TIDMJIL
RNS Number : 2770B
Juridica Investments Limited
03 April 2017
Juridica Investments Limited
("Juridica," "JIL" or the "Company")
Results for the year ended 31 December 2016
Juridica, a provider of strategic capital for corporate legal
claims, announces its results for the year ended 31 December
2016.
Summary of results
-- Dividends paid to investors during 2016 totalling 40 pence
per share (bringing total life-to-date dividends to GBP1.036
per share).
-- 31 December 2016 net asset value ("NAV") per ordinary share
is US$0.2541, a reduction of US$0.8891 from 31 December 2015
NAV per ordinary share due to:
-- payment of dividends during 2016 (US$0.5461 per share); and
-- total comprehensive loss for 2016 (US$0.3430 per share).
-- 2016 total comprehensive loss of US$37.8 million, primarily
attributable to realised and unrealised loss totalling US$30.7
million, a significant proportion of which (US$24.5 million)
was reported in our 30 June 2016 interim accounts.
Investment results
During the year ended 31 December 2016:
-- Final settlements occurred in the last two cases in the Company's
large antitrust and competition investment. Net proceeds remitted
to the Company totalled US$46.5 million which funded part
of the dividends paid in 2016.
-- A net reduction in the valuation of the Company's investments
of US$20.3 million.
-- Three investments, representing a total of US$1.1 million
of 2015 year end NAV were written off due to (i) adverse judicial
decisions with limited opportunity for appeal; or (ii) adverse
market conditions.
A total of 11 investments remain active (after considering the
post 2016 settlement occurring in one of our litigation
investments) with four being litigation related, four relating to
special purpose vehicles ("SPV"), and three being non-litigation
and non-SPV.
Corporate update
The Board of Directors announced on 18 November 2015 that it
would not make any new investments (other than further funding of
existing investments where such funding was reasonably required in
the interests of shareholders) and that it would seek to make
distributions to shareholders in the most appropriate manner,
following the completion of investments.
The Board of Directors and the Company's Manager continue to
work to monetise all of the Company's remaining investments by 31
December 2017 and investors should be assured that the Board of
Directors will continue to operate the Company efficiently and
manage the Company's remaining investments beyond that date, if so
required.
- Ends -
This report contains forward looking statements, which are based
on the current expectations and assumptions of the Manager and
involve known and unknown risks and uncertainties that could cause
actual results or performance to differ materially from those
expressed or implied in such statements. It is believed that the
expectations reflected in these statements are reasonable but they
may be affected by a number of variables that could cause actual
results or trends to differ materially. Each forward looking
statement speaks only as of the date of this report. Except as
required by the AIM Rules or otherwise by law, the Company and the
Manager expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in the Company's
or Manager's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
For further information contact:
Brickell Key Asset Management Limited +1 (866) 443
William Yuen 1080
Cenkos Securities PLC - Nominated Adviser
and Joint Broker
Nicholas Wells +44 (0) 20 7397
Camilla Hume 8900
Investec Bank PLC - Joint Broker
Darren Vickers +44 (0) 20 7597
Jeremy Ellis 4000
Bell Pottinger +44 (0) 20 3772
Dan de Belder 2500
CHAIRMAN'S STATEMENT
FOR THE YEARED 31 DECEMBER 2016
On behalf of the Board, I present the results of Juridica
Investments Limited ("JIL" or the "Company") for the year ended 31
December 2016.
Financial Results
During 2016, the net asset value ("NAV") per share has fallen by
US$0.8891 per share from US$1.1432 per share at 31 December 2015 to
US$0.2541 per share at 31 December 2016. The change in NAV was due
to the following:
-- payment of dividends during 2016 amounting to US$60.3 million
(US$0.5461 per share); and
-- total comprehensive loss of US$37.8 million (US$0.3430 per
share).
The total comprehensive loss of US$37.8 million was primarily
attributable to net realised loss on resolved investments and net
unrealised loss on revaluation of case investments totalling
US$30.7 million (US$0.2780 per share), most of which (US$24.5
million) was previously reported in our 30 June 2016 interim
accounts.
Corporate Run-off Strategy
The Board announced on 18 November 2015 that the Company would
not make any new investments (other than further funding of
existing investments where such funding was reasonably required in
the interests of shareholders) and it would seek to make
distributions to shareholders in the most appropriate manner,
following the completion of investments. In early 2016, the Board
made a new agreement with the Company's investment manager,
Brickell Key Asset Management Limited ("BKAML" or "Manager"),
formerly named Juridica Asset Management Limited, for continued
services for a further two years until 31 December 2017. On that
date, the Company is entitled to terminate these arrangements. This
timing reflected our view of the circumstances of the remaining
portfolio. Nevertheless, we reiterate the approach set out in my
statement in the 2015 Annual Report that should circumstances
involve the continuation of any significant investments into 2018
then the Company will make appropriate arrangements as
required.
In accordance with the Company's run-off strategy, the Board
instructed BKAML, to look into the resolution and monetisation of
the remaining litigation assets as their circumstances reasonably
permit, and for non-litigation assets where reasonable, by on or
about 31 December 2017.
For those investments that are likely to extend beyond 31
December 2017 before reaching their natural completion, the Board,
with input from the Manager, has reviewed the values of certain
remaining assets to reflect the potential likelihood of monetising
them where reasonably possible by the end of 2017.
As part of the Company's run-off strategy, and as previously
announced in my 2015 year-end statement, the Board and the Manager
agreed to a programme of cost reductions over and above the cuts to
investment management fees with target savings of US$900,000 for
2016 compared with 2015. We were successful in meeting this
objective as the Company's reported results reflect 2016 operating
expenses lower by US$1.0 million as compared to 2015 results
(excluding the non-cash impact of foreign exchange loss).
Assessment of Going Concern
In a year of run-off, the Board has made their regular
assessment that the Company is a going concern in respect of a
period of at least one year from the date of approval of these
accounts.
The Board concluded that there are no material uncertainties
related to events or conditions that might cast doubt on the
ability of the Company to continue as a going concern. The Board is
of the opinion that the Company will have sufficient resources to
meet its liabilities as they fall due and is positioned to continue
into 2018 if necessary.
Investment Results
During the year ended 31 December 2016 there were settlements in
the final two cases in the Company's large antitrust and
competition investment. Gross proceeds totalling US$71.3 million
were generated from these combined settlements. Net proceeds
remitted to the Company (after reserves for taxes and contingencies
were held by the law firm that is the counterparty to the Company's
investment) totalled US$46.5 million. We believe additional
proceeds from these reserves may be released to the Company once
actual tax returns are filed (expected no later than third quarter
2017) and again once all contingencies are cleared.
-- Case 5308-U: Settlement was reached during trial that generated
US$69.1 million in gross proceeds and cost reimbursement.
After reserving for taxes and other contingencies, net proceeds
of US$46.0 million were received in July 2016. Additional
proceeds from this settlement may be remitted to the Company
after filing of tax returns, which is expected no later than
third quarter 2017.
-- Case 1008-A: A partial settlement was reached generating
approximately US$2.2 million, in gross proceeds. After reserving
for taxes and other contingencies, net proceeds of US$500,000
were received by the Company in July 2016. Although the case
continues, the Board determined that the quantum of potential
additional returns was not worth the additional investment
required to continue to retain an interest in the case.
Further details of the closing of the structures supporting the
antitrust and competition portfolio are set out in the footnotes
(Notes 5 and 14) to these Financial Statements.
Investment Portfolio
The valuation of the portfolio has been carefully reviewed and
several investments were written off during 2016.
Number of Active
Portfolio category Investments Fair value $US % of Total NAV
Million
-------------------------- --------------------- ------------------- -------------------
2016 2015 2016 2015 2016 2015
Litigation investments 5 7 15.8 71.0 56.5% 56.3%
SPV investments 4 4 2.9 15.1 10.3% 11.9%
Other investments 3 4 0.3 6.7 1.0% 5.4%
---------- --------- --------- -------- --------- --------
Total investments 12 15 19.0 92.8 67.8% 73.6%
========== ========= ========= ======== ========= ========
There were 15 investments active as of 1 January 2016, of which
seven involved litigation. During 2016, two of these litigation
investments had significant adverse judicial decisions that
prompted us to write off the Company's remaining interest.
Specifically, these investments were Case 12013 and Case
1608-T.
Of the remaining five litigation investments:
-- Investment 3608-A has come to completion relative to the
underlying cases but remains active until residual reserves
are transferred to the Company.
-- Case 2709-E and Case 5009-S are both being appealed for decisions
adverse to our position.
-- Case 1410 won its initial appeal to increase damages, however
both parties have now filed further legal appeals.
-- Case 114107, an investment we made in early 2015, had several
partial settlements in 2015 and 2016 providing for US$1.7
million in total proceeds. In March 2017, the Company received
additional proceeds of US$890,000 which completed the Company's
interest in this case. Total proceeds received by the Company
for this case was $US2.6 million on an investment of US$1.3
million.
Four investments are in special purpose vehicles ("SPV"). These
investments began in 2014.
As to ACK / Smooth3D, after extensive investigation it was
determined that the inventions had no commercial value and during
2016, approximately US$330,000 of excess investment was returned to
the Company. The remaining investment is a negotiable note.
As to Rich Media, 25 patent filings occurred in 2016 and, as of
31 December 2016, none have been issued and all remain under review
by the United States Patent and Trademark Office ("USPTO").
Monetisation of this vehicle continues.
As to GrandiOS, 37 US domestic patents have been filed, and as
of 31 December 2016, 23 patents have either been granted or allowed
by the USPTO. Monetisation efforts continue.
As to ProSports, 55 domestic patent filings have been made and,
as of 31 December 2016, 14 patents have been granted or allowed by
the USPTO. A shareholder partner is the National Football League
Players Association ("NFLPA"). Marketing is underway.
These SPVs are commercial ventures and their fair value
considers circumstances and conditions relevant to each SPV
market.
For the remainder of the Company's investments, those that are
not litigation or SPV, the Company began 2016 with four. During
2016, one investment, specifically Investment 1610 is facing
potential bankruptcy and has been written off. Of the three
remaining investments, two of them (investments 7313 and 6609-S)
are facing enhanced risk and their respective fair value has been
reduced accordingly. The final investment is the Company's interest
in our former investment manager, JCML 2007 Limited ("JCML 2007")
and retains value equal to the Company's share of JIL stock held by
JCML 2007.
Further details on the status of each investment can be found in
the Investment Manager's Report that follows.
Dividend
For 2016, the Company paid dividends totalling 40 pence per
share (US$60.3 million). The Board will continue to evaluate the
appropriate timing of future dividends.
Exchange rate movements
Since the vote by the UK on 23 June 2016 to leave the EU and
concerns about the future economic effect on the UK there has been
a fall in the value of the Sterling against the US Dollar. This has
been beneficial to the Company as its assets are almost entirely
denominated in US Dollars.
Conclusion
The Board appreciates that investors wish run-off to be
effective and efficient and we will seek to achieve this. The Board
and the Company's Manager continue to work to monetise all of the
Company's investments by 31 December 2017 and investors should be
assured that we will continue to efficiently operate the Company
and manage our remaining investments beyond this date, if so
required.
Lord Daniel Brennan QC
Chairman
31 March 2017
INVESTMENT MANAGER'S REPORT
FOR THE YEARED 31 DECEMBER 2016
The Company began operations in December 2007 and has, since
inception, made 30 investments (some of which have multiple
underlying cases or other assets and some which have had
supplemental investments). A total of 19 of these investments have
come to full conclusion, including one investment which came to
full conclusion in March 2017. Of the remaining 11 investments,
five have had some return on the Company's investment, including
the Company's investment in JCML 2007, either from settlements or
other distributions, and still remain active.
During the year ended 31 December 2016, the Company continued to
move forward in its strategy to monetise its remaining investments
by 31 December 2017. This strategy, which was announced on 18
November 2015, directs us to manage the Company's existing
investments by balancing the desired conclusion date with what we
believe is each investment's optimal conclusion and to make
distributions to shareholders in the most appropriate manner. For
the year ended 31 December 2016, and since the adoption of the
run-off strategy, the Company has achieved the following:
-- settlement in two cases within our antitrust and competition
portfolio generating approximately US$71.3 million in gross
proceeds (US$46.5 million in net proceeds after reserving
for taxes and contingencies);
-- additional settlements and return of excess invested cash
totalling US$750,000; and
-- dividends totalling 40 pence per share paid to shareholders
on the Register at 27 May 2016 (8 pence per share) and 16
September 2016 (32 pence per share).
We continue to seek resolution and monetisation of all the
remainder of the Company's assets, if possible by the end of
2017.
Financial Performance During 2016
The NAV per ordinary share decreased from US$1.1432 (77 pence
per share as at 31 December 2015 to US$0.2541 (21 pence per share)
as at 31 December 2016. This decrease of 88.91 cents in NAV per
ordinary share was attributable to the declaration and payment of
dividends totalling US$60.3 million or 54.61 cents per ordinary
share and a total comprehensive loss of US$37.8 million or 34.30
cents per ordinary share.
