Is Shine Justice being straight with the ASX and its investors over profits from its $300m pelvic mesh class action against Johnson & Johnson? Michael West investigates.
Late last year, news that Shine Lawyers was planning to take almost $100m in fees for its pelvic mesh class action against Johnson & Johnson (Ethicon) was greeted with dismay by many of the 11,000 women who had joined the action.Many had had their lives ruined by the J&J faulty mesh and they were told they could expect payments of $7,500 “if they chose a ‘fast track’ option, which would be on the lower end of payouts”.
According to an investigation by the ABC, “many [of the victims] said their calls and emails to Shine seeking clarity had gone unanswered.“They were told they would have access to a $7,500 payment if they chose a ‘fast track’ option, which would be on the lower end of payouts.”The rule of thumb with class action lawsuits is that the lawyers take a third or more of the winnings in the event of a successful claim. This is not unusual. They take the legal risk and are rewarded handsomely in the event of a successful outcome.
What is unusual in this case is that there appear to be inconsistencies in what Shine Lawyers was telling the Court and what its sharemarket parent group, Shine Justice, was telling the ASX.$35m for postage, cheques and envelopes?Shine declined to respond to questions for this story. According to the ABC story the $99.5 million which Shine was proposing to take in fees included “$38 million for past costs, up to $35 million for the future costs of distributing the settlement to the women and $26 million for the interest liabilities associated with funding the case”.There is some consternation over the Shine proposal to charge $35m for the costs of distributing the settlement proceeds. How costly and time consuming is it to send envelopes with cheques to the victims?According to the ABC, the Federal Court’s Justice Lee “lambasted Shine Lawyers for not getting together the settlement disbursement plan quickly enough, saying the delay could cause women to lose interest on the $300 million sum”.
The Judge not happy
Rather than letting Shine charge what it liked for the distribution of settlement money, the Court ordered for the distribution to be put out to tender.The rub for Shine however, is that it had told the ASX and its investors that it had already booked the revenues and earnings from the class action. On 9 September 2022, Shine advised the market: “The [mesh] settlement will not impact Shine Justice Ltd’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) to date as revenue has been progressively brought to account in accordance with the relevant accounting standards.”Had they also booked the $35m in projected distribution costs of the settlement which are now at risk?
Shine has an unusual business model for ASX companies in that it books revenues before it has a right to receive them. This practice of turning Work in Progress (WIP) into profits has already landed Shine in trouble when it settled a $250m class action claim brought against the firm in 2017 by Quinn Emanuel for overstating its profits.
The firm has declined to respond to questions for this story
ear Shine Media Team,Questions regarding Shine Justice accounting irregularities.On 9 September 2022, Shine advised the market: “The [mesh] settlement will not impact Shine Justice Ltd’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) to date as revenue has been progressively brought to account in accordance with the relevant accounting standards”
Question 1: What were the revenues and EBITDA recognised by Shine re the Mesh claims prior to the final settlement across FY2017 and FY2022?
Question 2: As the costs for distributing the settlement proceeds is a matter still before the courts, why has Shine already recognised the whole $99m as revenue across FY2017 and FY2022?
Question 3: Have the future costs of distributing the settlement proceeds already been recognised in Shine’s accounts too? What are these future costs for? As the mooted costs of administration are $35m, is there still 35% of the contracts with customers to complete in distributing the money to the victims?Question 4: Could you please explain how Shine is compliant with AASB15 standard on “Revenue from contracts with customers” given that
Shine is telling the ASX there is no profit effect but telling the Court it needs $35m for administration of the proceeds to victims? Question 5: The ASX announcement suggests that Shine has already recognised all of the revenue for services associated with the Mesh action, but the application to the Court for future costs of distribution of settlement proceeds suggests otherwise. Which information is incorrect, the information in the ASX announcement or the information given to the Court?
Question 6: Regarding the reported $35m in costs for the administration of the payouts to Mesh victims, could you please explain why these costs are so high for what would appear to be standard letters, writing cheques and postage?
Question 7: Shine states that the administration of the claims “is expected to take several years”. Can you please explain why it would take so long? Do the victims not deserve faster justice than that?We also have some questions about Shine Justice’s accounting policies for revenue recognition, intangibles and classification of cash flows. If you would like to offer the relevant person for discussion on these important matters, we would be happy to meet.Without companies like Shine, nobody would stand up against big corporations.
(20min delay)