
78,810
(2,560)
(207)
14,455
–
–
–
–
–
–
–
82
191,356
(120,702)
200,581
(120,620)
391,937
82
45,685
(15,939)
139,999
(15,857)
185,684
(104,763)
206,253
Equity attributable to:
Equity holders of the
parent
220,518
78,810
(2,560)
(207)
12,089
–
(104,763)
203,887
Non-controlling interest
–
–
–
–
2,366
Total equity
220,518
78,810
(2,560)
(207)
14,455
–
–
–
2,366
(104,763)
206,253
Geographically, other income can be represented geographically as follows:
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Australia
United States
Canada
Europe
Asia
Total other income
Non-current assets, excluding financial assets, can be represented geographically as follows:
Australia
United States
Canada
Europe
Asia
Net exposure
Consolidated
2018
$’000
14,185
(342)
1,825
(18)
870
2017
$’000
53,173
1,043
(93)
–
–
16,520
54,123
Consolidated
2018
$’000
2017
$’000
116,631
211,776
5,717
48
783
94,744
102,535
1,334
–
–
334,955
198,613
71
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 2: Revenue
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:
(i) Interest income
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.
Interest received from National Australia Bank Ltd of $473,453 (2017: $906,481), Bankwest of $339,473 (2017: $924,518),
and Westpac Banking Group Ltd of $1,384,320 (2017: $909,658) contributed more than 99% of the Group’s bank interest
revenue (2017: 99%).
(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.
Revenue
Bank interest received and accrued
Foreign exchange gain
Note 3: Other income
Other income
Litigation contracts - settlements and judgments
Litigation contracts - expenses
Litigation contracts - written-down1
Net gain on derecognition of intangible assets
Loss on derecognition of intangible assets/receivables as a result
of losing an investment or appeal2
Other income
Consolidated
2018
$’000
2017
$’000
2,299
4,311
6,610
2,684
301
2,985
Consolidated
2018
$’000
2017
$’000
71,223
(48,141)
(769)
22,313
(6,006)
113,329
(51,073)
(2,924)
59,332
(5,233)
213
24
16,520
54,123
This balance includes costs related to the Group’s initial assessment of the case and cases not pursued by the Group due to the cases not
meeting the Group’s required rate of return.
This balance includes costs related to cases lost by the Group. Further, it includes any adverse costs provision raised when a litigation contract in
progress has been written off due to it being lost.
1.
2.
72
Notes to the
Financial Statements
continued
Note 4: Expenses
(a) Finance costs
Other finance charges
(b) Depreciation
Depreciation expense
(c) Employee benefits expense
Wages and salaries
Superannuation expense
Directors’ fees
Payroll tax
Share based payments
Long service leave provision
(d) Corporate and office expense
Insurance expense
Network expense
Marketing expense
Occupancy expense
Professional fees expense
Recruitment expense
Telephone expense
Travel expense
(e) Other expenses
ASX listing fees
General expenses
Postage, printing and stationery
Repairs and maintenance
Share registry costs
Staff training, development and conferences
Consolidated
2018
$’000
2017
$’000
86
86
90
90
621
591
14,758
15,200
1,305
486
1,346
4,134
26
1,123
431
1,324
2,775
115
22,055
20,968
885
592
1,455
1,119
1,556
576
153
876
1,070
619
1,378
1,370
2,651
432
130
996
7,212
8,646
103
435
385
7
95
491
1,516
94
324
485
20
111
43
1,077
Finance 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.
73
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 5: Income tax
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:
– 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.
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.
74
Notes to the
Financial Statements
continued
Note 5: Income tax (continued)
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.
Consolidated statement of profit & loss
The major components of income tax expense are:
Current income tax
Current income tax charge
Adjustment in respect of current income tax expense of previous year
Refund of foreign state-based taxes
Current year losses moved to deferred tax asset
Deferred tax:
Relating to origination and reversal of temporary differences
Other
Current year losses moved to deferred tax asset
Change in federal tax rate in United States
Adjustment in respect of deferred income tax of previous year
Income tax (benefit)/expense reported in the Statement of Comprehensive Income
Accounting (loss)/profit before income tax from continuing operations
At the Group’s statutory income tax rate of 30% (2017: 30%)
Adjustment in respect of income and deferred tax of previous years
Expenditure not allowable for income tax purposes
Non-assessable income
Foreign tax rate adjustment
State income tax
Change in federal tax rate in United States
Relating to origination and reversal of temporary differences
Other
Income tax (benefit)/expense reported in the Statement of Comprehensive Income
Consolidated
2018
$’000
2017
$’000
(7,882)
2,598
(130)
9,993
3,217
(83)
(9,993)
4,000
(2,233)
(513)
5,505
1,990
–
3,270
1,369
265
(3,270)
–
1,167
10,296
Consolidated
2018
$’000
(8,360)
(2,508)
365
787
(400)
(132)
(1,241)
4,000
(1,262)
(122)
(513)
2017
$’000
25,736
7,720
3,157
1,588
(754)
(63)
(1,095)
–
(482)
225
10,296
75
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 5: Income tax (continued)
Deferred income tax at 30 June relates to the following:
CONSOLIDATED
Deferred income tax liabilities
Intangibles
Accrued interest & unrealised foreign exchange differences
Other
Statement of
Financial Position
Statement of
Comprehensive Income
2018
$’000
2017
$’000
2018
$’000
2017
$’000
32,880
29,411
(3,469)
(3,642)
87
5
134
–
46
5
15
–
Gross deferred income tax liabilities
32,972
29,545
(3,418)
(3,627)
Deferred income tax assets
Intercompany loans
Accruals and provisions/bond raising costs
Share based payments
Expenditure deductible for income tax over time
Gross deferred income tax assets
Net deferred income tax liabilities
Foreign deferred tax assets
Accruals and provisions
Intercompany loans
Expenditure deductible for income tax over time
Share based payments
Deferred tax assets - Foreign net operating losses -
federal and state
Deferred tax assets
4,575
4,467
4,275
2,340
15,657
17,315
115
538
–
2,700
9,002
12,355
–
5,527
2,818
910
9,255
20,290
79
568
1,475
–
3,915
6,037
4,575
(1,060)
–
1,430
4,945
36
(30)
(1,475)
2,700
5,087
6,318
–
68
1,347
(249)
1,166
79
568
–
–
2,192
2,839
Unrecognised temporary differences and tax losses
At 30 June 2018 the Group had no (2017: nil) unrecognised temporary differences and tax losses.
Note 6: 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;
– other non-discretionary changes in revenue or expenses during the period that would result from dilution of potential
ordinary shares; and
– divided by the weighted average number of shares and dilutive shares, adjusted for any bonus element.
At 30 June 2018, 14,355,887 performance rights (2017: 11,177,055) were on issue as detailed in Note 22. Upon meeting
certain performance conditions over the three year performance period, the vesting of each right will result in the issue
of 1 ordinary share. The performance shares are contingently issuable and are therefore not considered dilutive.
