RDL.L Regulatory News (RDL)

RDL REALISATION PLC

(Registered No. 09510201)

LEI: 549300VGZSKYQ7C2U221

Annual Report for the year ended 31 December 2019

The Directors present the Annual Financial Report of RDL Realisation plc (the "Company") for the year ended 31 December 2019. The full Annual Report and Accounts can be accessed via the Company's website, www.rdlrealisationplc.co.uk/documents

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2019 but is derived from those accounts. 

The unaudited full text of those parts of the annual report and accounts for the year ended 31 December 2019, which require to be published are set out below.

The Company also announces that it will hold its Annual General Meeting at 11.00am on 30 June 2020 at the Moto Service Station, M5 Junction 27, Sampford Peverell, Tiverton EX16 7HD. Shareholders will not be able to attend and vote at the Annual General Meeting in person due to the ongoing Coronavirus (COVID-19) pandemic and strict social distancing measures implemented by the UK Government.

OBJECTIVE AND INVESTMENT POLICY

Investment Objective

The Company will be managed, either by a third party non-EEA investment manager or internally by the Company's Board of Directors, with the intention of realising all remaining assets in the portfolio in a prudent manner consistent with the principles of good investment management, with a view to returning cash to its Shareholders in an orderly manner.

Investment Policy

The Company will pursue its Investment Objective by effecting a managed wind-down with a view to realising all of the investments in a manner that achieves a balance between maximising the value received from investments and making timely returns to Shareholders. The Company may sell its investments either to co-investors in the relevant investment or to third parties, but in all cases with the objective of achieving the best available price in a reasonable time scale.

As part of the realisation process, the Company may also exchange existing debt instruments issued by any direct lending platform for equity securities in such direct lending platform where, in the reasonable opinion of the Board, the Company is unlikely to be able to otherwise realise such debt instruments or will only be able to realise them at a material discount to the outstanding principal balance of that debt instrument.

The following investment restrictions will apply to the Company:

1. the Company will cease to make any new investments or to undertake capital expenditure except, with the prior written consent of the Board and where:

· the investment is a follow-on investment made in connection with an existing investment made in order to comply with the Company's pre-existing obligations; or

· failure to make the follow-on investment may result in a breach of contract or applicable law or regulation by the Company; or

· the investment is considered necessary by the Board to protect or enhance the value of any existing investments or to facilitate orderly disposals.

2. any cash received by the Company as part of the realisation process prior to its distribution to Shareholders will be held by the Company as cash on deposit and/or as cash equivalents.

3. the Company will not undertake new borrowing other than for short-term working capital purposes.

PERFORMANCE SUMMARY

Key Performance Indicators

The Company's Key Performance Indicators ("KPIs") are described in the Analysis of KPIs and Investment Restrictions below.

1 Net Asset Value (cum loss/income) includes all current year income, less the value of any dividends paid in respect of the period together with the value of the dividends which have been declared and market ex-dividend but not paid, see full annual report for more details.

2 Net Asset Value (ex-loss/income) is the Net Asset Value cum/income excluding net current year income.

3 Translated at USD to GBP foreign exchange rate of 1.3263 (31 December 2018: 1.2746).

4 Share price taken from Bloomberg Professional as at close of business on 31 December 2019.

The Company's market capitalisation as at 31 December 2019 was USD 36,192,155 (GBP 27,288,061 based on a Share Price of GBP 1.69 and based on 16,122,931 issued Ordinary Shares).

The Group's total comprehensive loss for year ended 31 December 2019 amounted to USD 8,004,088 (31 December 2018: USD 35,046,160 loss).

Further details of the Group's performance for the period are included in the Executive Directors' Report below which includes a review of the progress of the asset realisation, impact of applicable regulations and adherence to investment restrictions.

Since July 2018 to the date of this Report, GBP 117,731,097 (USD 146,777,313) or dividends per share of GBP 729.84 (USD 910.36) has been paid to Shareholders.

