Is the JustKapital founder in line for a $1m windfall?

JustKapital founder Philip Kapp could be in for a $1 million windfall, after doing a deal over the company’s litigation trust.

JustKapital (ASX:JKL) has “reached favourable terms” allowing Mr Kapp to assume all management rights over “the majority of the group’s funded cases”.

Originally, JustKapital was expecting to receive a $1 million a year management fee for looking after the trust.

JustKapital’s new chief Diane Jones declined to comment on the terms of the arrangement.

In July, the business decided to spin out its high-potential, high-cost, high-risk litigation portfolio into a trust, in which it would own a 25 per cent shareholding and also manage in exchange for a fee.

The trust is valued at $17 million.

JustKapital shares over the past year. Source Investing.com

The company says this means shareholders don’t have to keep funding the cases, and will receive a percentage of the future profits from the trust.

In October, Mr Kapp resigned as chairman and managing director to take over management of the trust.

JustKapital was established by Philip Kapp and Tim Storey to offer an alternative litigation funding source for Australians and New Zealanders. It also included two other divisions.

Shareholders are now left with those lower paying but lower risk divisions of disbursement funding for law firms and after-the-event indemnity insurance against liability for an opponent’s legal costs.

A deal to move into disbursement funding in the US, by taking over National Health Finance (NHF), has fallen through after the group failed to secure enough debt to fund it.

While the upside from litigation funding can be very high, JustKapital hasn’t settled any cases for at least two years.

That division contributed no revenue at all to the 2017 accounts, while the other parts of the business contributed just over $19 million.

The company has retained control of three cases though, “for various reasons”, although it wouldn’t explain what these were. The investment needed for these is expected to be under $1 million.

JustKapital’s board was forced to take sizeable pay cuts in September, after shareholders objected to Mr Kapp’s $1.2 million package of salary, shares and incentives, and Ms Jones’ pay rise to $1 million from $245,564 the year before.