The Company's US$37.8 million total comprehensive loss for the
year ended 31 December 2016 was due to the net unrealised loss of
US$20.3 million generated from the change in valuation of the
Company's investments, net realised loss of US$10.4 million
associated with the write-off of three investments partially offset
by a realised gain associated with one investment, intangible
impairment and amortisation expenses of intangible of US$2.1
million, impairment of settlement proceeds of US$500,000 and net
operating expenses of US$4.5 million.
The Company's net unrealised loss from net reduction in the
valuation of the Company's investments of US$20.3 million was
attributable to the following:
-- US$15.1 million reduction in value associated with the Company's
contractual interests. This was due to changes in our expectations
on probability of a successful resolution, changes in projected
quantum and timing of a successful resolution and application
of additional risk factors on certain investments (principally
the patent special purpose vehicles ("SPV") accounted for
as contractual interests to incorporate the potential of
monetising those investments within a shortened development
period following the Board's instructions in accordance with
the Company's run-off strategy. The risk factors associated
with monetising the investment within a shorter development
period were increased from the Company's 30 June 2016 interim
accounts and may be adjusted in future reporting periods
based on our ongoing monetisation efforts.
-- US$3.4 million reduction in value associated with the Company's
debt securities consisting exclusively of our antitrust and
competition portfolio.
-- US$1.8 million reduction in value associated with the Company's
equity investments. This change was partially due to changes
in our expectations on the quantum and timing and application
of additional risk factors on one equity investment to incorporate
the potential of monetising this investment within a shortened
growth period following the Board's instructions in accordance
with the Company's run-off strategy. The risk factors associated
with monetising the investment within a shorter growth period
were increased from the Company's 30 June 2016 accounts and
may be adjusted in future reporting periods based on our
ongoing monetisation efforts.
Investment Results During 2016
Proceeds Received:
Investment 3608-A: During the year ended 31 December 2016, the
two remaining cases in our large antitrust and competition
investment, Case 5308-U and Case 1008-A, reached their
conclusion.
-- Case 5308-U reached a final settlement during 2016 generating
gross proceeds of approximately US$69.1 million. As per the
terms of the Company's investment arrangement, Fields Law
Firm PLLC ("Fields Law"), which is the law firm that is counterparty
to this investment, is permitted to set aside reserves for
taxes and contingencies resulting from the settlement or
other matters related to the investment. After netting out
these reserves, a total of US$46.0 million was paid to the
Company.
-- Case 1008-A reached partial settlement during 2016 which
generated total gross proceeds of US$2.2 million that was
paid in several tranches. After providing for the appropriate
reserves (similar to those described above for Case 5308-U),
US$500,000 in net proceeds was paid to the Company. Although
the case continues, the Company determined that the quantum
of potential additional returns was not worth the additional
investment required to continue to retain an interest in
the case.
As noted above, the Company's interest in the underlying cases
in Investment 3608-A reached their conclusion during 2016 and on 25
August 2016, the loan and swap arrangements that served as the
Company's facility agreement with Fields Law were terminated
through a series of agreements and cash arrangements that resulted
in no additional net cash gain or loss to the Company. The loan and
swap arrangements were replaced with termination agreements that
provide for additional proceeds to ultimately be remitted to the
Company, if additional proceeds become available. Specifically,
additional proceeds may become available once Fields Law's 2016 tax
returns are filed (which is expected no later than third quarter
2017) and again once Fields Law's contingencies are cleared (which
is expected no later than end of year 2020). The expected release
of US$10.5 million in excess reserves is reflected as the remaining
valuation of this investment. The final amount of excess reserves
that may be released could vary significantly from the estimate we
have developed due to actual taxes and expected contingency
payments being different from our estimates. (See notes 5 and 14
for further details).
Investment 114107: During the year ended 31 December 2016,
Investment 114107 generated gross proceeds of US$400,000 from two
partial settlements. This investment became finalised in March 2017
with receipt of US$890,000 additional proceeds. The Company
received a total of US$2.6 million on an investment of US$1.3
million.
Other proceeds received: In addition to the above activity,
US$40,000 in residual proceeds related to Case 8008-L and Case
5208-E were received by the Company during the year ended 31
December 2016 and approximately US$330,000 in residual cash from
one of the Company's SPVs was returned to JIL.
Investments Written Off:
Investment 12013: The Company invested US$250,000 in a case
involving a legal claim of misappropriation of trade-secrets. The
Company's investment was used for funding an appeal which, during
the fourth quarter of 2015, was lost. All subsequent legal actions,
including the Plaintiff's petition for Writ of Certiorari in
February 2016, have failed. As a result, during 2016, the
investment was written off. Approximately US$95,000 of the
Company's 2015 year-end NAV was applicable to this investment.
Case 1608-T: In 2008, the Company invested US$500,000 in a case
involving a judgement on behalf of insurance companies against a
foreign government. This investment was structured whereby the
Company would receive US$2.0 million once collection was made. In
2014, we identified potential problems with the investment and
wrote down our valuation to reflect this increased risk. At
year-end 2015, this investment carried a valuation of US$446,000.
During 2016, the United States Court of Federal Claims granted the
Defendant's motion for summary judgment denying the Plaintiff's
claims. As such, during 2016, this investment was written off.
Investment 1610: This investment began as an investment in
litigation which resulted in a favourable arbitration award
obtained in 2013 in the amount of US$4.0 million. While this
settlement enabled the Company to recoup its entire investment, the
Company intended to recover further proceeds from its security
interest in a revenue stream to be generated from a US based coal
mine. Due to unfavourable market conditions for the coal industry,
at year-end of 2015, we retained an industry expert to provide
input into valuation and likelihood to monetise the Company's
interest. At year-end 2015, this investment carried a valuation of
US$600,000. Shortly before 31 December 2016, we learned that the
parent company of the mine was facing potential bankruptcy which
will eliminate the Company's interest. As such, at 31 December
2016, this investment has been written off.
In addition to the above investments written off, the Company
wrote off a portion of the ACK / Smooth3D investment (formerly
Investment 0808-C) which was deemed to no longer hold value and
returned US$300,000 of unspent investment to the Company. At
year-end 2015, the now written off portion of this investment
carried a valuation of US$600,000.
Fair Value of Investments
The fair value of the Company's investments at 31 December 2016
was US$18.9 million. From an accounting standpoint, these
investments are categorised as contractual interests, debt
securities, or equity investments. These categories reflect the
following changes from the carrying value as at 31 December
2015:
31 December Additions Net Realised Fair Value 31 December
2015 Fair During the Proceeds Loss Attributable Change During 2016 Fair
Value Year Ended Attributable to the Year the Year Value
$USM 31 December to the Year Ended 31 Ended 31 $USM
2016 Ended 31 December December
$USM December 2016 2016
2016 $USM $USM
$USM
--------------------- ------------ ------------- -------------- ------------------- --------------- ------------
Contractual
Interests:
includes
assets from
the Company's
patent and
commercial
claims portfolios
(1) 29.4 1.0 (0.8) (6.7) (15.1) 7.8
--------------------- ------------ ------------- -------------- ------------------- --------------- ------------
Debt Securities:
includes
assets from
our antitrust
and competition
portfolio
(2, 3, 4) 55.4 30.4 (71.9) - (3.4) 10.5
--------------------- ------------ ------------- -------------- ------------------- --------------- ------------
Equity Investments:
includes
assets from
our patent
and commercial
claims portfolios
as well as
other investments
(5, 6) 6.0 0.1 - (3.7) (1.8) 0.6
--------------------- ------------ ------------- -------------- ------------------- --------------- ------------
Total 90.8 31.5 (72.7) (10.4) (20.3) 18.9
--------------------- ------------ ------------- -------------- ------------------- --------------- ------------
-- (1) Realised loss within the Company's contractual interests
resulted from the write off of Case 12013 (US$250,000)
and the write off of a portion of the ACK / Smooth3D SPV
investment (US$6.4 million) that was treated as contractual
interest. The write off amount reflects the remaining
basis in each of these investments and does not reflect
the fair value of each investment prior to write off.
The remaining value associated with the Company's ACK
/ Smooth3D SPV is treated as an equity investment.
-- (2) Additions within the Company's investments accounted
for as debt securities were provided from: i) US$5 million
clawback of prior year swap payments to Fields Law for
purposes of making required contributions into the underlying
cases; ii) US$11.1 million clawback of prior year swap
payments made to Riverbend Investments Limited ("Riverbend")
enabling Fields Law to prepay a portion of accrued interest
and principal on the facility between the Company and
Fields Law; and iii) US$14.3 million enabling Riverbend
to fulfil its obligation under the swap agreement and
allowing for Fields Law to pay all remaining accrued interest
and principal on the facility once the Company's interest
in the underlying cases was deemed complete.
-- (3) Net proceeds within the Company's investments accounted
for as debt securities include: i) US$46.5 million of
net proceeds provided by settlements in the Company's
antitrust and competition portfolio; and ii) a total of
US$25.4 million paid by Fields Law from the US$11.1 million
clawback of prior year swap payments made to Riverbend
and the US$14.3 million provided by Riverbend fulfilling
its obligation under the swap agreement and allowing for
Fields Law to pay all remaining accrued interest and principal
on the facility once the Company's interest in the underlying
cases was deemed complete.
-- (4) Current valuation of the Company's investments accounted
for as debt securities reflects expected release of excess
reserves currently being held by Fields Law. The reserves
held relate to taxes resulting from the two settlements
in this portfolio that occurred during 2016 and contingencies
related to the investment. The final amount of excess
reserves that may be released could vary significantly
from this estimate.
-- (5) Realised loss for the Company's equity investments
reflects US$3.7 million of remaining basis in Investment
1610 which was written off at 31 December 2016. This investment
generated US$4.0 million of proceeds in 2013 of which
approximately US$300,000 was allocated to the recovery
of our investment. At year-end 2015, this investment carried
a valuation of US$600,000.
-- (6) Equity investments exclude an intangible, with amortised
value of approximately US$111,000.
As discussed in previous reports, we value JIL's investments
using valuation and accounting methods that are applied in a manner
that follows International Financial Reporting Standards' ("IFRS")
accounting principles. In particular, we follow guidance provided
by IFRS 13 in establishing the method of applying fair value
accounting. Under this guidance, we develop a fair value of a case
or investment by discounting its expected terminal value from its
expected completion date.
We determine our initial expectations on quantum and timing of
case results by assigning a probability of various scenarios coming
to fruition and applying risk factors that: i) are intrinsic to the
specific case; and ii) reflect general risks within and outside of
the legal process. Our assumptions behind an investment's fair
value are revisited on a semi-annual basis (to coincide with the
Statement of Financial Position date). If needed, we will re-run
the investment's valuation model and revise its expected future
cash flow which we then discount to the reporting date. The
discount rate used for valuation purposes is the Company's cost of
equity. All due diligence and transaction costs related to an
investment are expensed.
Unlike an investment that is backed by a physical asset,
litigation assets are subject to certain legal hurdles each of
which has the potential to cause the litigation portion of any
investment to be worthless. A key element in selecting investment
worthy cases is the likelihood of a particular case overcoming any
remaining hurdles and generate either a settlement or trial
victory.
For the Company's litigation investments, we consider the
current legal merits of each underlying case, the legal history of
the case, the current legal environment, and any other factors we
feel are relevant as of the date of our valuation. Working with the
lawyers assigned to each case, we develop scenarios of potential
outcomes, including the various situations that can generate
outsized returns, moderate returns, or a complete loss, and assign
each scenario a probability. The Monte Carlo simulation runs the
statistically relevant number of iterations to provide us with an
expected value and timing. These results are then discounted to the
reporting date at the Company's cost of equity. For certain of the
Company's investments, we found it more appropriate to value them
by using discounted cash flow models incorporating the various
risks associated with the investment.
Of significance is the risk of loss that is assigned to each
case. This must be considered given the typical binary
characteristics of a legal case (i.e. win or lose).
Beginning in 2016 and in response to the Company's run-off
strategy, as part of us reaching a fair value assessment of the
Company's investments, we have considered the potential likelihood
of monetising certain investments within a shortened development
period.
Our accounting fair value on the Company's investments is not
intended to express our prediction about the ultimate outcome of
any investment, but rather our fair value estimate based on the
best information available to us at the Statement of Financial
Position date using a range of possible outcomes.
Portfolio Update
As the Company's portfolio has progressed, it has evolved into
three types of investments: litigation related investments; SPV
related investments; and other investments. As such, our investment
update will be grouped in the same manner.
