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Shine improves disclosure of interest costs following ASIC review
Shine Justice has reportedly improved its disclosure of unbilled disbursements and disbursement funding interest following an ASIC review.
Lauren Croft
Shine Justice Limited has “significantly improved” disclosure of the accounting for unbilled disbursements and disbursement funding interest in its 30 June 2023 financial report to provide clarity and transparency over these matters, according to a recent Australian Securities and Investments Commission (ASIC) statement.
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This comes after the regulatory body conducted a review into Shine after the company did not disclose the interest expense on its disbursement funding facility or the interest it was intending to claim from personal injury clients and class action lawsuit members if a financial settlement was reached.
According to ASIC, a disbursement funding facility is a loan that is used to pay for costs incurred on behalf of clients while legal proceedings are ongoing.
Shine also provided some background regarding its disbursement funding facility in their FY23 financial report.
“Disbursements represent costs incurred on behalf of clients during a matter that are recovered from clients on case resolution. Shine utilises deferred payment facilities, credit facilities and exclusive service provider deeds to facilitate funding of some of its disbursements. In some cases, client cost agreements specifically give Shine the right to recover fees, interest and charges incurred on these facilities,” the firm stated.
As Shine failed to disclose interest costs, the users of the financial report struggled to assess the extent and cost of the disbursement funding facility and to properly understand the risks of Shine’s business model.
In FY23, the interest expense recognised on disbursement funding arrangements with recovery rights was $10,536,000 ($11,137,000 in 2022). Prior to the improved disclosure, these expenses were not itemised in the notes to the financial statements because, according to ASIC, Shine offset them against the interest income they were intending to claim from personal injury clients and class action members.
“The net effect of Shine’s historical treatment was that no interest income or expense was disclosed in relation to personal injury actions and class action lawsuits. However, both the income and expense should have been disclosed in accordance with accounting standard AASB 7 Financial Instruments: Disclosures,” ASIC said in a statement.
In August this year, the Federal Court of Australia dismissed Shine’s application to recover the full amount of interest from the landmark $300 million pelvic mesh class action settlement against Johnson & Johnson class action. As a result, Shine made a fair value adjustment of expensing $32,400,000 of interest that had previously been recognised as revenue.
“Shine’s financial report now sets out in further detail the accounting policy for unbilled disbursements, a major asset on its balance sheet. The details include the mechanisms used to facilitate funding of some of the disbursements, the method of measuring this financial asset, and how the determination between current and non-current classifications is made,” the ASIC statement said.