76
Notes to the
Financial Statements
continued
Note 6: Earnings per share (continued)
The following reflects the income and share data used in the basic earnings per share computation:
(a) Earnings used in calculating earnings per share
For basic and diluted earnings per share
Total net (loss)/profit attributable to ordinary equity holders of the Parent
(11,017)
15,440
Consolidated
2018
$’000
2017
$’000
Consolidated
2018
$’000
2017
$’000
For basic and diluted earnings per share
Total net (loss)/profit attributable to continuing operations
(11,017)
15,440
(b) Weighted average number of shares
Number ‘000
2018
2017
Weighted average number of ordinary shares outstanding
172,839
170,818
Effect of dilution:
Performance rights1
Weighted average number of ordinary shares
–
6,993
172,839
177,811
1.
Performance rights granted under the Long Term Incentive Plan are only included in diluted earnings per ordinary share where the performance
hurdles are met as at year end and they do not have an anti-dilutive effect. As at 30 June 2018 there were 12,126,000 performance rights
calculated as meeting the performance criteria for inclusion in diluted earnings per share, however these were not included due to their
anti-dilutive effect.
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 2018 there were no options issued over shares in the Company (2017: nil).
(ii) Bonds and Notes
The bonds and notes are not considered to be dilutive.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
77
Notes to the
Financial Statements
continued
Note 7: Dividends paid and proposed
(a) Cash dividends on ordinary shares declared and paid
Final dividend for 2017: 4.0 cents per share (2016: 7.5 cents per share)
Interim dividend for 2018: 3.0 cents per share (2017: 3.0 cents per share)
Consolidated
2018
$’000
2017
$’000
6,882
5,188
12,070
12,709
5,136
17,845
(b) Proposed dividends for ordinary shares:
Final dividend for 2018: Nil cents per share (2017: 4.0 cents per share)
–
6,882
The Directors have determined not to pay a final dividend for the year ended 30 June 2018.
On 22 February 2018 the Directors declared a fully franked interim dividend of 3.0 cents per share totalling $5,188,000.
The record date for this dividend was 26 March 2018 and the payment date was 24 April 2018. Shareholders were able
to elect to participate in the dividend reinvestment plan in relation to this dividend.
On 24 August 2017, the directors declared a final fully franked dividend of 4.0 cents per share for the 2017 financial year,
totalling $6,882,000. The record date for this dividend was 26 September 2017 and the payment date was on 20 October
2017. Shareholders were able to elect to participate in the dividend reinvestment plan in relation to this dividend.
(c) Franking credit balance
The amount of franking credits for the subsequent financial year are:
– Franking account balance as at the end of the previous financial year at 30%
– Franking debits arising from the payment of last year’s final dividend
– Franking debits arising from the payment of current year’s interim dividend
– Franking credits arising from the payment of income tax instalments paid 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
(d) Tax rates
The tax rate at which paid dividends have been franked is 30% (2017: 30%).
IMF Bentham Limited
2018
$’000
2017
$’000
10,239
(2,949)
(2,224)
13,990
19,056
(5,830)
–
13,226
6,732
(5,447)
(2,201)
11,155
10,239
5,799
(2,949)
13,089
78
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 8: Statement of cash flows reconciliation
(a) Reconciliation of net profit after tax to net cash flows used in operations:
Net (loss)/profit after tax from continuing operations
Adjustments for:
Net impact of the reclassification of litigation intangibles related cashflows
to cashflows to/(from) investing activities
Depreciation
Share based payments
Unrealised foreign exchange loss/(gain)
Loss/(gain) on disposal of fixed assets
Lease incentive adjustments
Changes in assets and liabilities
Decrease/(increase) in receivables
Decrease/(increase) in other current assets
Decrease/(increase) in intangibles, net of non-cash movements
Increase/(decrease) in trade creditors and accruals
Increase/(decrease) in provisions
Increase/(decrease) in deferred tax assets and liabilities
Increase/(decrease) in current income tax liability / (receivable)
Net cash (used in) operating activities
(b) Disclosure of financing facilities
Refer to Note 11 and Note 12.
Consolidated
2018
$’000
2017
$’000
(7,847)
15,440
12,106
(24,806)
621
5,525
(4,311)
–
(182)
591
2,775
(334)
80
159
21,094
(151)
(6,049)
(521)
(72,000)
(43,373)
(4,094)
(3,979)
(9,293)
(1,114)
6,891
(623)
(378)
(732)
(63,625)
(50,880)
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
(c) Significant non-cash transactions
During the year, an investment was made by one of the Group’s subsidiaries, through a combination of cash
and a $60,352,000 increase in the non-controlling interest of the subsidiary.
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
79
Notes to the
Financial Statements
continued
B. INTANGIBLE ASSETS
Note 9: Intangible assets
(a) Description of Group’s 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 life of the Litigation Contracts
in Progress.
(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.
(D) 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.
80
Notes to the
Financial Statements
continued
Note 9: Intangible assets (continued)
(b) Reconciliation of carrying amounts
Balance at 1 July, net of accumulated amortisation and impairment
Additions - Litigation expenditure
Additions - Capitalised borrowing costs
Additions - Capitalised employee costs
Additions - Capitalised overheads
Disposals
Write-down of Litigation contracts
Consolidated
2018
$’000
2017
$’000
190,876
145,634
167,974
85,151
9,327
6,781
1,090
(48,141)
(6,639)
6,940
6,670
778
(51,073)
(3,224)
Balance at 30 June, net of accumulated amortisation and impairment
321,268
190,876
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 below. The capitalised wages in 2018 equated to approximately 26.4% of the total salary
costs (2017: 26.8%). The other internal capitalised expenses equated to approximately 49.3% of related overhead costs
(2017: 36.2%).
The Group has determined that Litigation Contracts In Progress meet the definition of qualifying assets and that 100%
of borrowing costs are eligible for capitalisation.
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
2018
$’000
2017
$’000
276,575
158,723
25,268
19,425
19,179
12,974
321,268
190,876
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
(c) 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.
Based on the below assumptions, the value in use calculation of the Group’s portfolio of intangible assets results in a net
present value which has headroom of $530 million to $555 million over its carrying value. Headroom in a value in use analysis
does not constitute a valuation, but is the output from a calculation in assessing the impairment of the intangible assets.
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 successful
conclusion and the resulting 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
10.0% and 11.5% (2017: between 9.0% and 10.5%).
No material impairment has been identified as a result of impairment testing performed.
81
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
C. CAPITAL STRUCTURE
Note 10: Financial risk management objective and policies
The Group’s principal financial instruments comprise cash and short-term deposits, receivables, payables, bonds and
fixed rate notes.
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; and
– the Group has a $50,000,000 variable rate bond debt outstanding as at 30 June 2018. These IMF Bentham Bonds
require that the Group make a quarterly coupon payment 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 variable interest rate risk:
Financial instruments
Cash and cash equivalents
IMF Bentham Bonds
Net exposure
Consolidated
2018
$’000
2017
$’000
160,231
144,891
(49,553)
110,678
(49,104)
95,787
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
available, and the mix of fixed and variable interest rates.