The summary of our investment holdings at 31 December 2016 for
each of these groups is as noted on the following table, together
with the current concentration risk:
Number of Active
Portfolio category Investments Fair value $US % of Total NAV
Million
-------------------------- --------------------- ------------------- -------------------
2016 2015 2016 2015 2016 2015
Litigation investments
(1) 5 7 15.8 71.0 56.5% 56.3%
SPV investments 4 4 2.9 15.1 10.3% 11.9%
Other investments
(2) 3 4 0.3 6.7 1.0% 5.4%
---------- --------- --------- -------- --------- --------
Total investments 12 15 19.0 92.8 67.8% 73.6%
========== ========= ========= ======== ========= ========
(1) Includes Investment 114107 which became finalised in March
2017.
(2) Includes the Company's investment in JCML 2007. Also
includes an investment in which US$111,000 of its fair value at 31
December 2016 is categorised as an intangible.
Litigation investments
The Company began 2016 with seven investments in litigation.
During 2016, two of these investments, Investment 12013 and Case
1608-T, were written off (as detailed above) leaving five
investments in litigation remaining active as of 31 December
2016.
Case summaries:
-- Investment 3608-A: This investment originally included six
cases of which five were related to antitrust and competition
and one was related to statutory claims against an international
bank. The investment was initiated in 2008 with terms that
required funding obligations by the Company through 2016
with an annual option providing for the Company to extend
the funding obligation beyond 2016. During 2016, the Company
declined to exercise its option to continue funding the investment.
Under the terms of the facility agreement (consisting of a
consolidated loan agreement and a swap agreement), gross proceeds
generated from the investment are received and held by Fields Law,
which is the law firm that is the counterparty to the Company's
investment. Deducted from the gross proceeds are taxes and reserves
required for certain contingencies. Per the terms of the facility
agreement, the Company received net proceeds at the end of each
calendar year, or earlier if approved by JIL and Fields Law.
As of 31 December 2016 all of the Company's interest in the
underlying cases have come to conclusion either through final
settlement or, for Case 1008-A, partial settlement and the
Company's determination to no longer fund an ongoing interest in
the case.
Although the Company's interest in the underlying cases in
Investment 3608-A has ended, additional proceeds may be delivered
once Fields Law's 2016 tax returns are filed (which is expected to
occur in the third quarter 2017) and again once all contingencies
are cleared (which is expected by the end of 2020). The expected
release of US$10.5 million in excess reserves is reflected as the
remaining valuation of this investment. The final amount of excess
reserves released could vary significantly from this estimate.
On 25 August 2016, the loan and swap arrangements that served as
the Company's investment agreement were terminated and replaced
with termination agreements that provide for arrangements described
above.
-- Case 2709-E: This case originally consisted of three patents
against three defendants. After a protracted patent re-examination,
one patent was abandoned. During 2016, an unexpected event
occurred which severely impacted one of the remaining patents
and resulted in partial settlements relating to this patent.
Proceeds generated were far below our expectations and were
reinvested into the case to further the legal proceedings
on the remaining patent. A Markman hearing on the remaining
patent completed during 2016 with the plaintiff prevailing
on validity. The issue of infringement remains in question
and both parties are seeking to get appellate review of the
ruling by the Court of Appeals for the Federal Circuit. We
will continue to closely monitor this investment as the case
progresses.
-- Case 5009-S: This case completed its trial by jury during
2015. Although the plaintiff fully won on liability, the
jury only awarded an amount of damages which will result
in proceeds to the Company of approximately US$2.0 million
as compared to an investment of approximately US$3.5 million.
Both sides filed post-trial motions for a new trial with
the plaintiff requesting a new trial on damages and the defendant
requesting a new trial on all issues. These motions were
decided in favour of the defendant; however, the plaintiff
has appealed this adverse decision of the trial court. We
believe there remains a low possibility that a new trial
on damages will occur.
-- Case 1410: This case completed its trial during 2014 with
a positive ruling on liability but damages awarded were far
less than expected. Cross-appeals on liability and plaintiff's
appeal on damages were filed after the ruling. In early 2016,
the plaintiff's appeal received a favourable appeals court
ruling overturning the trial court's damages award and subsequent
to 31 December 2016, the trial court judge added punitive
damages to the award. Although the total award has increased,
the plaintiff and their counsel still believe damages should
be higher. Both parties have now filed further legal appeals.
Although risk remains, we believe there is the possibility
of a new award on damages without a further trial.
-- Case 114107: This investment was made in early 2015. The
underlying case consists of five separate patent portfolios
comprising several hundred patents related to information
technology. As of 31 December 2016, the Company had received
proceeds totalling US$1.7 million on an investment of US$1.3
million. In March 2017, additional proceeds of US$890,000
were received bringing total proceeds received on this investment
to US$2.6 million and finalising the Company's interest in
the case.
SPV investments
In early 2014, we identified a changing patent market whereby
value was maximised by developing operating entities around a
portfolio of patents. We identified several existing patent
investments in which the underlying patents were at risk of not
realising their full potential. Working with subject matter
experts, new inventions were developed with the intention of
obtaining patents, developing commercial applications, and
monetising each SPV through litigation or other commercial
strategies. These investments were funded through SPVs in order to
facilitate monetisation of each developed entity.
A total of four SPVs were created. Three of these SPVs were
developed around existing core patents. The fourth SPV was
developed in partnership with the National Football League's
Players Association ("NFLPA").
SPV summaries:
-- Rich Media: This investment originated with litigation involving
an underlying patent for which the Company previously has
received proceeds. In 2014, we began to develop a portfolio
of related patents in the areas of rich media and multimedia.
The inventor of the patent that was the subject of the original
litigation, along with other subject matter experts, developed
25 additional inventions all of which were filed as patent
applications in early 2016. At 31 December 2016, no patents
had yet completed their review by the United States Patent
and Trademark Office ("USPTO"). We are working with the original
inventor to monetise the SPV.
-- ACK / Smooth3D: This investment consisted of three components:
o The investment originated with litigation that resulted
in a judgment of liability but low damages and which
provided no proceeds to the Company. During 2015, the
case had progressed to the point where we determined
that there was no prospect of generating any proceeds
from the original litigation and no value has been assigned
to the litigation component.
o During 2014, we worked with the inventor of the patents
that were the subject of the original litigation and
other subject matter experts to develop a portfolio of
related inventions with the intention of procuring patents.
In early 2016, it was determined that the underlying
inventions had no commercial value and all work on these
inventions has ceased. The remaining cash in the SPV
(approximately US$330,000) was transferred back to the
Company.
o As collateral for the Company's original investment in
the litigation, JIL received an equity interest in a
company that has developed energy-saving software for
electrical motors. The energy-saving software continues
to be tested by a major industrial conglomerate. During
the year ended 31 December 2016, JIL exchanged its equity
interest in the company for a note subject to agreed
discounts if redeemed early. The redemption discounts,
along with other risk factors, have been factored into
the Company's reported fair value for this investment
at 31 December 2016.
-- GrandiOS: This investment consists of two components:
o The investment originated with litigation surrounding
core computer technology. Although prior settlements
have provided the Company with some small return, during
the year ended 31 December 2016 we learned of new hurdles
related to the original litigation which we believe put
severe doubt on the ability of the Company to generate
any further proceeds. As such, the Company has no longer
assigned any value to the litigation component.
o The original investment included an interest in certain
mobile phone related patents. In 2014, we worked with
subject matter experts to develop a portfolio of patents
related to mobile phone technology and a total of 37
patent applications have been filed with the USPTO. At
31 December 2016, a total of 23 patents have either been
granted or been allowed by the USPTO. We continue to
market this developing portfolio of patents and inventions
to prospective buyers.
-- ProSports: This SPV was established to develop and monetise
a large portfolio of patents in the technology and sports
market. The Company has partnered with the NFLPA in this
endeavour. As of 31 December 2016, a total of 55 patent applications
have been filed with the USPTO. At 31 December 2016, a total
of 14 patents have either been granted or been allowed by
the USPTO. We continue to market this developing portfolio
of patents and inventions to prospective buyers.
Other investments:
The Company began 2016 with four investment that are not
directly related to litigation and are not specific to a particular
SPV. During 2016, one of these investments, Investment 1610, was
written off (as detailed above) leaving three active investments as
of 31 December 2016, that are not directly related to litigation
and are not specific to a particular SPV. These are detailed
below:
-- Investment 7313: As part of the Company's 2014 revised patent
strategy, the Company acquired a 7.8% preferred ownership
in ipCreate, Inc. ("ipCreate") with an expectation to monetise
this investment as part of future capital raising by ipCreate.
In the second half of 2016, ipCreate underwent a restructuring
that severely diluted the Company's interest. The valuation
of this investment at 31 December 2016 reflects this dilution.
-- Investment in JCML 2007: At admission of the Company's shares
to AIM on 21 December 2007, the Company acquired 15 per cent
(subsequently diluted to 13.6 per cent) of JCML 2007 for
US$2.9 million. In 2012, the Company acquired a further holding
in JCML 2007, its then investment manager, for US$4.3 million,
bringing its overall holding in JCML 2007 to 36.17%. As a
result of its interest in JCML 2007, the Company is entitled
to its percentage share of any performance fees paid to JCML
2007 as well as its percentage share of any assets distributed.
In 2015, the Company received dividend income of approximately
US$5.4 million from a combination of performance fees and
a distribution of the Company's shares held by JCML 2007.
No further performance fees are expected to be earned by
JCML and at 31 December 2016, the value attributable to JIL's
investment in JCML 2007 is based on the Company's share of
JIL stock still held by JCML 2007.
-- Investment 6609-S: Beginning in 2010, the Company made a
series of investments in a large, multi-party pre-litigation
settlement opportunity that we believed had the potential
to generate significant proceeds for the Company. This highly
complex investment had significant activity in 2016 with
increased prospect for a partial settlement to occur. However,
just prior to the end of 2016, these prospects had a significant
setback which has greatly increased the risk associated with
monetisation of the investment. At 31 December 2016, this
investment represented approximately US$250,000 of the Company's
NAV.
Outlook
We will continue to work with the Company's Board of Directors
to maximise shareholder value and to make distributions to
shareholders in the most appropriate manner, following the
completion of investments.
Disclaimer on Forward Looking Statements
This report contains forward looking statements, which are based
on the current expectations and assumptions of the Investment
Manager and involve known and unknown risks and uncertainties that
could cause actual results or performance to differ materially from
those expressed or implied in such statements. It is believed that
the expectations reflected in these statements are reasonable but
they may be affected by a number of variables that could cause
actual results or trends to differ materially. Each forward looking
statement speaks only as of the date of this report. Except as
required by the AIM Rules or otherwise by law, the Company and the
Manager expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in the Company's
or Manager's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
Brickell Key Asset Management Limited
31 March 2017
DIRECTORS' REPORT
FOR THE YEARED 31 DECEMBER 2016
The Directors present their report together with the audited
financial statements of Juridica Investments Limited (the
"Company") for the year ended 31 December 2016, with comparative
information for the year ended 31 December 2015.
Principal activities
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, GY1 2PF.
Corporate update
The investment objective of the Company had been to build a
diversified portfolio of investments in claims and to provide
shareholders with an attractive level of dividends and capital
growth through investing directly and indirectly in litigation and
arbitration cases, claims and disputes. These investments have been
made predominantly in the United States. On 18 November 2015, the
Company announced that it would not make new investments (other
than for funding existing investments in the Company's portfolio
where such funding is reasonably required to realise maximum
shareholder value) but, instead, would make distributions to
shareholders in the most appropriate manner following the
completion of investments.
Results and dividend
The results for the year are shown in the Statement of
Comprehensive Income on page 24. The Company declared a dividend of
8 pence per share on 19 May 2016 which was paid on 24 June 2016 to
shareholders on the register at 27 May 2016 and a dividend of 32
pence per share on 6 September 2016 which was paid on 30 September
2016 to shareholders on the register at 16 September 2016. These
dividends were funded by the cash proceeds of US$47.0 million from
settlements that were transferred to the Company during the
year.
Audit Committee
The Audit Committee consists of Richard Battey, Lord Daniel
Brennan and Kermit Birchfield. The Audit Committee is chaired by Mr
Battey, and meets to review the financial statements, audit
timetable, and other risk management and governance matters.
Statement of Directors' responsibilities in respect of financial
statements
The Directors are responsible for preparing financial statements
for each financial year which give a true and fair view, in
accordance with applicable Guernsey law and International Financial
Reporting Standards, of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
those financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained
in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. The work carried out by the
Auditor does not involve consideration of these matters and,
accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website. Legislation in the United
Kingdom and Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
To the best of our knowledge, and in accordance with the
applicable reporting principles, the financial statements give a
true and fair view of the assets, liabilities, financial position,
comprehensive income and cash flows of the Company, although there
is uncertainty around valuation of the Company's investments in the
absence of an established market. The Investment Manager's report
includes a fair review of the development and performance of the
business and the position of the Company, together with a
description of the principal opportunities and risks associated
with the expected development of the Company.
Furthermore, to the best of our knowledge and belief, this
annual report includes a fair review of the development and
performance of the business and the position of the Company as at
31 December 2016 together with a description of the principal risks
and uncertainties that the Company faces.