Ongoing Charges Information

5 Ongoing charges are set out as a percentage of annualised ongoing charge over average reported Net Asset Value. Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future. The annualised ongoing charge is calculated using the Association of Investment Companies recommended methodology.

Investment Positions

Below is a list of the Company's Investments as at 31 December 2019.

(Shown as aggregate Debt Investments acquired from individual Direct Lending Platforms)

CHAIRMAN'S STATEMENT

Key developments

The Company has continued to fulfil its mandate of realising assets and returning capital to Shareholders. Substantial progress has been made since the Annual General Meeting, held on 19 June 2018, after which the Company has returned £5.54 per share in the form of dividend payments. (This figure included dividends paid from June 2018 and throughout 2019). This amounts to approximately 43.43% of the published NAV as of 30 June 2018.

However, in relation to the remaining portfolio, whilst the full impact of the Covid-19 pandemic is yet to be felt by businesses worldwide, it has increased the credit risk associated with the Company's underlying platform loans. As a result, the risk that Company's assets may not be realised at their fair market value, or at any value, has increased. The loans at the highest risk of realisation are those provided to the SME platforms, which contain many small businesses that are reliant on consumer spending for food and retail. The CARES Act passed in the US is providing meaningful support to this economic demographic, but the lasting impact of this government stimulus is yet to be proven. Further, financial reporting has been disrupted making it difficult to assess the financial health of these borrowers. The Canadian SME portfolio is made up of venture loans to small tech-oriented companies. Repayment of these loans is heavily reliant on capital raise and new equity investment support. The capital markets in Canada have been disrupted as well making it difficult to assess the survivability of these borrowers.

Another material exposure is the CRE/real estate loan portfolio. The realisation of these loans relies more on the capital market for refinance and construction loan availability than consumer spending. The refinance and construction loan activity has slowed significantly thus delaying the payment of these loans. These loans are materially backed by hard asset collateral making it more likely to be repaid albeit on a much-delayed basis.

The Company continues to hold discussions with platform managers regarding impact of the issues highlighted above on the portfolio and ensures that the results of these discussions are reflected in portfolio valuations as appropriate.

There were changes to the composition of the Board during the year and, post the year end. On 20 May 2019, the Company's Board was strengthened with the appointment of Nicholas Paris as a non-independent Non-Executive Director. Mr. Paris is a portfolio manager within the LIM Advisors Group, which currently owns approximately 26% of RDL's outstanding shares.

On 12 July 2019, Dominik Dolenec stepped down as Chairman of the Company and I was elected as Chairman by the Board. With the majority of the work required to wind down the activities of the Company completed or well underway, the Board felt it appropriate to transition the role of Chairman to a Non-Executive Director. For the remainder of 2019, Mr. Dolenec remained on the Board with a particular focus on maximising the recovery of the Company's investment in Princeton. The Board expresses their sincere thanks on behalf of all the Company's Shareholders for his executive leadership in the portfolio restructuring and the wind down of the Company.

Separately, the Company was notified that Oaktree Value Equity Holdings, L.P. and LIM Advisors (London) Limited had agreed with each other, subject to certain conditions, not to requisition any addition to or removal from the Company's Board of Directors initially for the period up to 31 December 2019, which was subsequently extended to 31 March 2020. Further to this, Mr Paris resigned from the Board on 31 March 2020 and Mr Dolenec resigned from the Board on 1 April 2020. In view of the significant progress with the wind down of the Company and the subsequent shrinkage of the portfolio, Gregory Share has notified the Board of his intention to step down as a Director of the Company at the Annual General Meeting being held on Tuesday, 30 June 2020.

As announced on 30 July 2019, Deloitte LLP resigned as auditor to the Company with effect from 29 July 2019, due to a perceived weakness in the Company's internal controls relating to the valuation of loan investments. We have addressed this issue by retaining Duff & Phelps to carry out bi-annual valuations of the full portfolio on a fair value basis. The Company will undertake additional valuations in respect of part or all of the portfolio in connection with potential sales or material changes of circumstance of its investments to the extent the Board deems it appropriate to do so.