82
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 10: Financial risk management objective and policies (continued)
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
At 30 June 2018, if interest rates had moved with all other variables held constant, post-tax profit and equity would have
been affected as follows:
+0.25% (25 basis points) (2017: +0.25%)
-0.25% (25 basis points) (2017: -0.25%)
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2018
$’000
194
(194)
2017
$’000
168
(168)
2018
$’000
194
(194)
2017
$’000
168
(168)
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 assesses the defendants in the investments 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. 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 IMF Bentham Bonds and Fixed Rate Notes, 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
$’000
6-12 months
$’000
1-5 years
$’000
>5 years
$’000
Total
$’000
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
2018
Financial Liabilities
Trade and other payables
Bonds and Notes – principal
Bonds and Notes interest
2017
Financial Liabilities
Trade and other payables
Bonds and Notes – principal
Bonds and Notes interest
18,047
–
4,223
22,270
22,141
–
4,202
26,343
–
50,000
4,223
54,223
–
–
4,202
4,202
–
72,000
5,328
77,328
–
122,000
13,733
135,733
i
F
n
a
n
c
a
i
–
–
–
–
–
–
–
–
18,047
122,000
13,774
153,821
22,141
122,000
22,137
166,278
83
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 10: Financial risk management objective and policies (continued)
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 IMF Bentham Bonds and Fixed Rate
Notes. The IMF Bentham Bonds fair value has been determined using the quoted market price at 30 June 2018, and the
Fixed Rate Notes fair value has been determined using the price from Austraclear.
Under AASB 13 the fair value measurements used for the Bonds and Notes are both level 1 on the fair value hierarchy.
At 30 June 2018:
IMF Bentham Bonds
Fixed Rate Notes
Carrying
Value
$’000
49,553
70,909
Principal
$’000
Fair Value
$’000
50,000
72,000
51,150
74,745
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the US dollar. Foreign exchange risk arises from commercial transactions and recognised assets
and liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity
analysis and cash flow forecasting. The Group is also exposed to foreign exchange risk arising from the translation of its
foreign operations. The Group’s investments in its subsidiaries are not hedged as those currency positions are considered
to be long term in nature. In addition, the parent entity has intercompany receivables from its subsidiaries denominated in
Australian Dollars which are eliminated on consolidation. The gains or losses on re-measurement of these intercompany
receivables from foreign currencies to Australian Dollars are not eliminated on consolidation as the loans are not
considered to be part of the net investment in the subsidiary.
2018
Financial Assets
Cash and cash equivalents
Trade and other receivables1
Total assets
Financial Liabilities
Trade Payables
Total liabilities
USD
$’000
GBP
$’000
Euro
$’000
SGD
$’000
CAD
$’000
HKD
$’000
43,772
11,675
55,447
1,244
1,244
81
2
83
5
5
3,632
–
3,632
–
–
498
1,002
1,500
4
4
1,529
10,294
11,823
434
434
11,734
–
11,734
107
107
84
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 10: Financial risk management objective and policies (continued)
2017
Financial Assets
Cash and cash equivalents
Trade and other receivables1
Total assets
Financial Liabilities
Payables
Total liabilities
USD
$’000
GBP
$’000
Euro
$’000
SGD
$’000
CAD
$’000
HKD
$’000
34,727
20,020
54,747
2,842
2,842
24
2
26
6
6
3,660
–
3,660
–
–
68
44
112
–
–
2,967
716
3,683
1,977
48,612
50,589
99
99
15,840
15,840
1.
Trade and other receivables balance includes the intercompany loan receivable that IMF Bentham Limited has with Bentham Holdings Inc (USD),
Bentham IMF Capital Limited (CAD) and IMF Bentham Pte Limited (SGD).
Sensitivity
The following table summarises the sensitivity of financial instruments held at balance date to movement in the exchange
rate of the AUD to the listed currencies, with all other variables held constant excluding the impact of the foreign exchange
movement on the inter-company loans of $16,901,000 (2017: $23,370,000). The sensitivity is based on management’s
estimate of reasonably possible changes over the financial year.
2018
2017
Impact on profit or loss before tax ($’000)
USD
GBP
+10%
-10%
+10%
-10%
(6,412)
6,412
(6,763)
6,763
(14)
14
(3)
3
Euro
(573)
573
(545)
545
SGD
(49)
49
10
(10)
CAD
(382)
382
(359)
359
HKD
2
(2)
(580)
580
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
85
Notes to the
Financial Statements
continued
Note 11: Cash and cash equivalents
Cash and cash equivalents in the Statement of Financial Position and Statement of Cash Flows 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.
Cash and cash equivalents comprise the following at 30 June:
Cash at bank
Short-term deposits
Consolidated
2018
$’000
2017
$’000
58,449
38,583
101,782
106,308
160,231
144,891
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 2018, all short term deposits are due to mature in less than 90 days from inception and earn interest
at the respective short-term deposit rates.
Bank Guarantees
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 investments funded under litigation contracts. As at 30 June 2018 guarantees
of $1,114,000 were outstanding (2017: $1,059,000). The Group has a total guarantee facility limit of $1,439,000 (2017:
$1,433,000) that is secured by an offset arrangement with deposits of $1,639,000 (2017: $1,633,000).
Note 12: Debt Securities
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 date.
Current
IMF Bentham Bonds1
Non-Current
IMF Bentham Bonds1
Fixed Rate Notes1
1.
Includes net carrying value of transaction costs and debt premium of $1,538,000.
86
Consolidated
2018
$’000
2017
$’000
49,553
49,553
–
70,909
70,909
–
–
49,104
70,365
119,469
Notes to the
Financial Statements
continued
Note 12: Debt Securities (continued)
On 18 April 2016, the Company issued 32,000 Fixed Rate Notes with a face value of $1,000 each (“Tranche 1 Notes”).
The interest rate payable to Noteholders is 7.40% per annum payable half yearly. The Fixed Rate Notes are due to mature
on 30 June 2020 and are secured by a security interest over all present and after-acquired property of IMF. IMF has an
early redemption option on these Fixed Rate Notes on 30 June 2019. The issuer may redeem some or all of the Notes
on the optional redemption date by payment of 101 percent of the outstanding principal amount of each Note being
redeemed together with any accrued interest, if any, to, but excluding, the date of redemption. No fair value has been
attributed to the early redemption option.
On 6 April 2017, the Company issued 40,000 Fixed Rate Notes with a face value of $1,000 each (“Tranche 2 Notes”).
Tranche 2 Notes were consolidated and formed a single series with the existing Tranche 1 Notes. The terms and
conditions of the Tranche 2 Notes are identical to the conditions on Tranche 1 Notes.
The IMF Bentham Bonds issued in April 2014 have a variable rate of interest based on the Bank Bill rate plus a fixed
margin of 4.20% per annum, paid quarterly. The maturity date is 30 June 2019.
The application of AASB 123 Borrowing Costs (revised 2007) has resulted in the capitalisation of $9,327,000 (2017:
$6,940,000) during the current financial year as part of the Litigation Contracts in Progress intangible assets which
are deemed to be qualifying assets post the application date of AASB 123 (revised) of 1 July 2009 (refer to Note 9).
Note 13: Contributed equity
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.
Contributed equity
Issued and fully paid ordinary shares
(a) Ordinary shares
Fully paid ordinary shares carry one vote per share and the right to dividends.