Auditor confirmation
Each of the Directors, at the date of approval of the financial
statements, confirms that:
1. So far as the Director is aware, there is no relevant audit
information of which the Group's auditor is unaware; and
2. Each Director has taken all steps he ought to have taken to
make himself aware of any relevant audit information and to
establish that the Company's auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of The Companies
(Guernsey) Law, 2008.
Independent Auditor
The Auditor, PricewaterhouseCoopers CI LLP, have expressed their
willingness to continue in office and a resolution for their
re-appointment will be proposed at the forthcoming Annual General
Meeting.
Continuation and going concern
In accordance with the Company's Admission Document of 17
December 2007, the Directors convened an extraordinary general
meeting of the Company, on 14 November 2013, at which a resolution
was proposed (as required) that the Company be wound up
voluntarily. The resolution was not passed by the Company's
members.
The Company's members resolved to remove the requirement to
convene an extraordinary general meeting for the voluntary wind-up
of the Company every three years from the date of the original
meeting, at the Annual General Meeting held on 10 May 2016.
Although the Company is in a run-off strategy, the Directors
have given consideration to the maturity of the Company's existing
portfolio, the performance of the portfolio to date, the prospects
of expected future cash flows, and existing cash reserves. In
addition, the Directors have reviewed the Company's budgets and
cash flows for the year ahead and, accordingly, are satisfied on
reasonable grounds that it is appropriate to prepare these
financial statements on a going concern basis.
Approved by the Board of Directors on 31 March 2017 and signed
on their behalf:
RJ Battey
Director
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED
FOR THE YEARED 31 DECEMBER 2016
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of Juridica Investments Limited (the
"Company") as at 31 December 2016, and of its financial performance
and its cash flows for the year then ended in accordance with
International Financial Reporting Standards and have been properly
prepared in accordance with the requirements of The Companies
(Guernsey) Law, 2008.
What we have audited
The Company's financial statements comprise:
-- the statement of financial position as at 31 December 2016;
-- the statement of comprehensive income for the year then ended;
-- the statement of changes in equity for the year then ended;
-- the statement of cash flows for the year then ended; and
-- the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("IESBA Code"). We have
fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
Our audit approach
Overview
Materiality -- Overall materiality for the Company was $0.7 million which
represents 2.5% of net assets
Audit scope -- The Company is based in Guernsey with the Investment Manager
located in the United States of America. The financial statements
consist of the parent company and a number of subsidiary
investments held at fair value and not consolidated.
-- We conducted the majority of our audit work in Guernsey,
with a visit to the Investment Manager to discuss the portfolio,
obtain supporting documentation and also to hold discussions
with the underlying lawyers for each of the investments.
Key audit matters -- Valuation of investments
-- Realisation of investments
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Our understanding of the controls environment was informed by
our review of the controls report available on Vistra Fund Services
(Guernsey) Limited ("the Administrator") as well as our visit to
the Investment Manager in The United States of America, however our
approach remained predominantly substantive in nature.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole as set
out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Company materiality $0.7 million
------------------------------- --------------------------------------
How we determined it 2.5% of Net Assets
------------------------------- --------------------------------------
Rationale for the materiality We believe that net assets is
benchmark the most appropriate benchmark
because, being an investment
fund, we believe this to be the
key metric of interest to investors.
It is also a generally accepted
measure used for companies of
a similar structure within the
same industry.
------------------------------- --------------------------------------
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $35,000 as well as
misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key audit matter How our audit addressed the Key audit
matter
Valuation of Investments Our audit of the investment valuation
We draw your attention was fully substantive in nature and
to Notes 2(d), 3 and 15(a) focused on understanding the portfolio
to the financial statements movements during the year and validating
surrounding the fair value the significant assumptions driving
of non-current assets. the fair value model for each investment.
The financial statements
include non-current assets We selected a sample of investments
stated at their fair value from across the portfolio based on
of US$19,024,625. our materiality level. For each investment
selected, we agreed the valuation model
The Company's investment for mathematical accuracy, considered
portfolio is split between the appropriateness of the methodology
contractual interests, used and the consistency of the model
equity investments and with prior years.
debt securities and constitutes
a significant element of Contractual interests
the financial statements. For contractual interests, we met with
the lawyers involved in the underlying
The investments are highly litigation to ascertain key developments
complex and include but and the expected future outcome of
are not limited to interests each case. We compared these findings
in intellectual property, to our previous knowledge, our conversations
patents and active litigation. with management, the fair value models
Investments are either prepared by management and supporting
held directly or through documentation, where available.
a Special Purpose Vehicle
("SPV"), and are measured We also considered the professional
at fair value. competency and objectivity of the lawyers
involved in each case.
Fair value is determined
through using models which Equity investments
take into account various For patent investments held by the
inputs. SPVs, we corroborated the assumptions
in the valuation of the patent portfolios
The level of subjectivity through discussion with the patent
involved, and the significance development manager. The assumptions
of the investments balance included the status of each underlying
in the statement of financial patent application, the probability
position, meant that this of successfully filing and monetising
was a key audit matter the patent and the associated impact
for us. on the estimated net future cash flows.
We also agreed a sample of successful
The key assumptions used patent applications to the US patent
in the fair value model register to confirm their ownership
include but are not limited by the Company.
to:
Due to the published realisation policy,
* Forecasting future expected developments in management revised some of the assumptions
litigation cases; and expectations applied to the valuation
of the SPVs carrying these investments
from the prior year. This resulted
* Forecasting timings, amounts and probability of in a significant net decrease in the
future cash flows; fair value of these investments. We
understood and validated the current
year assumptions and expectations with
* Considering amounts that may be paid by market reference to the directors' stated
participants to purchase the investment; and realisation strategy as documented
in the statutory minutes of the Company
and through discussion with management.
* Estimating future tax liabilities that may be
incurred at the investment level. We compared the assumed aggregated
price per patent applied by management
at a portfolio level to available market
Valuing these investments information within similar industries
therefore requires significant for reasonableness.
judgement by management.
Debt securities
The significant unobservable input
in the calculation of debt securities
was the estimated tax liability to
be incurred on gross settlement proceeds
receivable. We obtained the model prepared
by management estimating future settlement
proceeds to be received net of expected
tax liabilities deducted at the investment
level. Our testing involved agreeing
tax rates used within the model to
statutory rates applicable in the United
States and considering the reasonableness
of prior year estimates made by management
in light of proceeds received during
the year.
Conclusion
During the performance of our procedures,
we noted some observations on the fair
valuations derived by management which
have subsequently been rectified. In
our view, those observations were not
indicative of a wider issue. We continue
to emphasise however that due to the
inherent uncertainty associated with
the valuation of the investments and
the absence of a liquid market, the
fair values may differ from their realisable
values, and the differences could be
material.
Realisation of Investments Our audit testing focussed on the criteria
Realised gains and losses required to recognise a realisation.
and disposal proceeds from We challenged management to ensure
investments are disclosed that any realisations are appropriately
in Note 5 to the financial related to 'disposals' and also whether
statements. any other investments should be realised
where a decision has been made to no
The realisation of investments longer invest / pursue. Our work in
is also determined to be this area consisted of corroborating
a key audit matter as legal board minutes, discussions with the
agreements exist that contain board of directors and the Investment
complex distribution hierarchies Manager and considering the results
governing the payment of of our interviews with the case lawyers.
proceeds to the Company.
Where the de-recognition criteria was
In addition, the esoteric met, we understood and recalculated
nature of the legal agreements the associated distribution hierarchy
creates uncertainty over governing payments in line with the
the de-recognition of investments, relevant agreements up from the underlying
the rights to any future gross proceeds through to the Company.
proceeds that may be generated This included assessing any amounts
and whether the Company held back for future tax liabilities
is entitled to those proceeds (see Valuation of Investments above).
following a decision to
no longer invest in that We tested the mathematical accuracy
investment. of the realised gains and losses in
the year by tracing the historic cost
Proceeds received from of the investments to the original
the realisation of investments investment amount. Where proceeds were
for the year ended 31 December received we agreed the amounts to cash
2016 is material, with receipts to verify the net loss of
a significant realised $10,417,718 in the statement of comprehensive
loss recognised only on income.
the contractual interests
asset class. Where significant judgment was used,
we have reviewed the disclosures of
Recognising a realisation the financial statements to ensure
is not always a straightforward these judgements are sufficiently disclosed.
process, as there is no
physical asset or note/shares Conclusion
that are being disposed Judgements made by management over
of. In many cases, there the de-recognition of investments and
are cash receipts received the calculation of realised gains and
yet an interest in the losses are deemed to be reasonable.
investment remains but
the extent of that interest
continues to be uncertain.
Other information
The directors are responsible for the other information. The
other information comprises the Corporate Information, the
Chairman's Statement, the Investment Manager's Report, and the
Directors' Report (but does not include the financial statements
and our auditor's report thereon).
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements 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
statements
The directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards, the requirements of
Guernsey law and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company'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 Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are 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 ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, 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 Company'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 director's 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
Company'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 statements 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 Company to cease
to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
We communicate with those charged with governance 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 those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period 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 other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations
we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting
records.
We have no exceptions to report arising from this
responsibility.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Joanne Peacegood
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
31 March 2017
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2016
2016 2015
--------------------- ---------------------
Notes US$ US$
INCOME
Finance income 1,029 -
Dividend income 14(b) - 5,369,711
Foreign exchange gain - 805,211
1,029 6,174,922
--------------------- ---------------------
EXPENSES
Management fees 14(a) 3,000,000 4,795,036
Due diligence and transaction costs 2(e) 65,723 477,111
Directors' fees and expenses 14(f) 345,953 599,549
Audit fees 156,569 233,383
Legal and professional expenses 199,639 212,109
Administration fees 14(e) 151,593 242,209
Foreign exchange loss 233,179 -
Other expenses 339,015 498,813
4,491,671 7,058,210
--------------------- ---------------------
INVESTMENT MOVEMENTS
Amortisation of intangible asset 4 (1,069,398) (829,070)
Impairment of intangible asset 4 (1,078,011) -
Realised (losses)/gains on financial
assets and financial liabilities
at fair value through profit or
loss 5 (10,417,718) (369,946)
Movement in unrealised loss on
financial assets and financial
liabilities at fair value through
profit or loss 5 (20,257,942) (47,073,882)
Impairment of settlement proceeds 8 (533,171) -
(33,356,240) (48,272,898)
--------------------- ---------------------
Total comprehensive loss for the
year (37,846,882) (49,156,186)
===================== =====================
Deficit per Ordinary Share 17
Basic Cents (34.30) (44.49)
Diluted Cents (34.16) (44.31)
The notes on pages 28 to 49 form an integral part of these
financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
2016 2015
--------------------- ------------------
Notes US$ US$
ASSETS
Non-current assets
Intangible assets 4 111,387 2,058,796
Financial assets at fair value
through profit or loss 5 18,913,238 90,777,677
19,024,625 92,836,473
--------------------- ------------------
Current assets
Other receivables and prepayments 8 4,167,210 6,207,781
Cash and cash equivalents 5,017,077 27,384,242
9,184,287 33,592,023
--------------------- ------------------
TOTAL ASSETS 28,208,912 126,428,496
===================== ==================
EQUITY AND LIABILITIES
Equity
Treasury shares 13 - (645,459)
Reserves 13 28,036,878 126,783,917
Total assets attributable to ordinary
shareholders 28,036,878 126,138,458
--------------------- ------------------
Current liabilities
Other payables 10 172,034 290,038
Total liabilities 172,034 290,038
--------------------- ------------------
TOTAL EQUITY AND LIABILITIES 28,208,912 126,428,496
===================== ==================
Number of ordinary shares (excludes treasury
shares) 110,340,019 110,340,019
Net asset value per ordinary share 16 $0.2541 $1.1432
These financial statements were approved and authorised for
issue by the Board of Directors on 31 March 2017 and signed on its
behalf by:
RJ Battey
Director
The notes on pages 28 to 49 form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2016
Reserves Treasury Shares Total
--------------------- --------------------- ---------------
Notes US$ US$ US$
Balance at 1 January 2015 184,158,780 - 184,158,780
Changes in equity for
2015
Loss for the year (49,156,186) - (49,156,186)
Total comprehensive loss (49,156,186) - (49,156,186)
Treasury shares acquired - (645,459) (645,459)
Dividends declared (8,218,677) - (8,218,677)
Balance at 31 December
2015 126,783,917 (645,459) 126,138,458
===================== ===================== ===============
Changes in equity for
2016
Loss for the year (37,846,882) - (37,846,882)
Total comprehensive loss (37,846,882) - (37,846,882)
Dividends declared 9 (60,254,698) - (60,254,698)
Treasury shares cancelled (645,459) 645,459 -
Balance at 31 December
2016 28,036,878 - 28,036,878
===================== ===================== ===============
The notes on pages 28 to 49 form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2016
2016 2015
-------------------- ---------------------
US$ US$
Cash flows from operating activities
Loss for the year (37,846,882) (49,156,186)
Adjusted for:
Realised losses on financial assets and
financial liabilities at fair value through
profit or loss 10,417,718 369,946
Movement in unrealised losses on financial
assets and financial liabilities at fair
value through profit or loss 20,257,942 47,073,882
Impairment of intangible asset 1,078,011 -
Amortisation of intangible assets 1,069,398 829,070
Finance income (1,029) -
Impairment of settlement proceeds 533,171 -
Foreign exchange losses / (gains) 233,179 (805,211)
Changes in working capital
Purchases of non-current assets at fair
value through profit or loss (30,574,299) (38,417,376)
Settlement of non-current assets and financial
liabilities at fair value through profit
or loss 72,301,200 98,570,910
Decrease / (increase) in other receivables
and prepayments 769,278 (697,681)
(Decrease) in other payables and performance
fee (118,004) (15,555,250)
Net cash flow from operating activities 38,119,683 42,212,104
Cash flows from investing activities
Interest received 1,029 -
Net cash flow from investing activities 1,029 -
-------------------- ---------------------
Cash flows from financing activities
Dividends paid (59,017,109) (42,710,577)
Net cash flow from financing activities (59,017,109) (42,710,577)
Net decrease in cash and cash equivalents (20,896,397) (498,473)
-------------------- ---------------------
Cash and cash equivalents at the beginning
of the period 27,384,242 27,962,963
Effect of foreign exchange rate changes (1,470,768) (80,248)
Cash and cash equivalents at the end of
the period 5,017,077 27,384,242
==================== =====================
The notes on pages 28 to 49 form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2016
1. LEGAL FORM AND PRINCIPAL ACTIVITY
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, Channel Islands, GY1 2PF.
