Financial Space Buzz- APRA’s Criticism in Legal Case and IMF Secured Confidential Partial Settlement

In the business world, finance and law are immensely inter-related. These two genres of work are interdependent as well, as finance needs specific legal routes to adhere while functioning and law is the holistic order that governs and streamlines every sphere of our lives, finance being a vital part of it.

In the light of this inter-relation between legal and financial institutions, let us have a quick glance at the latest updates that have been the talk of the town, regarding the two regulatory authorities- Australian Prudential Regulation Authority (APRA) and IMF Bentham Ltd (ASX: IMF).

IFL states that APRA changed its course in court trials

Australian Prudential Regulation Authority (APRA) had alleged the 170 years old financial services player IOOF Holdings Limited (ASX: IFL) of having a disputed governance structure and a controversial corporate set-up. In the same regards, APRA had dragged the company, along with 5 of its directors and executives, on grounds that IFL had paid approximately $4.5 million in compensation to the superannuation fund members for a number of mistakes that were made in the operation of various funds.

Paving a case towards disqualification orders against the accused, APRA believed that two former executives of the company were responsible for the conflicts that occurred in 2015, that had led to poor outcomes for the superannuation fund members. However, IFL’s accused executives had denied the mere existence of a conflict, leave alone the accusation.

Post the trial’s conclusion on the breach of The Superannuation Industry (Supervision) Act, which got adjourned on 17 July 2019 in Sydney, IFL’s legal team stated that the regulatory body’s approach towards the case was indifferent. APRA had apparently pleaded matters differently before the trial than it did during the trial procedure. Originally, the focal point was to decipher the correctness of the decision that the company and its executives had made, and if it was in the best interest of IFL’s super fund members. However, the company was disappointed with the course of the trial proceedings, which differently centred around the process that IFL had followed, to reach those specific decisions. According to the company, the process of the decision-making and related events had not been pleaded in the court.

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Few market reports believe that this was APRA’s first ever huge legal case in a generation and has left a big black blot on the regulatory authority’s approach. If the case does not work in its favour, an accusation and criticism from the Royal Commission would be on the cards as well, for a probable lack of a stern approach and the urgency to get the legal action going.

Let us now understand the two related entities in the case a little better:

The Australian Prudential Regulation Authority (APRA):

Established by the Australian Government on 1 July 1998, The Australian Prudential Regulation Authority (APRA) is an independent statutory authority that takes care of and governs major institutions across banking, insurance and the superannuation space. The authority is in charge of promoting financial system stability in the Aussie land and is accountable to the Australian parliament. It is regarded as a regulatory authority and works closely with other major institutions like the Reserve Bank of Australia (RBA), the Australian Treasury and the Australian Securities and Investments Commission (ASIC).

Besides regulating financial institutions and aiming at ensuring that a financial institution ceases to fail, APRA acts as the country’s national statistical agency for the financial sector and aids the RBA and Australian Bureau of Statistics (ABS) to collect data.

IOOF Holdings Limited

Company Profile: Established over a century and a half ago in 1846 as a friendly society, IFL is made up of various leading brands providing financial advice, superannuation, investment, and estate and trustee services in Australia. As on 31 March 2019, the company had a FUMA of approximately $144.6 billion and close to 500,000 customers in its kitty. The company has a wide range of wealth management products and services and aims at providing customised solutions to aid clients in attaining their financial goals.

IFL’s Brands (Source: IFL Website)

Stock Performance: On 22 July 2019, by the closure of the trading session, the company’s stock was at A$5.37, up by 2.677 per cent, with a market capitalisation of A$1.84 billion and approximately 351.08 million outstanding shares. With an annual dividend yield of 10.04 per cent, the IFL’s stock has generated negative returns of 20.76 per cent and 7.76 per cent in the last three and six months, respectively. The YTD return of the stock has been 3.98 per cent.

IMF Bentham Limited announces Confidential Partial Statement

Company Profile: Regarded as one of the international pioneers as a litigation funder, IMF provides the provision of litigation funding and support services to insolvency and legal practitioners. Its main activities include- examination, administration and funding of litigation. At the end of the year 2018, the company had a success rate of 90 per cent and its Return on Invested Capital was 144 per cent. IMF’s total recoveries amounted to A$2.3 billion. The company has offices in Canada, the US, Europe, Asia and Australia.

IMF’s funding track record as at 31 December 2018 (Source: IMF’s Website)

Confidential partial settlement in an Australian case: On 19 July 2019, the company stated that it had reached a confidential partial settlement, with a defendant in an Australian case that it had funded. There are two defendants in the case and the current settlement with one of the two is in a confidential state. Meanwhile, the case is proceeding against the other defendant. The company notified that it was most likely to receive a revenue of almost $7.5 million from this partial settlement. Further information would be furnished through the course of the operations and proceedings.

IMF’s Capital Plans and Strategy: As presented in its Investor Presentation in March this year, IMF had started the preparation and planning of a new Fund for non-US investments, which would be categorised as Fund 5. The investments for this was to be propagated after the committed capital available in RoW Funds 2 and 3 had been utilised. The company was aiming at a fund size of $300 million – $500 million of commitments. The recently announced US Fund 4 would be the base for replicating the economics and the target was to be closed by 30 June 2019.

On the debt front, the OTC Notes would mature on 30 June 2020 and had an option for IMF to accelerate to 30 June 2019. IMF continues to Focus on development of corporate funding and commercial arbitration in all jurisdictions and was tapping opportunities in Europe including M&A options.

Stock Performance:  By the end of the trading session, on 22 July 2019, the company’s stock was at A$3.3, up by 3.125 per cent, with a market capitalisation of A$654.75 million and approximately 204.61 million outstanding shares. With 444,301 shares traded, the IMF stock has generated returns of 11.89 per cent, 19.85 per cent and 13.07 per cent in the last one, three and six months, respectively. The YTD return of the stock has been 3.56 per cent.


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