Movement in ordinary shares
As at 30 June 2016
Shares issued under the Dividend Reinvestment Plan
As at 30 June 2017
Shares issued under the Dividend Reinvestment Plan
As at 30 June 2018
Consolidated
2018
$’000
2017
$’000
127,630
123,654
Number
‘000
$’000
169,456
119,122
2,591
4,532
172,047
123,654
1,816
3,976
173,863
127,630
On 24 April 2018, the Company issued 916,449 shares at $2.3510 per share, and on 20 October 2017 the company issued
900,253 shares at $2.0239 per share under its Dividend Reinvestment Plan.
On 21 April 2017, the Company issued 855,956 shares at $1.7398 per share, and on 21 October 2016 the company issued
1,734,555 shares at $1.7550 per share under its Dividend Reinvestment Plan.
(b) Share options
At 30 June 2018, there were 14,355,887 share performance rights over unissued ordinary shares (2017: 11,177,055).
87
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 13: Contributed equity (continued)
(c) Capital management
Capital includes bonds, 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 while maintaining 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 expected 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 Group is not subject to any externally imposed capital requirements. However, if the cash and receivables balances
of IMF fall below 75% of the Group financial indebtedness or retained earnings are less than $52,000,000, or an event of
default is subsisting under the IMF Bentham Bonds or Fixed Rate Notes, the Company is not permitted to pay a dividend
to ordinary shareholders (this calculation is to be undertaken both before and after the proposed dividend).
Note 14: Retained earnings and reserves
(a) Movements in retained earnings were as follows:
Balance 1 July
Net profit for the year
Dividend paid
Balance 30 June
(b) Movements in reserves were as follows:
At 1 July 2016
Movements in reserves during the period
At 30 June 2017
Movements in reserves during the period
At 30 June 2018
(c) Nature and purpose of reserves
i. Share based payment reserve
Consolidated
2018
$’000
71,679
(11,017)
(12,070)
48,592
2017
$’000
74,084
15,440
(17,845)
71,679
Share based
payment
reserve
Foreign
currency
translation
reserve
Other
capital
reserves
Total
reserves
$’000
$’000
$’000
$’000
658
5,304
5,962
9,289
15,251
288
(4,932)
(4,644)
6,027
1,383
7,236
–
7,236
(7,760)
(524)
8,182
372
8,554
7,556
16,110
The share based payments reserve is used to recognise the value of equity-settled share-based payments provided to
employees, including key management personnel as part of their remuneration. Refer to Note 22 for further details of
this plan.
ii. Foreign currency translation reserve
This reserve is used to record differences on the translation of the assets and liabilities of overseas subsidiaries.
88
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 14: Retained earnings and reserves (continued)
iii. Other capital reserves
Other capital reserves comprise:
a) Option premium reserve
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. This reserve relates to the previous plan for options
already vested.
b) Convertible note reserve
This reserve was used to record the equity portion on the convertible notes (issued on 13 December 2010),
which were fully redeemed by the Company during December 2013.
c) Fund equity reserve
This reserve is used to record changes in the proportion of equity held by non-controlling interests within the
Group.
D. WORKING CAPITAL, OTHER ASSETS AND OTHER LIABILITIES
Note 15: Trade and other receivables
Trade receivables 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.
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Current
Trade receivables1
Other receivables2
Non-current
Trade receivables3
Consolidated
2018
$’000
2017
$’000
21,529
4,161
25,690
–
–
37,202
8,003
45,205
1,580
1,580
1.
2.
3.
Trade receivables are non-interest bearing and generally on 30-90 day terms. There is $2,958,000 included in current trade receivables which
is subject to appeal at 30 June 2018 (2017: $2,870,000), which was received in August 2018.
Other receivables comprise interest receivable upon the maturity of the Group’s short term deposits (between 30 and 90 days), receivables
from co-funders of litigation contracts in progress, short term loans and deposits receivable.
Non-current trade receivables 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.
89
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 15: Trade and other receivables (continued)
At 30 June, the aging analysis of trade and other receivables is as follows:
2018 Consolidated
2017 Consolidated
0-30
days
$’000
14,947
38,923
31-90
days
$’000
1,265
396
91-180
days
$’000
–
–
+180
days
$’000
9,478
7,466
Total
$’000
25,690
46,785
(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 is adjusted to reflect future cash flows 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.
(b) Loans and receivables
Loans and receivables 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.
Note 16: Other assets
Current
Prepayments
Rental deposits
Lease incentive receivable
Non-current
Prepayments
Lease incentive receivable
Consolidated
2018
$’000
2017
$'000
694
598
119
670
661
(71)
1,411
1,260
11,242
267
11,509
–
388
388
Note 17: 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, that have been estimated
between 2 to 9 years for both 2018 and 2017.
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.
90
Notes to the
Financial Statements
continued
Note 17: Plant and equipment (continued)
Reconciliation of carrying amounts at the beginning and end of the year
Cost
Accumulated depreciation
Net carrying amount
Cost
Balance as at 1 July 2016
Additions
Disposals
At 30 June 2017
Additions
Disposals
At 30 June 2018
Accumulated depreciation
Balance as at 1 July 2016
Depreciation charge for the year
Disposals
At 30 June 2017
Depreciation charge for the year
Disposals
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017
Consolidated
2018
$’000
3,119
(1,787)
1,332
2017
$’000
2,895
(1,195)
1,700
Consolidated
Plant and
equipment
$'000
3,967
961
(2,033)
2,895
259
(35)
3,119
2,561
591
(1,957)
1,195
621
(29)
1,787
1,332
1,700
Plant and Equipment of the Company is subject to a fixed charge to secure the Company’s debt due to Bondholders.
See Note 12 for further details.
91
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 18: 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.
Trade payables
Wage accruals
Interest accruals
Consolidated
2018
$'000
16,100
1,167
780
18,047
2017
$'000
20,335
1,057
749
22,141
(a) Fair value
Due to the nature of trade and other payables, their carrying value is assumed to approximate their fair value.
Note 19: Provisions
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.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the
present obligation at the balance 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.
Consolidated
2018
$'000
2017
$'000
2,521
12,135
–
14,656
86
191
277
2,325
14,500
1,847
18,672
86
154
240
Current
Annual leave and long service leave
Adverse costs
Bonus
Non-Current
Make good
Long service leave
92
Notes to the
Financial Statements
continued
Note 19: Provisions (continued)
(a) Movement in provisions
As at 1 July 2017
Arising during the year
Utilised
As at 30 June 2018
Current 2018
Non-current 2018
Current 2017
Non-current 2017
Adverse
costs
$'000
Annual
leave
$'000
Employee
bonus/STIP
$'000
Long service
leave
$'000
Make
good
$'000
14,500
135
(2,500)
12,135
12,135
–
12,135
14,500
–
14,500
1,265
1,666
(1,459)
1,472
1,472
–
1,472
1,265
–
1,265
1,847
202
(2,049)
–
–
–
–
1,847
–
1,847
1,214
26
–
1,240
1,049
191
1,240
1,060
154
1,214
86
–
–
86
–
86
86
–
86
86
Total
$'000
18,912
2,029
(6,008)
14,933
14,656
277
14,933
18,672
240
18,912
(b) Nature and timing of provisions
Adverse costs
During the financial year 2018 the Group raised a further provision of $135,000 for estimated adverse costs obligations
in relation to a withdrawn investment. The provision raised is the Group’s best estimate of the amount of adverse costs
it will have to remit. The adverse costs provision raised for the Bank of Queensland investment, recognised in 2015 was
paid in the current year.