The investment objective of the Company had been to build a
diversified portfolio of investments in claims and to provide
Shareholders with an attractive level of dividends and capital
growth through investing directly and indirectly in litigation and
arbitration cases, claims and disputes. These investments have been
made predominantly in the United States. On 18 November 2015 the
Company announced that it would not make new investments (other
than for funding existing investments in the Company's portfolio
where such funding is reasonably required to realise maximum
shareholder value) but, instead, would seek to return capital to
shareholders in the most appropriate manner following the
completion of investments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
(a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and all applicable requirements of The Companies
(Guernsey) Law, 2008. They have been prepared on a going concern
basis, under the historical cost convention as modified by the
revaluation of financial assets and financial liabilities at fair
value through profit or loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's accounting policies. The areas
involving a degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 3.
There have been no new IFRS or IFRIC interpretations that are
effective for the first time for the financial year beginning 1
January 2016, which have had a significant effect on the
Company.
For the financial year beginning 1 January 2013, the Company
early adopted IFRS 9 'Financial instruments', effective for periods
beginning on or after 1 January 2018.
The following IFRS standards or interpretations have been issued
but are not yet effective, and have not been adopted by the
Company:
-- Amendments to IFRS 9 'Financial Instruments' effective for
periods commencing on or after 1 January 2018. This IFRS
introduces a new approach to the classification of financial
assets, which is driven by the business model in which the
asset is held and their cash flow characteristics.
-- Amendment to IAS 7 'Statement of Cash Flows', effective for
periods commencing on or after 1 January 2017. Amendments
requiring entities to disclose information about changes
in their financing liabilities ; and
-- Annual Improvements 2014 -2016 Cycle, effective for periods
commencing on or after 1 January 2017.
The adoption of the above standards is not anticipated to have
any significant bearing on the Company's financial statements.
In accordance with the Company's Admission Document of 17
December 2007, the Directors convened an extraordinary general
meeting of the Company, on 14 November 2013, at which a resolution
was proposed that the Company be wound up voluntarily. The
resolution was not passed by the Company's members.
Although the Company is under a run-off strategy, the Directors
have given consideration to the maturity of the Company's existing
portfolio, the performance of the portfolio to date, the prospects
of expected future cash flows, and existing cash reserves. In
addition, the Directors have reviewed the Company's budgets and
cash flows for the year ahead and, accordingly, are satisfied on
reasonable grounds that it is appropriate to prepare these
financial statements on a going concern basis.
(b) Investment entity
The Company has multiple unrelated investors and indirectly
holds multiple investments through the subsidiary companies.
Ownership interests in the Company are in the form of redeemable
shares which are classified as equity in accordance with IAS 32 and
which are exposed to variable returns from changes in the fair
value of the Company's net assets. The Company has been deemed to
meet the definition of an investment entity per IFRS 10, and
therefore does not prepare consolidated financial statements, as
the following conditions exist:
(a) The Company has obtained funds for the purpose of providing
investors with investment management services.
(b) The Company's business purpose, which was communicated
directly to investors, is investing solely for returns from capital
appreciation and investment income.
(c) The performance of investments made through the Company are
measured and evaluated on a fair value basis.
(c) Geographical and segmental reporting
Since the Company is engaged in the provision of similar
products and services within a particular economic environment,
being subject to similar risks and returns, management considers
that the Company has only one business segment and geographical
focus, being investments in legal claims primarily in the United
States ("US"), and accordingly does not present additional business
and geographical segment information. The Investment Manager is
responsible for the investment decisions for the Company's entire
portfolio and considers the business to have a single operating
segment. The Investment Manager's asset allocation decisions are
based on a single, integrated investment strategy, and the
Company's performance is evaluated on an overall basis.
(d) Financial assets at fair value through profit or loss
(i) Contractual interests
Classification
Unless otherwise determined by the Company, investments in
claims will be categorised as contractual interests held at fair
value through profit or loss. These financial assets will initially
be measured as the cash sum provided to acquire an interest in a
plaintiff's claim or as the cash advanced to law firms under loan
agreements. Attributable due diligence costs are expensed when they
occur.
Recognition, derecognition and measurement
Subsequent measurement of contractual interests will be at fair
value utilising a fair value model developed by the Investment
Manager. The principal assumptions to be used in the fair value
model are as follows:
-- Estimated duration of each contractual interest; and
-- Best estimate of anticipated outcome.
Movements in fair value arising on all performing contractual
interests is recognised in the Statement of Comprehensive Income,
as determined by utilising the fair valuation model.
The fair value model is a way of calculating the fair value of a
financial asset or liability and of recognising the fair value
gains and losses in that period.
Fair value estimation
Fair value will be reviewed semi-annually on an individual case
basis. Events that will trigger changes to the fair value of each
contractual interest include the following:
-- Changes in general US dollar interest rate assumptions (market
assumption) and the time value of money;
-- Changes in any variable relating to a claim including: assessment
of probability of successful judgement; range of settlement
or award; expected timing until claim resolution; and extrinsic
risks related to a claim;
-- Successful judgement of a claim in which the Company has
a contractual interest;
-- Unsuccessful judgement of a claim in which the Company has
a contractual interest;
-- Outstanding appeals against both successful and unsuccessful
judgements;
-- A contractual interest to be sold at a discount or to be
settled out of Court by a binding agreement;
-- Legal impediments to collectability of claims (in the US
Chapter 7 Bankruptcy or Chapter 11 Court Protection from
Creditors); and
-- A case is dismissed with prejudice (meaning, it can never
be re-filed anywhere).
Partial settlement
Partial settlement of contractual interests occurs when one or
more parties, but not all parties, involved in the matter agree to
terms on a settlement amount. Proceeds received by the Company are
allocated between return of original principal and any gain based
on the following process:
-- Proceeds are discounted at a rate equal to the Company's
cost of equity;
-- This discounted value represents the portion of proceeds
attributable to a return of investment with the remainder
representing a gain associated with the partial settlement;
and
-- The amount representing the gain is then compared against
any prior gain recognised on the portion of the proceeds
attributed to a return of investment (calculated by using
the fair valuation model) with the difference reflected as
current year realised gain or loss.
Full settlement
Full settlement of contractual interests occurs when all parties
involved in the matter agree to terms on a settlement amount or the
full legal process has concluded with either proceeds being awarded
or dismissal (no proceeds awarded). Proceeds received by the
Company are first allocated to the return of any remaining
principal with the remainder allocated to gain. The amount
representing the gain is then compared against any prior gain
recognised on the portion of the proceeds attributed to a return of
investment (calculated by using the fair valuation model) with the
difference reflected as current year realised gain or loss.
(ii) Equity investments
Classification
The Company classifies its equity investments at fair value
through profit or loss at inception. These financial assets will
initially be measured as the cash sum provided to acquire the
investment. Attributable due diligence costs are expensed when they
occur.
Equity investments are intended to be held for an indefinite
period of time, and that may be sold in response to needs for
liquidity or changes in interest rates, exchange rates or equity
prices. The Company could be seen to have significant influence
over certain of its equity investments as a result of its stake in
each of those assets. If significant influence exists, that
investment, under IFRS, should be accounted for as an 'Associate'
and hence the equity accounting method should be applied. However,
the Board has taken the view that (a) there is no material
difference in accounting for these investments as associates and
accounting for them as financial assets at fair value; (b) there is
no material difference in the disclosure; and (c) the strategy of
the Company is to hold investments as part of an investment
portfolio with a view to the ultimate realisation of capital gains
rather than as a medium to carry out its own business, hence
accounting for these investments as non-current assets is the most
appropriate method.
Recognition, derecognition and measurement
Equity investments will initially be measured at cost and are
subsequently carried at fair value. Gains and losses arising from
changes in the fair value are recognised in the Statement of
Comprehensive Income.
Fair value estimation
The assessment of fair value is determined by the level of
assets of the investments (including intellectual property), the
quality of income and earnings and the present value of future cash
flows of the equity investments, discounted at the cost of equity.
The estimates and assumptions made by the Investment Manager in
determining this fair value have been outlined in Note 3.
Settlement
When equity investments are sold or impaired, the movement in
fair value will be recognised in the Statement of Comprehensive
Income.
(iii) Debt securities
Classification
Debt security investments are classified at fair value through
profit or loss at inception. These financial assets will initially
be measured as the cash sum advanced to the law firm.
Recognition, derecognition and measurement
The debt security investments will initially be measured at cost
and are subsequently carried at fair value. Gains and losses
arising from changes in the fair value are recognised in the
Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the present value of future cash
flows, at the discount rate of the Company. The estimates and
assumptions made by the investment manager in determining this fair
value have been outlined in Note 3.
Settlement
When debt security investments are sold, the movement in fair
value will be recognised in the Statement of Comprehensive
Income.
(iv) Forward foreign currency contracts
Classification, recognition, derecognition and measurement
Forward foreign currency contracts are classified as financial
instruments at fair value through profit or loss at inception. They
will initially be measured at the contractual amount at the date
the contract is entered into. Accordingly, only gains and losses
arising from changes in the fair value are recognised in the
Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the foreign currency exchange rate
prevailing at that date.
Settlement
Settlement will occur at the date the contract is due to expire.
Gains and losses on the settlement of the contracts will be
recognised as realised gains or losses at this time in the
Statement of Comprehensive Income.
(e) Due diligence and transaction costs
The due diligence and transaction costs attributable to
investments in contractual interests, equity investments and debt
securities, and any other due diligence and transaction costs not
directly relating to an investment, have been expensed immediately
in the Statement of Comprehensive Income.
Due diligence and transaction costs associated with investments
characterised as intangible assets are expensed until such time as
the following has been affirmed: i) the technical feasibility of
completing the intangible so that it will be available for use or
sale; ii) the intention to complete the intangible asset and use or
sell it; iii) the ability to use or sell the intangible asset; iv)
how the intangible asset will generate probable future economic
benefits; v) the availability of adequate technical, financial and
other resources to complete the development and to use or sell the
asset; and vi) the ability to measure reliably the expenditure
attributable to the intangible asset during its development, at
which time they are capitalised as an intangible asset and held at
cost less accumulated amortisation and any impairment loss.
(f) Foreign currency
Functional and presentation currency
Items included in the financial statements are measured using
the currency of the primary economic environment in which the
entity operates (the "functional currency"). The functional
currency of the Company as determined in accordance with IFRS is
the United States Dollar ("US Dollar") because this is the currency
that best reflects the economic substance of the underlying events
and circumstances of the Company. The financial statements are
presented in US Dollars, the presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
(g) Finance income
Finance income arising on cash and cash equivalents is
recognised in the Statement of Comprehensive Income on the
effective interest basis.
(h) Cash and cash equivalents
Cash and cash equivalents comprised of cash balances and
deposits held at banks with a maturity profile of 3 months or
less.
(i) Taxation
The Company has obtained exempt company status in Guernsey. The
Company is, therefore, only liable to an annual exemption fee of
GBP1,200 (2015: GBP1,200). The Company's subsidiaries are subject
to income tax in their respective jurisdictions.
To the extent that any foreign withholding taxes or any form of
profits taxes become payable, these will be accrued on the basis of
the event that created the liability to taxation.
