Following an ASIC review, Shine Justice Limited (Shine) 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.
Previously, Shine did not disclose either 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. This made it difficult for users of the financial report to assess the extent and cost of the disbursement funding facility and to properly understand the risks of Shine’s business model.
In the year ended 30 June 2023, 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 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 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.
On 3 August 2023, the Federal Court of Australia dismissed Shine’s application to recover the full amount of interest on the disbursement funding facility of a recent 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. This highlights the importance of transparent disclosure of interest expense.
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.