Employee benefits
(i) Wages, salaries, and annual leave
Provision is made for employee benefits accumulated as a result of employees rendering services up to the end of
the reporting period. These benefits include wages, salaries, annual leave, long service leave and bonuses. Liabilities
in respect of employees’ services rendered that are not expected to be wholly settled within one year after the end of
the periods in which the employees render the related services are recognised as long-term employee benefits. These
liabilities are measured at the present value of the estimated future cash outflow to be made to the employees using
the projected unit credit method.
Liabilities expected to be wholly settled within one year after the end of the period in which the employees render the
related services are classified as short-term benefits and are measured at the amount due to be paid.
(ii) Long service leave
Long service leave is measured at the present value of benefits accumulated up to the end of the reporting period. The
liability is discounted using an appropriate discount rate. Management exercises judgement to determine key assumptions
used in the calculation including future increases in salaries and wages, future on-costs rates and future settlement dates
of employees’ departures.
(iii) Bonuses
Under the IMF Short-Term Incentive Plan, eligible participants have the opportunity to receive an annual cash bonus,
subject to performance against clearly defined and measurable financial and non-financial objectives.
Make Good
The make good provision relates to amounts recognised for make good requirements on operating leases of office space.
93
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 20: Commitments and contingencies
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.
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.
(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 nine 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
2018
$’000
1,794
4,118
2,192
8,104
2017
$’000
1,910
5,198
2,804
9,912
Consolidated
2018
$’000
2017
$’000
4,963
–
4,963
4,390
–
4,390
Amounts disclosed as remuneration commitments also 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.
94
Notes to the
Financial Statements
continued
Note 20: Commitments and contingencies (continued)
(c) Contingencies
As at 30 June 2018, the Group has two cases under appeal (2017: three cases). No income has been recognised by the
Group from the cases remaining on appeal in the current financial year (2017: $2,870,000). The total current and non-
current receivables as at 30 June 2018 relating to the cases under appeal is nil (2017: $2,870,000).
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, including an after-the-event (“ATE”) insurance policy that will respond to claims
for adverse costs in excess of $7.5m for litigation in ROW Funds 2 and 3. In general terms, an award of adverse costs
to a defendant will approximate 40% to 70% (depending on jurisdiction) 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 40% to 70% of the amount spent by the
plaintiff and that there is only one defendant per case.
At 30 June 2018, the total amount spent on currently funded investments by the Company where undertakings to pay
adverse costs have been provided was $88,702,000 (2017: $70,309,000) divided between those funded directly on
IMF’s balance sheet of $83,845,000 and those funded through the RoW Funds of $4,857,000. The potential adverse
costs orders using the above methodology would amount to $68,709,000 for investments on IMF’s balance sheet, and
$2,483,000 for RoW Fund investments. The Company does not currently expect that any of the investments will be
unsuccessful. The Company maintains a large cash holding in the event that one or more investments are unsuccessful
and an adverse costs order is made which is not covered by its insurance arrangements.
On 30 June 2016, the Group sold its 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. Refer to Note 25 for further details of
the sale. As a result of the termination of the joint venture arrangements, IMF will no longer have an interest in the Tesco
and VW cases, but will remain as a joint and several guarantor for current clients’ exposure for the costs of the litigation
and any adverse costs exposure, to the extent not covered by applicable insurance, with IMF being indemnified by certain
affiliates of its former joint venture partner with respect to certain of these contingent liabilities.
E. THE GROUP, MANAGEMENT AND RELATED PARTIES
Note 21: 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
Post-employment benefits
Long service leave accrued during the year
Share based payments
Consolidated
2018
$’000
4,288
–
125
93
1,833
6,339
2017
$’000
4,274
540
115
50
1,237
6,216
95
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 22: Share-based payment plan
Share-based payment transactions
(i) Equity-settled transactions
The Company’s LTIP awards share performance rights to key senior employees. The cost of equity-settled transactions
with employees 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 Monte Carlo or Black Scholes Model depending on the type of LTIP.
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.
The cost of equity-settled transactions is recognised, together with a corresponding increase in the share-based payment
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 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.
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.
Long Term Incentive Plan
LTIP awards are delivered in the form of performance rights over shares which vest after a period of three years subject
to meeting performance measures. The Group uses relative TSR and CAGR of Funds Deployed as the performance
measures.
For the portion of the LTIP subject to the relative TSR performance measure, the fair value of share performance rights
granted is estimated at the date of grant using a Monte-Carlo simulation model, taking into account the terms and
conditions upon which the share performance rights were granted. For the portion of the LTIP based on the achievement
of CAGR of Funds Deployed, the Black-Scholes model is used.
96
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 22: Share-based payment plan (continued)
5,122,146 share performance rights were issued during 2018 (2017: 6,365,969). Specific assumptions are below:
Valuation Date
5-day Volume Weighted Average Price at
commencement of measurement period
1 July
2017
18 November
2016
24 February
2016
20 November
2015
$1.89
$1.46
$1.67
$1.67
Expected Volatility (%)
Dividend yield (%)
Risk-free rate (%)
Performance period
Models used
20%
3.20%
1.94%
25%
4.32%
1.86%
32%
5.00%
1.77%
28%
5.00%
2.10%
3 years ending
30 June 2020
3 years ending
30 June 2019
3 years ending
30 June 2018
3 years ending
30 June 2018
Monte Carlo &
Black Scholes
Monte Carlo &
Black Scholes
Monte Carlo &
Binomial
Monte Carlo &
Binomial
Tranche1 - relative TSR (value per right $)
Tranche 2 - CAGR (value per right $)
$0.95
$1.72
$1.19
$1.55
$0.33
$1.00
$0.58
$1.21
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share
performance rights during the year:
Movements during the year
Outstanding at 1 July
Granted during the year
Forfeited during the year
Outstanding at 30 June
Exercisable at 30 June
2018
Number
2018
WAEP
2017
Number
2017
WAEP
11,177,055
5,122,146
(1,943,314)
14,355,887
4,125,409
–
–
–
–
–
4,811,086
6,365,969
–
11,177,055
–
–
–
–
–
–
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
97
Notes to the
Financial Statements
continued
Note 23: Parent entity information
Information relating to IMF Bentham Limited:
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Issued capital
Retained earnings
Reserves
Total shareholders’ equity
Profit or loss of the Parent
Total comprehensive income of the Parent
2018
$’000
2017
$’000
147,673
372,511
180,789
356,326
(72,233)
(156,552)
215,959
(39,897)
(178,501)
177,825
127,630
123,654
68,165
20,164
40,975
13,196
215,959
177,825
39,261
39,261
23,104
23,104
The Parent has not entered into any guarantees with any of its subsidiaries.
Details of the contingent liabilities of the Parent are contained in Note 20(c).
Details of the contractual commitments of the Parent are contained in Notes 20(a) and 20(b).