(j) Expenses
Expenses are accounted for on an accruals basis. Expenses for
monitoring claims will generally be paid by the Investment Manager
except in extraordinary circumstances approved by the Board of
Directors of the Company.
(k) Dividends
Dividends declared during the period will be disclosed directly
in equity via the Statement of Changes in Equity. A final dividend
proposed by the Board and approved by the shareholders prior to the
year-end will be disclosed as a liability. Dividends proposed and
not approved will be disclosed in the Notes.
(l) Other receivables and prepayments
Other receivables and prepayments are recognised initially at
fair value and subsequently measured at cost less provision for
impairment.
(m) Other payables
Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
(n) Capital and reserves
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in
equity via the reserves as a deduction from the issue proceeds.
Where the Company purchases the Company's own equity share
capital (treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the Company's equity holders
until the shares are cancelled or reissued. Where such ordinary
shares are subsequently reissued, any consideration received, net
of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to
the Company's equity holders. Where such ordinary shares are
cancelled their value is transferred to reserves.
(o) Intangible asset
Where the Company has entered into an agency agreement involving
licensing of intellectual property, the resulting transaction will
be categorised as an intangible asset (see Note 4). The cost of the
intangible asset will be capitalised once it is possible to
demonstrate that the intangible asset will generate probable future
economic benefit. Intangible assets will be held at cost less any
accumulated amortisation and any accumulated impairment losses.
Amortisation will be on a systematic basis over the asset's useful
life.
(p) Impairment of intangible assets
The carrying amounts of intangible assets are assessed on a
semi-annual basis to determine whether there is any indication of
impairment. If such indication exists, the Company estimates the
recoverable amount of the asset, being the higher of the asset's
net selling price and its value in use. Any impairment loss is
recognised for the amount which the asset's recoverable amount is
lower than its carrying value and the difference being taken to the
Statement of Comprehensive Income.
The Company first assesses whether objective evidence of
impairment exists. In assessing value in use, the estimated future
cash flows are discounted to their present value using the discount
rate that reflects current assessment of the time value of money
and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
The amount of the loss is measured as the difference between the
asset's carrying amount and the present value of estimated future
cash flows. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the Statement of Comprehensive
Income.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the reversal of the
previously recognised impairment loss is recognised in the
Statement of Comprehensive Income. In the year ended 31 December
2016 an impairment of US$1.1 million was determined and is
reflected in the Statement of Comprehensive Income (2015:
US$Nil).
(q) Share-based payments transactions
The Company engages in equity settled share-based payment
transactions in respect of the services received from one of its
Directors and from Cenkos Securities PLC ("Nominated Adviser and
Broker") as set out in the Company's Admission Document. The fair
value of the services received is measured by reference to the fair
value of the shares or share options granted on the date of the
grant. The fair value of the share options is recognised in the
Statement of Comprehensive Income over the period that the services
are received, which is the vesting period.
The fair value of the options granted is determined using the
Black-Scholes option pricing model, which takes into account the
exercise price of the option, the current share price, the risk
free interest rate, the expected volatility of the share price over
the life of the option and other relevant factors. Except for those
which include terms relating to market conditions, vesting
conditions included in the terms of the grant are not taken into
account in estimating the fair value.
Non-market vesting conditions are taken into account by
adjusting the number of shares or share options included in the
measurement of the cost of the services so that, ultimately, the
amount recognised in the Statement of Comprehensive Income reflects
the number of vested shares or share options. Where vesting
conditions are related to market conditions, the charges for the
services received are recognised regardless of whether or not the
market conditions-related vesting condition is met, provided that
the non-market vesting conditions are met.
(r) Earnings/deficit per share
The basic earnings/deficit per share value is calculated by
taking the total comprehensive income/loss for the period and
dividing it by the weighted average number of ordinary shares in
issue over the period. The diluted earnings per share figure is
calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential
ordinary shares (see Note 17).
(s) Net asset value per share
Net asset value per share is calculated by taking the net assets
attributable to ordinary shareholders and dividing it by the number
of shares in issue at the year-end (see Note 16).
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Investment Manager makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities are
outlined below.
Critical accounting judgements in applying the Company's
accounting policies
The Company makes investments in claims that may involve
litigation. The nature of the investments made by the Company
reduces by some predetermined amount the cost of litigating a
matter to a plaintiff and/or a law firm. A typical investment by
the Company will include cash and may also include cash commitments
subject to certain restrictions. In most arrangements, the Company
is paid only from proceeds generated from the litigation and any
related settlement or award. If a lawsuit fails to generate any
proceeds and all legal remedies are exhausted, the Company will
often not be entitled to reimbursement of the facility they
advanced to the counterparty for the specific claim. In these cases
the Company will write off their investment in the claim as a loss.
The Company is compensated for this risk through the return
structure built into the investment. The Company mitigates this
risk through the use of their Investment Manager which is
experienced in evaluating the investment worthiness of a particular
opportunity.
In the process of applying the Company's accounting policies,
which are described in Note 2, the Directors have reviewed the
Investment Manager's assessment of the fair value of contractual
interests including the probability of success on the merits of
each claim, likelihood of settlement and claim duration. This is
most evident in the assessment of the fair value applied to
contracts entered into by the Company, as disclosed in Note 5.
To determine the appropriate fair value to apply to each
contract, the Investment Manager follows a formal process of
developing a set of scenarios for each case and assigns
probabilities to each potential outcome. The probabilities are
phased based on the expected progression path of each particular
case. In addition, each potential successful scenario has a range
of likely settlement proceeds assigned to it as well as a most
likely resolution or settlement date. The scenarios not only
incorporate the merits of each particular case but also consider
known risks intrinsic to the particular matter, as well as general
risks found in any litigation matter.
The Investment Manager then runs a Monte-Carlo method analysis
which dictates that the Investment Manager runs algorithms that
rely on random sampling based on the variables within each scenario
and their related probabilities. The results of the analysis
provide expected outcomes and other statistical data which is used
to calculate the future valuation of each particular contractual
interest. A discount rate is then applied to the future value to
determine the current fair value.
For certain of the Company's investments, the Investment Manager
determines fair value by developing a discounted cash flow model
incorporating various risk factors such as: quantum risk; timing
risk; execution risk; and for certain investments, consideration of
monetising an investment within a shortened development period
(following the Company's intention to seek resolution and
monetisation of the remaining investments if possible by the end of
2017).
Determining whether intangible assets are impaired requires an
estimation of the future cash flows of the intangible assets, and
the use of a suitable discount rate in order to calculate present
value. During the year, an impairment to the intangible asset was
recognised. The carrying amount of the intangible asset is shown in
Note 4.
4. INTANGIBLE ASSET
31 December 31 December
2016 2015
------------------- ---------------------
US$ US$
Balance at start of the year 2,058,796 2,647,866
Additions 200,000 240,000
Amortisation (1,069,398) (829,070)
Impairment of Intangible Asset (1,078,011) -
Balance at end of the year 111,387 2,058,796
=================== =====================
The Company's intangible asset comprises an investment
structured as an agency agreement. Additions to the intangible
asset during the first half of the year are deemed to have occurred
at 30 June 2016 and additions during the second half of the year
are deemed to have occurred at 31 December 2016. The Company
amortises the intangible asset on a straight-line basis so that the
balance is US$Nil by 31 December 2017. The Directors consider that
the straight-line basis of amortisation most accurately reflects
the pattern in which the asset's future economic benefits are
expected to be consumed by JIL.
In addition, the Company purchased common and preferred stock
related to the intangible asset, which has been classified as a
financial asset at fair value through profit or loss (Note 5).
As at 31 December 2016 the Intangible Asset and related common
and preferred stock was assessed to have a fair value of $250,000.
A provision for impairment of the Company's intangible asset has
been recognized accordingly.
5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2016
----------------------------------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair losses at
1 Jan value 31 Dec
2016 2016
------------------ ---------------- ---------------- ----------------- ------------- ----------------
Financial US$ US$ US$ US$ US$
assets
Contractual
interests 29,435,299 997,274 (748,210) (15,159,640) (6,733,161) 7,791,562
Equity
investments 5,950,296 100,000 - (1,744,063) (3,684,557) 621,676
Debt
securities 55,392,082 30,431,136 (71,968,979) (3,354,239) - 10,500,000
Total 90,777,677 31,528,410 (72,717,189) (20,257,942) (10,417,718) 18,913,238
================== ================ ================ ================= ============= ================
Financial
liabilities
Forward FX - - - - - -
Total - - - - - -
================== ================ ================ ================= ============= ================
31 December 2015
------------------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair gains at
1 Jan value 31 Dec
2015 2015
------------- ---------------- ------------- ------------- -------------- -----------
Financial assets US$ US$ US$ US$ US$
Contractual
interests 54,553,859 2,866,104 (24,117,413) (5,126,834) 1,259,583 29,435,299
Equity investments 12,963,078 468,328 - (7,481,110) - 5,950,296
Debt securities 82,544,923 35,000,000 (27,000,000) (35,152,841) - 55,392,082
Total 150,061,860 38,334,432 (51,117,413) (47,760,785) 1,259,583 90,777,677
============= ================ ============= ============= ============== ===========
Financial liabilities
Forward FX (686,903) - 1,629,529 686,903 (1,629,529) -
Total (686,903) - 1,629,529 686,903 (1,629,529) -
============= ================ ============= ============= ============== ===========
(a) Contractual interests
Fair value movements of contractual interests are due to
amendments in estimated cash flows arising from changes in
expectations surrounding each case. The valuation of the Company's
contractual interests decreased by approximately US$21.6 million
reflecting the net of US$1.0 million in additional investment
funding, US$0.7 million of disposal proceeds, US$6.7 million of
realised losses on disposals and US$15.2 million net decrease due
to each investment's individual change in fair value.
(b) Equity investments
The valuation of the Company's equity investments decreased by
US$5.3 million reflecting the net of US$0.1 million in additional
investment funding, US$3.7 million of realised loss due to the
write-off of one investment, and US$1.7 million net decrease due to
each investment's individual change in fair value.
The Company's equity investments include a holding in JCML 2007.
The fair value of the Company's investment in JCML 2007 was
assessed as at 31 December 2016 to be US$9,240 (2015: US$27,257).
This assessment of fair value is deemed appropriate given the
investment in the company, the level of assets, and the quality of
income and earnings and the projection of future cash flows.
(c) Debt securities
Historically the facility agreement with Fields Law (consisting
of a consolidated loan agreement and a swap agreement) have been
aggregated and treated as a single claim asset. Returns on the loan
and the swap are dependent on returns in claims financed by Fields
Law. In accordance with provisions under the swap, proceeds
previously paid by Fields Law to Riverbend can be clawed back by
Fields Law if needed to meet funding obligations within the
antitrust and competition portfolio or to prepay accrued interest
and principal if agreed to by Fields Law and the Company.
Additions to the Company's debt securities during 2016 totalled
US$30.4 million and consisted of the following: i) a clawback of
US$5.0 million paid to Fields Law to fund the underlying
investment; ii) a clawback of US$11.1 million paid to Fields Law
enabling Fields Law to prepay a portion of accrued interest and
principal owed under the loan; and iii) US$14.3 million enabling
Riverbend to fulfil its obligation under the swap and allowing for
Fields Law to pay all remaining accrued interest and principal on
the loan coinciding with the termination of the loan and swap.
During 2016, the Company received payments under the loan
totalling US$72.0 million consisting of: i) US$46.5 million from
proceeds received by Fields Law from settlements in the cases
financed through Fields Law; and ii) a total of US$25.4 million
paid by Fields Law from the US$11.1 million clawback of prior year
swap payments made to Riverbend and the US$14.3 million provided by
Riverbend fulfilling its obligation under the swap agreement and
allowing for Fields Law to pay all remaining accrued interest and
principal owed under loan. Subsequent to the receipt of these
funds, the loan and swap agreements were terminated and replaced
with termination agreements (see Note 14).
Fair value movements of debt securities are due to amendments in
estimated cash flows arising from changes in expectations
surrounding each investment. The fair value at 31 December 2016
includes an estimate of reserves that may be released by Fields Law
after filing of tax returns (expected to be no later than third
quarter 2017) and again after all contingencies are cleared
(expected to be no later than end of year 2020).
To the extent proceeds received by the Company in any year
exceeds the excess of the total prior unrealised gain, a realised
gain equal to the excess will be reflected in the financial
statements. At completion of the investment, any residual
unrealised gain or loss will be reclassified to a realised gain or
loss.
(d) Forward foreign currency contracts
The Company held no forward foreign currency contracts at 31
December 2016 (2015: none).
6. FAIR VALUE ESTIMATION
For instruments for which there is no active market and for
which reliable pricing sources cannot be obtained, the Company may
use internally developed models, which are usually based on
valuation methods and techniques generally recognised as standard
within the industry. Valuation models are used primarily to value
unlisted equity, debt securities and other debt instruments for
which markets are or have been inactive during the financial year.
Some of the inputs to these models may not be market observable and
are therefore estimated based on assumptions.