The consolidated financial statements include the financial statements of IMF and the subsidiaries listed in the
following table:
Name
Financial Redress Pty Ltd1
IMF Bentham (Fund 2) Pty Ltd2
IMF Bentham (Fund 3) Pty Ltd2
Bentham Holdings Inc
Bentham Capital LLC
Security Finance LLC
Bentham IMF Holdings 1 LLC3
Bentham IMF 1 LLC3
Security Finance 1 LLC3
HC 1 LLC4
Bentham IMF Capital Limited
Lien Finance Canada Limited
IMF Bentham Pte. Limited5
Country of
Incorporation
Australia
Australia
Australia
USA
USA
USA
USA
USA
USA
USA
Canada
Canada
Singapore
Percentage owned
2018
%
–
20
20
100
100
100
100
27
27
7
100
100
100
2017
%
100
–
–
100
100
100
100
50
50
–
100
100
100
1. This entity was deregistered on 9 May 2018.
2. These entities were incorporated on 13 September 2017. 20% ownership became effective on 3 October 2017.
3.
These entities were incorporated 3 November 2016. 50% ownership became effective on 13 February 2017. Ownership has decreased during the
year to 27%.
4. This entity was incorporated on 30 May 2018.
5. This entity was incorporated on 8 March 2017.
98
Notes to the
Financial Statements
continued
Note 24: Material partly-owned subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below:
Non-controlling interest
Country of
Incorporation
2018
%
2017
%
Proportion of equity interest held by non-controlling interests:
Bentham IMF 1 LLC1
Security Finance 1 LLC1
HC 1 LLC1
IMF Bentham (Fund 2) Pty Ltd2
IMF Bentham (Fund 3) Pty Ltd2
USA
USA
USA
AUS
AUS
Accumulated balances of material non-controlling interest:
Bentham IMF 1 LLC1
HC 1 LLC1
IMF Bentham (Fund 2) Pty Ltd2
IMF Bentham (Fund 3) Pty Ltd2
Transaction costs, net of tax - disposal of non-controlling interest
Profit/(loss) allocated to material non-controlling interest:
Bentham IMF 1 LLC
IMF Bentham (Fund 2) Pty Ltd2
IMF Bentham (Fund 3) Pty Ltd2
73
73
93
80
80
2018
$'000
105,799
47,086
22,933
7,644
(7,958)
175,504
1,106
1,548
516
3,170
50
50
–
–
–
2017
$'000
7,209
–
–
–
(4,843)
2,366
–
–
–
–
1. The results and non-controlling interest of these entities comprise the results of the US Fund, included in Note 1 Segment Information.
2. The results and non-controlling interest of these entities comprise the results of the ROW Funds, included in Note 1 Segment Information.
Bentham IMF 1 LLC
HC 1 LLC
IMF Bentham (Fund 2)
Pty Ltd
IMF Bentham (Fund 3)
Pty Ltd
Total
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
Balance at 1 July
2,366
–
–
100,096
7,209
47,086
Contributions
Distributions
Change in net assets
attributable to NCI
(9,694)
8,188
–
–
Balance at 30 June
(1,091)
(4,843)
Total
99,865
2,366
47,086
–
–
–
–
–
–
–
–
–
–
20,877
–
2,056
(1,518)
21,415
–
–
–
–
–
–
–
6,958
–
686
(506)
7,138
–
–
–
–
–
–
2,366
–
175,017
7,209
(9,694)
10,930
–
–
(3,115)
(4,843)
175,504
2,366
99
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Notes to the
Financial Statements
continued
Note 24: Material partly-owned subsidiaries (continued)
ROW Funds
On 13 September 2017 the Group established IMF Bentham (Fund 2) Pty Ltd and IMF Bentham (Fund 3) Pty Ltd
(collectively the “ROW Funds”).
On 3 October 2017, the Group undertook a transaction to dispose of a non-controlling interest in the ROW Funds.
At date of disposal the change in equity of the Group was recorded as follows:
Change in equity on disposal of non-controlling interest:
IMF Bentham (Fund 2) Pty Ltd
IMF Bentham (Fund 3) Pty Ltd
Transaction costs net of tax - disposal of non-controlling interest
US Fund
2018
$'000
2017
$'000
–
–
(2,024)
(2,024)
–
–
–
–
On 3 November 2016 IMF established Bentham IMF 1 LLC and its subsidiary Security Finance 1 LLC (collectively “the US
Fund”). The Fund has been part of the Group and consolidated into the results since this time as it was controlled by IMF.
On 10 February 2017, the Group undertook a transaction to dispose of a non-controlling interest in the US Fund.
The change in equity of the Group resulting from this disposal was recorded as follows:
Change in equity on disposal of non-controlling interest:
Bentham IMF 1 LLC
Security Finance 1 LLC
Transaction costs net of tax - disposal of non-controlling interest
2018
$'000
2017
$'000
–
–
(1,091)
(1,091)
–
–
(4,843)
(4,843)
The summarised financial information provided below is based on amounts prior to intercompany eliminations:
US Fund
ROW Funds
2018
$'000
2017
$'000
2018
$'000
2017
$'000
Summarised statement of cash flows
Operating
Investing
Financing
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Foreign exchange
(71)
(102,594)
104,570
1,905
5,561
–
(1,648)
–
7,209
5,561
–
–
(3)
(18,921)
34,796
15,872
–
17
Cash and cash equivalents at the end of the period
7,466
5,561
15,889
–
–
–
–
–
–
–
100
Notes to the
Financial Statements
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
Note 25: Discontinued operations
The Bentham Ventures B.V. joint venture was incorporated in March 2014 and on 30 June 2016, the Group announced
the sale of its 50% interest in Bentham Ventures B.V. for $5,986,000, with an effective date of 30 June 2016.
IMF recognised $nil profit before tax on the sale at 30 June 2018 (30 June 2017: $nil). The impact on the Group’s results
from the discontinued operation is set out below:
Summarised Statement of Cash Flows of Bentham Ventures B.V.
Investing
Net cash (outflow)/inflow
Note 26: Related party disclosure
2018
$'000
–
–
2017
$'000
5,850
5,850
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.
Transactions with related parties1
Consolidated
2018
$'000
470
470
2017
$'000
161
161
1.
During the year the Group obtained legal advice from DLA Piper, a legal firm associated with director Michael Bowen. The legal advice was
obtained at normal market prices.
Note 27: Auditor’s remuneration
The auditor of IMF Bentham Limited is EY.
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
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 consolidated Group:
Tax compliance
Other
Consolidated
2018
$’000
2017
$’000
276
–
60
336
235
118
31
384
Note 28: Events after the reporting date
Apart from that disclosed in this report, no other circumstances have arisen since 30 June 2018 that have significantly
affected, or may significantly affect the consolidated entities’ operations, the results of those operations, or the
consolidated entities state of affairs in the future financial years.
101
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Directors’
Declaration
In accordance with a resolution of the Directors of IMF Bentham Limited, we state that:
In the opinion of the Directors:
(a) the financial statements and notes of IMF Bentham Limited for the financial year ended 30 June 2018 are in
accordance with the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of its financial position as at 30 June 2018 and performance for the year ended on that
date; and
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 the
notes to the financial statements;
(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 ended 30 June 2018.