In response to the Company's run-off strategy, as part of the
fair value assessment of the Company's investments in the current
year, the potential likelihood of monetising certain investments
within a shortened development period has been considered.
The carrying value less impairment provision of other
receivables and payables are assumed to approximate their fair
values.
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from
prices) (level 2).
-- Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include equity investments. As observable prices are
not available for these investments, the Company has used valuation
techniques to derive their fair value.
All of the Company's other financial assets and liabilities are
classified as level 3. There were no transfers between levels for
the year ended 31 December 2016 (2015: Nil).
The Company has identified three key unobservable inputs to the
valuation model used in the valuation of investments held at fair
value through profit or loss: expected quantum, expected duration,
and cost of equity. Not all of these unobservable inputs are
applicable to every investment.
Expected quantum
The greater the quantum expected at conclusion, the greater the
valuation at any point in time. The reduction of the quantum
expected at conclusion, will reduce the valuation at any point in
time.
Expected duration
The greater the expected duration of an investment, the lower
the valuation at any point in time, other than at conclusion. The
reduction of the expected duration of an investment will increase
the valuation at any point in time, other than at conclusion.
Cost of equity
The Company's cost of equity is 11%. As the Company's cost of
equity decreases, the valuations at any point in time will
increase, other than at conclusion. As the Company's cost of equity
increases, the valuations at any point in time will decrease, other
than at conclusion.
The following table summarises the sensitivities:
Change in valuation
Unobservable Reasonable possible (due to +/- change
input shift (+/-) in input)
--------------- -------------------- --------------------
Quantum 10% 8.89% / (9.31%)
Timing 1 year (14.02%) / 6.55%
Cost of equity 3% (2.13%) / 2.66%
7. UNCONSOLIDATED SUBSIDIARY AND ASSOCIATE INVESTMENTS
The following subsidiary and associate investments are held by
the Company but have not been consolidated, following the
Investment Entities exemption per IFRS 10 (see Note 2 (b)):
% Share holdings
Date Country 31 December 31 December
incorporated of incorporation 2016 2015
---------------------- ------------ ------------
JCML 2007 Limited (#) 28-Nov-07 Guernsey 36.2% 36.2%
Riverbend Investments Limited 08-Oct-08 Guernsey 100.0% 100.0%
GrandiOs Technologies,
LLC 25-Feb-09 United States 100.0% 100.0%
Juridica Ventures KFT 02-Mar-09 Hungary 100.0% 100.0%
Juridica Ventures (US)
Inc. 31-May-09 United States 100.0% 100.0%
Escon Capital, Inc. (#) 26-Apr-10 United States 38.6% 38.6%
Spinal Spot LLC 28-Feb-11 United States 65.9% 65.8%
Spinal Ventures LLC 25-Mar-11 United States 100.0% 100.0%
Juridica Sports Technology
LLC 22-Apr-14 United States 100.0% 100.0%
ProSports Technologies,
LLC 22-Apr-14 United States 81.3% 81.3%
Juridica Kinetics, LLC
* 13-May-14 United States - 100.0%
Smooth 3D IP, LLC * 13-May-14 United States - 76.2%
Juridica RMIP Holdings,
LLC 31-Jul-14 United States 100.0% 100.0%
Rich Media Ventures, LLC 31-Jul-14 United States 86.6% 89.9%
Juridica Holdings LLC () 15-Jun-16 United States 100.0% -
Turtle Bay Technologies 22-Oct-08 United Kingdom 100.0% -
Limited ^
Eleven Engineering Game 05-Aug-09 United States 100.0% -
Control LLC
There are no outstanding commitments with these unconsolidated
subsidiaries and associates at the year end, other than those
disclosed in Note 11.
(#) JCML 2007 Limited and Escon Capital, Inc. are not
subsidiaries however, Juridica Investments Limited has a
significant interest in them.
(*) Juridica Kinetics, LLC and Smooth 3D IP, LLC were dissolved
during 2016.
() Juridica Holdings LLC, a Delaware limited liability company
formed and registered on 15 June 2016, is 100% owned by JIL. Its
only asset is a US$7.25 million note received in exchange for the
shares of AC Kinetics.
(^) Turtle Bay Technologies Limited, previously owned by JCML
2007, became 100% owned by JIL during 2016. Turtle Bay Technologies
Limited is the sole owner of Eleven Engineering Game Control
LLC.
8. RECEIVABLES AND PREPAYMENTS
31 December 31 December
2016 2015
-------------------- ------------------
US$ US$
Settlement proceeds 4,135,159 5,430,086
Management fees 366 719,549
Prepayments and accrued bank
interest 31,685 58,146
4,167,210 6,207,781
==================== ==================
Settlement proceeds has been reduced by US$533,171 to reflect
expected collectability of outstanding receivable.
9. DIVIDS
The following dividends were declared and paid during the
year:
Declaration Payment Dividend Total dividends
date date per share US$
19 May 2016 24 June 2016 8 pence 12,904,817
6 September
2016 30 September 2016 32 pence 47,349,881
----------------
60,254,698
================
During the year to 31 December 2016, dividends totalling
US$60,254,698 (2015: US$8,218,677) had been declared. No dividends
remained payable as at 31 December 2016 (2015: US$Nil).
10. OTHER PAYABLES
31 December 31 December
2016 2015
------------------ ---------------
US$ US$
Payable on investment purchases 9,460 28,735
Audit fees 59,216 196,495
Other creditors 103,358 64,808
172,034 290,038
================== ===============
11. COMMITMENTS & GUARANTEES
Under the terms of some of its contracts, the Company provides a
line of credit to counterparties. As at 31 December 2016, the
maximum commitment under these lines of credit was US$7,000 (2015:
US$7.3 million). A portion of commitment may be fulfilled from
investment returns.
12. FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES
The financial statements are presented in United States Dollar
("US$") which is also the Company's functional currency. The
following rate was applicable as at 31 December:
Closing rate
--------------------------
31 December 31 December
2016 2015
------------ ------------
US$ US$
British pounds (GBP) 1.2337 1.4734
============ ============
13. CAPITAL AND RESERVES
Authorised share capital: Unlimited number of ordinary shares of
no par value ("shares").
Issued share capital: 110,340,019 shares as at 31 December 2016
(2015: 110,701,754 shares).
Issuance of shares included 80,000,000 shares issued at a
premium of GBP1 per share on admission, and 30,701,754 shares
issued at a premium of GBP1.14 on 6 April 2009. On 4 June 2015, the
Company received 361,735 of its own shares as a result of an
in-specie dividend received from JCML 2007 at GBP1.16. During 2016
these shares were cancelled.
Under a Share Buyback Programme, the Company acquired 6,000,000
shares at a price of GBP1.02 per share on 3 November 2010 and the
Company also received 126,607 of its own shares subsequent to an
in-specie dividend received from the previous Investment Manager,
JCML 2007 on 27 November 2013. These shares were held in treasury,
however were subsequently sold for a premium at GBP1.39.
The Company's capital is represented by ordinary shares of no
par value and share premium. Each share carries one vote and is
entitled to dividends when declared. The relevant movements in
capital are shown on the statement of changes in equity through
reserves.
The Company has authority to make market purchases of up to
14.99 per cent of its own issued ordinary shares. This authority
was renewed at the annual general meeting of the Company held on 30
April 2014. A renewal of the authority to make purchases of
ordinary shares will be sought from Shareholders at each annual
general meeting of the Company. The timing of any purchases will be
decided by the Board.
14. RELATED PARTY TRANSACTIONS
Richard Battey, as investor representative and non-executive
director of the Company, is also a non-executive director of JCML
2007. The principal of JCML 2007 is Richard Fields, who owns
103,000 Ordinary Shares in the Company (0.09 per cent equity
interest) (2015: 103,000). JCML 2007 owns 118,254 Ordinary Shares
in the Company (0.107 per cent equity interest) (2015: 118,254
shares). Mr Fields was also sole beneficial owner of Juridica Asset
Management Limited ("JAML") until 11 January 2017.
(a) Management fee
The Investment Manager changed its name from Juridica Asset
Management Limited to Brickell Key Asset Management Limited
("BKAML") on 19 January 2017.
Previously, BKAML was entitled to a management fee of 2 per cent
of the adjusted net asset value of the Company.
The adjusted net asset value is the net asset value of the
Company at the relevant time and will be calculated, after accruing
for the annual management fee but not taking into account any
liability of the Company for accrued performance fees, and
after:
(i) deducting any unrealised gains on non-current assets; and
(ii) adding the amount of any write downs with respect to
contractual interests which have not been written off.
On 8 February 2016, the Company entered into an amended
management agreement with BKAML. Under the terms of the amendments
the existing arrangements for management fees to BKAML as stated
above have been altered to state that from 1 January 2016, the
Company will pay US$3,000,000 in management fees for the year
ending 31 December 2016, and US$1,750,000 in management fees for
the year ending 31 December 2017. In compliance with the management
agreement, management fees paid during 2015 (which was based on
adjusted net asset value at 31 December 2014) was trued up against
actual adjusted net asset value at 31 December 2015 and resulted in
a receivable from BKAML of which US$366 remains at 31 December 2016
(2015: US$719,549). This receivable is being offset against the
agreed 2016 management fee of US$3,000,000. The total resulting net
management fee that was paid to BKAML during 2016 was
US$2,280,451.
(b) Investment in JCML 2007 Limited
The Company acquired 15 per cent of JCML 2007 on Admission,
which was subsequently diluted to 13.6 per cent by the exercise of
share options by certain of JCML 2007's employees. In 2012, the
Company acquired a further holding in JCML 2007, taking the
Company's overall holding in JCML 2007 to 36.17 per cent. An
impairment review of JCML 2007 has been performed as part of the
fair value assessment and continues to be carried out on a
semi-annual basis. The Company received dividend income from JCML
2007 during the year of US$Nil (2015: US$5,369,711).
(c) Performance fee
Under the terms of the Management Agreement, JCML 2007, as
former Investment Manager, was entitled to a performance fee based
on the adjusted net asset value ("ANAV") (being the NAV of the
Company before taking into account any performance fee payable less
any unrealised gains on investments plus the value of any write
downs in any investments that have been written down but not
written off) of the Company. The performance fee payable was for an
amount equal to the sum of: (i) 20 per cent of the amount by which
the ANAV exceeded a 8 per cent annually compounding hurdle but was
less than an amount equal to a 20 per cent annually compounding
hurdle; (ii) 35 per cent of the amount by which the ANAV exceeded a
20 per cent annually compounding hurdle but was less than an amount
equal to a 40 per cent annually compounding hurdle; and (iii) 50
per cent of the amount by which the ANAV exceeded a 40 per cent
annually compounding hurdle.
The performance fee was subject to a high water mark such that
no performance fee will be paid if the performance of the Company
does not exceed the ANAV at the end of the previous year in which
the performance fee was paid.
As at 31 December 2016, the ANAV was below the high water mark
and no performance fee is payable for the year ended 31 December
2016. (2015: US$Nil)
BKAML replaced JCML 2007 as Investment Manager with effect from
1 January 2014. For financial periods following this date, any
performance fee payable on investments will be calculated based on
the date on which investments were made, and attributable to JCML
2007 for investments held at 31 December 2013, and to BKAML for all
new investments. BKAML will become entitled to a performance fee of
20 per cent of the annualised increase in the adjusted net asset
value over the hurdle rate. As at 31 December 2016, this hurdle
rate had not been achieved on investments attributable to
BKAML.
(d) Facility agreement and collateral account
The Company had entered into a facility agreement (the
"Facility") with which it agreed to loan to Fields Law, a law firm
in which Richard Fields is a partner, money for funding cases in
which Fields Law is to act under a Co-counsel Agreement. Prior to
adopting its run-off strategy, the Company expected to enter into
loan arrangements with other law firms (which could have included
other law firms established by the Principal of the Company) on
terms and conditions similar to those contained in the Facility.
The Facility available to Fields Law was to be for up to
approximately 50 per cent of the net proceeds of the capital raised
by the Company less any loans made to other law firms.
On 25 August 2016, the Facility (consisting of a consolidated
loan agreement and a swap agreement) was terminated with the
receipt by the Company of US$71.9 million in respect of the loan,
which was funded by the following: (i) payment by Fields Law to JIL
of US$46.5 million from proceeds received from settlements in the
underlying cases; and ii) a total of US$25.4 million paid by Fields
Law from the US$11.1 million clawback of prior year swap payments
made to Riverbend and US$14.3 million provided by Riverbend
fulfilling its obligation under the swap agreement and allowing
Fields Law to pay all remaining accrued interest and principal on
the facility once the Company's interest in the underlying cases
was deemed complete. The series of transactions resulted in a net
cash gain to JIL of US$46.5 million.