On behalf of the board
Michael Kay
Non-Executive Director
Perth, 22 August 2018
Andrew Saker
Managing Director
102
Independent
Auditor’s Report
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent Auditor's Report to the Members of IMF Bentham Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of IMF Bentham Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
2018, the consolidated statement of comprehensive income, consolidated statement of changes in equity
and consolidated statement of cash flows for the year then ended, notes to the financial statements,
including a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
103
Independent
Auditor’s Report
continued
Impairment assessment of intangible assets
Why significant
How our audit addressed the key audit matter
Litigation contracts in progress are recognised as
intangible assets and assessed for impairment by the
Group using cash flow forecasts.
We evaluated the Group’s assessment of the carrying value
of intangible assets. Our audit procedures included the
following:
The carrying value of litigation contracts are
contingent on future cash flows and there is a risk that
if these cash flows do not meet the Group’s
expectations, or if significant judgments such as the
discount rates change, the assets will be impaired.
This was a key audit matter because it requires a high
level of judgment and changes in these assumptions
might lead to a significant change in the carrying
values of the related assets.
Assessed the effectiveness of the Group’s controls in
relation to the review of carrying values for intangible
assets, including controls over the valuation model
and assumptions applied.
Examined the Group’s impairment assessment model
and tested the reasonableness of key assumptions
including cash flow forecasts, estimated completion
dates and discount rates, with the involvement of our
valuation specialists.
Refer to Note 9 of the financial report for the amounts
recognised by the Group as at 30 June 2018 and
related disclosures.
Conducted sensitivity analyses to ascertain the impact
of reasonably possible changes to key assumptions on
the available headroom.
Discussed significant case matters with the Chief
Executives of Australia and the USA and respective
Case Investment Managers, with the involvement of
our legal specialists, in order to assess related
judgements made by the Group that impacted the
impairment model.
Considered the Group’s intention and ability to
continue to fund the relevant matters.
Income recognition
Why significant
How our audit addressed the key audit matter
During the year ended 30 June 2018, a number of
cases were successfully resolved in the Group’s favour
and a net gain on de-recognition of intangible assets
of $17.3 million was recorded in the consolidated
statement of comprehensive income.
The Group’s accounting policies set out a number of
strict guidelines as to the manner in which income can
be recognised following outcomes on litigation
matters funded by the Group.
Given the magnitude and judgment involved in the
timing of income recognition, income recognition was
a key audit matter.
Refer to Note 2 of the financial report for the amounts
recognised by the Group as at 30 June 2018 and
related disclosure.
We evaluated the Group’s assessment of case outcomes
and income recognised for the year. Our audit procedures
included the following:
Assessed the timing of income recognition based on
settlement terms agreed with the counterparties
including liquidators where applicable, court rulings
and inquiries with legal representatives.
Examined a sample of settlement agreements to
determine whether criteria for recognition had been
satisfied.
Agreed a sample of income recognised to payments
received.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
104
Independent
Auditor’s Report
continued
Existence and collectability of trade receivables
Why significant
How our audit addressed the key audit matter
At 30 June 2018, the Group had trade receivables of
$20.4 million which were significant to the Group. The
collectability of trade receivables is a key element of
working capital management.
Given the magnitude and judgment involved in the
collectability assessment of trade receivables,
existence and collectability of trade receivables was a
key audit matter.
Refer to Note 15 of the financial report for the
amounts recognised by the Group as at 30 June 2018
and related disclosure.
We evaluated the Group’s assessment of the carrying value
of trade receivables at 30 June 2018. Our audit
procedures included the following:
Selected a sample of balances to determine based on
settlement terms, if the right to record a receivable
had been satisfied;
Selected a sample of balances to assess whether there
were indicators that a provision should be recognised;
Considered collection timing assumptions to
determine whether receivables were appropriately
classified as current or non-current.
Considered whether receivables had been collected
subsequent to year end.
Reviewed historical payment patterns and any
correspondence with counterparties including
liquidators where applicable.
Provision for adverse costs
Why significant
How our audit addressed the key audit matter
Adverse costs arise where the Group is instructed by
the court to settle the costs incurred by the defendant
in litigation matters.
The Group records a provision for adverse costs when
a matter which it has funded is lost and that matter
was in a geographic location where adverse costs
exist.
We focused on this area because it requires a high
level of judgment to determine the adverse cost likely
to be incurred and changes in these assumptions
might lead to a significant change in the amount of
adverse costs the Group will be required to pay.
Refer to Note 19 of the financial report for the
amounts recognised by the Group as at 30 June 2018
and related disclosure.
We evaluated the Group’s assessment of the provision for
adverse costs. Our audit procedures included the following:
Compared assumptions to evidence, including
estimates provided by the Group’s legal experts.
Considered the consistency of the application of policy
for recognising provisions with the prior year.
Specifically we considered both the value of the prior
years’ provision utilised for payments of adverse costs
during the current year and the value of prior year
provision amounts not utilised and released.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
105
Independent
Auditor’s Report
continued
Recoverability of deferred tax assets
Why significant
How our audit addressed the key audit matter
At 30 June 2018, the Group had deferred tax assets
including tax losses of $12.3 million recorded in the
statement of financial position. The Group’s
accounting policies outline the requirements
necessary to recognise a deferred tax asset. The
recoverability of the deferred tax assets is reliant on
taxable profits being earnt by Group subsidiaries.
Given the magnitude and judgment involved in
determining the recoverability of deferred tax assets,
it was considered as a key audit matter.
Refer to Note 5 of the financial report for the amounts
recognised by the Group as at 30 June 2018 and
related disclosure.
We evaluated the Group’s assessment of the recoverability
of recognised deferred tax assets. Our audit procedures
included the following:
Examined the Group’s deferred tax asset
recoverability assessment and evaluated the
reasonableness of key assumptions including forecast
taxable profits of Group subsidiaries.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2018 Annual Report, but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
106
Independent
Auditor’s Report
continued
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
107
Independent
Auditor’s Report
continued
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 50 to 58 of the directors' report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of IMF Bentham Limited for the year ended 30 June 2018,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Robert A Kirkby
Partner
Perth
22 August 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RK:DA:IMF:046
108
Shareholder
Information
The information set out below is current as at 31 July 2018.
(a) Distribution of Shareholders
Ordinary Share Capital
173,863,277 fully paid ordinary shares are held by 4,698 individual shareholders. All issued ordinary shares carry one vote
per share and carry the right to dividends.
IMF Bentham Bonds
There are 500,000 bonds issued held by 976 individual bond holders. The IMF Bentham Bonds do not carry the right
to vote.
Options
There are no options issued over ordinary shares.
Share Performance Rights
14,355,887 share performance rights were issued to 37 rights holders.
Fixed Rate Notes
There are 72,000 Fixed Rate Notes.
Distribution of Securities
The number of shareholders by size of holding, in each class are as at 31 July 2018:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Fully paid
ordinary
shares
463,791
4,615,304
6,449,911
Number
1,005
1,621
857
1,129
28,987,915
86 133,346,356
4,698 173,863,277
976
Non-marketable Parcels
There were 275 holders of less than a marketable parcel of ordinary shares.