On 20 December 2016, and in conjunction with the termination of
the Facility and planned wind-up of Fields Law, an additional
US$3.0 million was returned by Fields Law to Riverbend. This amount
is to be held in escrow for certain contingencies relating to JIL's
investment in Fields Law. The escrow requirements will terminate
three years after the filing of Fields Law's final tax return which
is expected to occur by the end of the third quarter of 2017. Upon
termination of the escrow requirements (which is expected to occur
by the end of 2020), any unused funds in the escrow will be paid to
JIL.
In addition to the reserves held under the escrow arrangement
describe above, at 31 December 2016, Fields Law holds reserves from
the settlement proceeds described above for expected tax payments.
Once Fields Law determines and pays its final tax obligation
(expected no later than end of third quarter 2017), all remaining
funds held in reserve at Fields Law will be returned to
Riverbend.
(e) Administration fees
The Company has an administration agreement with Vistra Fund
Services (Guernsey) Limited (the "Administrator"). Fees payable to
the Administrator for the year were US$151,593 (2015: US$242,209),
of which US$50,961 remained payable as at 31 December 2016 (2015:
US$36,372).
(f) Directors' fees and expenses
31 December 31 December
2016 2015
------------ ------------
Directors' remuneration US$ US$
Lord Daniel Brennan (GBP90,000 per annum 2015:
GBP187,500 per annum) 121,817 284,813
Richard Battey (GBP50,000 per annum 2015: GBP75,000
per annum) 68,825 113,925
Kermit Birchfield 110,000 125,000
------------ ------------
300,642 523,738
Director expenses 45,311 75,811
345,953 599,549
============ ============
No pension contributions were paid or were payable on behalf of
the Directors.
Lord Daniel Brennan has an interest in 447,817 shares (2015:
447,817 shares) under a Share Option Agreement, details of which
were disclosed in the Admission Document. Lord Brennan can exercise
these share options at any time up until 17 December 2017. The
other Directors have no beneficial interest in the share capital of
the Company.
(g) Escon Capital Inc.
The Company has an interest of 38.6% (2015: 38.6%) in the voting
common stock and 100% (2015: 100%) of the issued preference shares
of Escon Capital, Inc. ("Escon"), a Delaware corporation of which
Kermit Birchfield and Richard Fields are directors.
During the year ended 31 December 2016, Kermit Birchfield
received a director's fee of US$50,000 (2015: US$50,000).
(h) Eleven Engineering Game Control LLC
The Company has provided a loan of US$575,000 to Eleven
Engineering Game Control LLC, a company ultimately owned and
controlled by JIL (31 December 2015: US$575,000). Prior to 2016,
Eleven Engineering Game Control LLC was owned and controlled by
JCML 2007. As of 31 December 2016, no further facility remains
available to be drawn (31 December 2015: US$Nil). Interest will be
accrued at a rate of 10% per annum, and the loan and interest are
repayable on Eleven Engineering Game Control LLC's receipt of net
recoveries.
(i) Special purpose vehicles
As compensation for providing management services, Kermit
Birchfield receives a fee from each of Smooth 3D IP, LLC (until 31
December 2016), Rich Media Ventures, LLC, and GrandiOs
Technologies, LLC. For the year ending 31 December 2016, Kermit
Birchfield received fees totalling US$90,000 for provision of these
services (2015: US$67,500).
15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
(a) Investment risk
There is no established market for the Company's assets. The
Investment Manager's assessment of the quantum and timing of
returns is subjective and based on the Investment Manager's
experience and due diligence. The estimates of the outcome and
financial effect on the Company of the assets are determined by the
judgement of the Investment Manager. In coming to its best estimate
of fair value, the Investment Manager has estimated the
probability, timing and quantum of particular outcomes.
(b) Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rate on the fair value of
financial assets and liabilities and future cash flows. The Company
holds fixed and variable rate interest securities that expose the
Company to fair value interest rate risk. For 2016, debt securities
were fixed at a regular interest rate of 15.0%.
The Company is exposed to interest rate risk related to its cash
balances. The Company does not actively manage this risk.
2016
Fixed Variable Non-interest Total
interest interest bearing
---------------- --------------- ------------- -----------
US$ US$ US$ US$
Assets
Intangible assets - - 111,387 111,387
Contractual interests - - 7,791,562 7,791,562
Equity investments - - 621,676 621,676
Debt securities - - 10,500,000 10,500,000
Other receivables and
prepayments - - 4,167,210 4,167,210
Cash and cash equivalents - 5,017,077 - 5,017,077
Total assets - 5,017,077 23,191,835 28,208,912
--------------- --------------- ------------- -----------
Liabilities
Other payables - - (172,034) (172,034)
Total liabilities - - (172,034) (172,034)
--------------- --------------- ------------- -----------
Total exposure to interest
sensitivity - 5,017,077 23,019,801 28,036,878
================ =============== ============= ===========
2015
Fixed Variable Non-interest Total
interest interest bearing
--------------- --------------- ------------- -----------------
US$ US$ US$ US$
Assets
Intangible assets - - 2,058,796 2,058,796
Contractual interests - - 29,435,299 29,435,299
Equity investments - - 5,950,296 5,950,296
Debt securities 55,392,082 - - 55,392,082
Other receivables and
prepayments - - 6,207,781 6,207,781
Cash and cash equivalents - 27,384,242 - 27,384,242
Total assets 55,392,082 27,384,242 43,652,172 126,428,496
--------------- --------------- ------------- -----------------
Liabilities
Other payables - - (290,038) (290,038)
Total liabilities - - (290,038) (290,038)
--------------- --------------- ------------- -----------------
Total exposure to interest
sensitivity 55,392,082 27,384,242 43,362,134 126,138,458
=============== =============== ============= =================
At 31 December 2016, if variable interest rates had moved by 75
basis points with all other variables remaining constant, the
change in net assets attributable to holders of ordinary shares for
the year would amount to approximately +/- US$37,628 (2015: +/-
US$205,382), arising substantially from the cash and cash
equivalents. No interest was receivable on the collateral cash
deposit.
(c) Credit risk
The Company is exposed to credit risk, which is the risk that a
counterparty will be unable to pay amounts in full when they fall
due.
The Company has in place various policies and procedures to
guide the Investment Manager's evaluation and management of
investment opportunities and, particularly, the credit risk
associated with investment counterparties (law firms and claim
interest holders) and investments. The policies include Investment
Restrictions (which contain prohibitions on pursuing investments
with certain kinds of claims and claim holders, those being
prosecuted by certain law firms, and those where collection,
counterparty or compliance risk is significant), Investment
Policies (which contain guidelines for diversification of the
Company's portfolio based on certain claimholder characteristics,
jurisdiction(s) involved, prosecuting law firm, claim size and
investment structure), and Investment Process Guidelines (which
define the due diligence, investment and investment monitoring
processes to be followed by the Investment Manager in claim
evaluation, valuation and investment completion). Collectively,
these Investment Parameters are designed to guide the investment
opportunity analysis so to limit credit, collection and portfolio
concentration risks associated with Company investments. In
addition, the Investment Manager has, pursuant to its own
Underwriting Guidelines, developed and implemented systems and
procedures to analyse and (pursuant to investment contracts) manage
credit risk associated with Company investments.
The main concentration to which the Company was exposed arises
from the Company's loan to Fields Law. This loan was terminated
during 2016. The Company is also exposed to counterparty credit
risk on trading contractual interests, cash and cash equivalents
and other receivables.
In accordance with the Company's policy, the Investment Manager
monitors the Company's credit position on a daily basis, and the
Board of Directors reviews it on a quarterly basis.
The Company is also exposed to material credit risk in respect
of the contractual interests and cash and cash equivalents. The
credit risk of the cash and cash equivalents is mitigated as all
cash is placed with reputable banking institutions with a sound
credit rating. The maximum credit risk exposure represented by
total assets excluding intangible assets amounted to US$28,097,525
(2015: US$124,369,700).
(d) Concentration risk
The Company has sought to minimise concentration risk by
investing in a diverse portfolio of contractual interests through a
number of different law firms, including interests in antitrust,
patent, property damage, insurance subrogation, shareholder
dispute, contract claim and arbitration cases.
The Company further sought to minimise concentration risk by
utilising a variety of Investment Parameters which are designed to
guide the investment opportunity analysis so as to minimise,
amongst other things, concentration risk. These Investment
Parameters are further detailed in Note 15(c).
As the Company will no longer make new investments in line with
the run-off strategy, the level of concentration of investments
will increase as investments in the existing portfolio mature.
(e) Liquidity risk
The Company is exposed to liquidity risk. The contractual
interests are acquisition of claims, as well as loans to lawyers to
fund participation in claims on a contingency fee basis, and
therefore require significant capital contribution with little or
no immediate return and no guarantee of return or repayment. The
market for such contractual interests is not active. In the opinion
of the Directors the current liquidity risk at 31 December 2016 is
low as cash and cash equivalents exceed unmatched liabilities or
other contractual commitments.
Maturity analysis 2016
--------------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- ----------- -------------------- --------
US$ US$ US$ US$
Investment purchases
payable 9,460 - - 9,460
Audit fees 59,216 - - 59,216
Other creditors 103,358 - - 103,358
172,034 - - 172,034
----------- ----------- -------------------- --------
Maturity analysis 2015
-------------------------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- --------------- ------------------- ----------------
US$ US$ US$ US$
Investment purchases
payable 28,735 - - 28,735
Audit fees 196,495 - - 196,495
Other creditors 64,808 - - 64,808
290,038 - - 290,038
----------- --------------- ------------------- ----------------
(f) Capital risk management
The capital of the Company is represented by the net assets
attributable to holders of ordinary shares. The Company's
objectives when managing this risk are to safeguard the Company's
ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to
maintain a strong capital base to support the development of the
investment activities of the Company.
The Company is closed-ended and therefore the capital risk is
reduced as shareholder funds are locked in until the closure of the
Company. The level of capital funding is monitored by the Board of
Directors, who will ensure adequate solvency is in place prior to
making distributions.
(g) Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign exchange
rates.
The Company's policy, generally, is not to manage exposure to
foreign exchange movements (both monetary and non-monetary) by
entering into any foreign exchange hedging transactions. However,
the Company did enter into a forward currency contract, maturing 14
January 2015, to lock in the US dollar equivalent of the dividends
declared during the year, which were paid to shareholders on 14
January 2015. The Directors considered that this was a prudent step
in order to mitigate the cash flow impact of adverse exchange rate
fluctuations on the amount of the dividends, which were declared in
GBP.
The Company holds assets denominated in currencies other than
the functional currency. It is therefore exposed to currency risk,
as values of the assets denominated in other currencies will
fluctuate due to changes in exchange rates. The Company may hedge
future investment opportunities in the functional currency.
As at 31 December 2016, a proportion of the net financial
assets/(liabilities) of the Company are denominated in currencies
as follows:
2016 2015
---------------- -------------
US$ US$
USD 27,485,151 126,255,337
GBP 551,727 (116,879)
28,036,878 126,138,458
================ =============
At 31 December 2016, if exchange rates had moved by 5% with all
other variables remaining constant, the change in net assets
attributable to holders of ordinary shares for the year would
amount to approximately +/- US$30,242 (2015: +/- US$5,844).
Management assesses the risk of exposure to the general banking
system, and specific banks, and invests cash in US government
securities when there is perceived risk to principal.
(h) Fair value estimation
The fair value of financial assets and liabilities that are not
traded in an active market is determined by using valuation
techniques. See Note 6 for further details.
The carrying value less impairment provision of other
receivables and payables is assumed to approximate their fair
value. The fair value of financial liabilities for disclosure
purposes is not discounted as the Company does not expect there to
be any material differences.
16. NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE
The net asset value attributable to each ordinary share is
calculated by dividing the net asset value attributable to ordinary
shareholders of US$28,036,878 (2015: US$126,138,458) by the
110,340,019 ordinary shares in issue at 31 December 2016 (2015:
110,340,019), and excludes shares held in treasury. As at 31
December 2016 there were no shares held in treasury (2015: 361,735
shares).
17. DEFICIT PER SHARE
Basic and diluted deficit per share is calculated by dividing
the Total Comprehensive Loss for the Year of US$37,846,882 (2015:
US$49,156,186) by the weighted average number of ordinary shares
during the year.
For basic deficit per share, the weighted average number of
ordinary shares excludes treasury shares for the period in which
they are held in treasury during the year. The basic weighted
average number of ordinary shares for the year is 110,340,019
(2015: 110,493,632).
The diluted deficit per share figure is calculated by adjusting
the basic weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares under
the Share Option Agreement (see Note 14(f)). The diluted number of
ordinary shares for the year is 110,787,836 (2015:
110,941,449).
18. SUBSEQUENT EVENTS
Investment 114107 was finalised in March 2017 with receipt of
US$890,000 additional proceeds. The Company received a total of
US$2.6 million on an investment of US$1.3 million.
Effective January 2017, ownership of the Company's Investment
Manager, BKAML, changed from Richard Fields to Solomon Asset
Management LLC.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAELAELNXEAF
(END) Dow Jones Newswires
April 03, 2017 02:00 ET (06:00 GMT)
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