(b) Substantial Shareholders
The names of the substantial shareholders listed in the Company’s register as at 31 July 2018 are:
Shareholder
Perpetual Investment Management
Eley Griffiths Group
Celeste Funds Management Limited
Kabouter Management, LLC
Number of
ordinary
Shares
‘000
14,788
11,115
10,488
10,720
47,111
Number
Bonds
934
34
3
4
1
129,856
69,757
22,825
163,674
113,888
500,000
% of
issued
capital
8.51
6.39
6.03
6.17
27.10
109
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
Shareholder
Information
continued
(c) 20 Largest Holders of Quoted Equity Securities as at 31 July 2018
Ordinary Shares
1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2. J P MORGAN NOMINEES AUSTRALIA LIMITED
3. UBS NOMINEES PTY LTD
4. CITICORP NOMINEES PTY LIMITED
5. NATIONAL NOMINEES LIMITED
6. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
7. MCLERNON GROUP SUPERANNUATION PTY LTD
8. BNP PARIBAS NOMS PTY LTD
9. CITICORP NOMINEES PTY LIMITED
10. BNP PARIBAS NOMINEES PTY LTD
11. MR DENNIS JOHN BANKS
12. MR HUGH MCLERNON
13. BNP PARIBAS NOMINEES PTY LTD
14. BOUCHI PTY LTD
15. B F A PTY LTD
16. HALSE HOLDINGS PTY LTD
17. AUST EXECUTOR TRUSTEES LTD
18. LEBIKA PTY LTD
19. MR CLIVE NORMAN BOWMAN
20. MUTUAL TRUST PTY LTD
(d) Options as at 31 July 2018 – unquoted
There are no options issued.
(e) Securities subject to escrow
There are no securities subject to escrow.
Number of
ordinary
Shares
‘000
30,085
23,361
15,359
13,316
10,057
9,266
3,862
3,220
2,828
2,177
1,899
1,201
929
636
586
500
473
467
443
417
% of issued
capital
17.30
13.44
8.83
7.66
5.78
5.33
2.22
1.85
1.63
1.25
1.09
0.69
0.53
0.37
0.34
0.29
0.27
0.27
0.25
0.24
121,082
69.63
110
Shareholder
Information
continued
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
I
M
F
B
e
n
t
h
a
m
L
m
i
i
t
e
d
(f) 20 Largest Holders of Quoted IMF Bentham Bonds as at 31 July 2018
Bond Holders
1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2. CITICORP NOMINEES PTY LIMITED
3. J P MORGAN NOMINEES AUSTRALIA LIMITED
4. BNP PARIBAS NOMS PTY LTD
5. NETWEALTH INVESTMENTS LIMITED
6. NAMANGI PTY LIMITED
7. MCLERNON GROUP SUPERANNUATION PTY LTD
8. NATIONAL NOMINEES LIMITED
9. ST HEDWIG VILLAGE
10. MR SIMON PETER PRICE & MS RACHEL EMMA FERGUSON
11. BESSFAM PTY LTD
12. CONTEMPLATOR PTY LTD
13. FERNANE PTY LTD
14. FORETELLER PTY LTD
15. TWENTY SECOND NATRO PTY LTD
16. BJM INCOME INVESTMENTS PTY LTD
17. DYSPO PTY LTD
18. LEVIEN FOUNDATION PTY LTD
19. SPACE DOOR PTY LTD
20. CONTINENTAL HOLDINGS PTY LTD
Number of
Bonds
‘000
114
70
65
18
11
8
8
7
5
5
4
4
4
3
3
3
3
2
2
2
% of
units
22.78
13.97
13.02
3.51
2.23
1.60
1.50
1.47
1.00
1.00
0.81
0.81
0.81
0.60
0.51
0.50
0.50
0.40
0.40
0.40
341
67.82
O
v
e
r
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
R
e
p
o
r
t
(cid:54)
(cid:75)
a
r
e
(cid:75)
o
(cid:71)
e
r
l
(cid:44)
n
(cid:73)
o
r
(cid:80)
a
t
i
o
n
111
Corporate
Information
This annual report covers both IMF Bentham Limited as an individual entity and the consolidated entity comprising
IMF Bentham Limited and its subsidiaries. The Group’s functional and presentation currency is AUD ($).
A description of the Group’s operations and of its principal activities is included in the review of operations and activities
in the Directors’ Report. The Directors’ Report is not part of the financial report.
Directors
Michael Kay
Andrew Saker
Hugh McLernon
Michael Bowen
Wendy McCarthy
Karen Phin
Company Secretary
Jeremy Sambrook
Non-Executive Chairman
Managing Director
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Registered office and principal place of business in Australia
Level 18, 68 Pitt Street
Sydney NSW 2000
Phone: (02) 8223 3567
Fax: (02) 8223 3555
Solicitors
DLA PIPER
Level 31, Central Park
152-158 St George’s Terrace
Perth WA 6000
Share registry
LINK MARKET SERVICES
Locked Bag A14
Sydney South NSW 1235
Phone: 1300 554 474
Auditors
EY
The EY Building
11 Mounts Bay Road
Perth WA 6000
Bankers
NATIONAL AUSTRALIA BANK LIMITED
255 George Street
Sydney NSW 2000
Internet address
www.imf.com.au
The Company is listed on the Australian Securities Exchange with Sydney, Australia as its home exchange. Its ASX code
is “IMF” and its shares were trading as at the date of this report.
112
Australia
United States
Canada
Asia
Europe
New York
+1 212 488 5331
Toronto
+1 416 583 5720
Singapore
+65 6622 5396
437 Madison Avenue
19th Floor
New York NY 10022
250 The Esplanade
Suite 127
Toronto ON M5A 1J2
Suite 59, Level 42
Six Battery Road
Singapore 049909
London
+44 203 878 8760
1 Fetter Lane
London EC4A 1BR
Los Angeles
+1 213 550 2687
Montreal
+1 514 779 1041
555 West Fifth Street
Suite 3310
Los Angeles CA
90013
500 Place d’Armes
Suite 1800
Montreal QC
H2Y 2W2
Hong Kong
+852 3978 2629
+852 3978 2300
Level 17
China Building
29 Queen’s Road
Central Hong Kong
San Francisco
+1 415 231 0363
Two Rincon Center
121 Spear Street
Suite 405
San Francisco CA
94105
Houston
+1 713 965 7920
Lyondell Basell Tower
1221 McKinney Street
Suite 3840
Houston TX 77010
Sydney
+61 2 8223 3567
Level 18
68 Pitt Street
Sydney NSW 2000
GPO Box 5457
Sydney NSW 2001
Perth
+61 8 9225 2300
Level 6
37 St George’s
Terrace
Perth WA 6000
PO Box Z5106
Perth WA 6831
Brisbane
+61 7 3108 1310
Level 4
320 Adelaide Street
Brisbane QLD 4000
Melbourne
+61 3 9913 3301
Level 3
Bourke Place
600 Bourke Street
Melbourne VIC 3000
Adelaide
+61 8 8122 1010
50 Gilbert Street
Adelaide SA 5000
www.imf.com.au