The Board, on recommendation from the Audit Committee, appointed Crowe U.K. LLP ("Crowe") as auditor to the Company to fill the casual vacancy created by Deloitte LLP's resignation. Crowe have been instrumental in supporting our successful year end processes this year and I will take this opportunity to thank them for their hard work and professionalism.

A key development during the year was the repayment of the Group's outstanding ZDP Shares, which enabled the Company's ability to pay further dividends as it is no longer constrained by the cover ratio covenant that required the Company to maintain 2.75 times asset cover in order to pay dividends. Accordingly, the Company recommenced the payment of dividends as and when it has excess capital as is detailed below. Further details on the repayment of the ZDP Shares can be found in the Executive Director's Report below.

In a further positive development, a significant cash paydown of USD 27.9 million was received in August 2019 for the refinance of the entire secured loan provided to the Vehicle Services Contract Platform as a result of a refinancing with a new lender. A separate USD 4.5 million loan remains outstanding to the manager of the platform and is the subject of re-financing negotiations. This loan is valued at USD 0.2 million.

In January 2019, the Company's exposure to the International MCA Platform was re-financed and its promissory notes paid off. The Company realised USD 38 million (at carrying value) pursuant to this transaction.

The Company made four dividend distributions during the year under review. On 23 May 2019, the Directors approved the payment of a dividend of 17.14 pence per ordinary share (USD 21.71 cents) totalling USD 3.5 million. The dividend was paid on 12 July 2019 and charged to revenue reserves. On 8 August 2019, the Company was pleased to declare a special dividend of 255.00 pence per ordinary share (equivalent US 309.32 cents) in respect of the year ended 31 December 2018, which was paid on 30 August 2019 to Shareholders and totalled USD 49.9 million. The Company elected to designate 13% of this special dividend as an interest distribution to its Shareholders in order to maintain its investment trust status and 87% as a dividend distribution. A further special dividend was declared on 3 October 2019 of 33.00 pence per ordinary share (equivalent USD 0.40 per ordinary share), which was paid to Shareholders on 1 November 2019 and totalled USD 6.45 million. On 26 November 2019, the Directors declared a further special dividend of 22.00 pence per ordinary share (equivalent USD 0.28 per ordinary share), which was paid to Shareholders on 30 December 2019 and totalled USD 4.5 million.

Adjusted for capital returns and dividends the NAV return in the year was -8.24% in USD terms.

Wind-down and Capital Returns

Our investment strategy continues to seek to maximise risk-adjusted IRRs to our Shareholders. To this end, the Company has made significant progress with winding down its portfolio. As we had hoped, the majority of the portfolio has now been repaid and returned to Shareholders. However, some residual positions remain which will only be liquidated once various bankruptcy proceedings are completed.

Portfolio Performance

In accordance with our mandate, no new investments were made during the year. A detailed analysis of the Company's portfolio is provided below.

Princeton

The Company announced on 11 February 2019 that it was estimating a potential recovery of approximately USD 15 million from the Princeton Alternative Income Fund ("Princeton" or the "Fund") bankruptcy. This value was further impaired to USD 14 million on 10 January 2020, primarily driven by procedural delays and increased legal costs. I am pleased to report that since the year end this matter has been brought to a conclusion and the Company received a cash payment of USD 13,483,500 on 2 April 2020.

In early 2019, the Company was engaged in active discussions with the Trustee regarding the content of a Chapter 11 Plan of Liquidation (the "Plan") proposed by the Court-appointed Trustee. The Plan was filed on 19 April 2019 and provided for the prompt and orderly liquidation of Fund assets by approved professionals and the pursuit of possible third-party litigation claims under the direction of a liquidating trustee to be appointed under the Plan. The Plan also contemplated the Company being treated in the same way as other Princeton investors. However, in light of the arbitration findings that had previously been announced by the Company, the Company agreed with the Trustee that it would be paid USD 2.5 million out of the liquidation proceeds in priority to other investors. This amount would cover part of the costs of the legal proceedings that were incurred by the Company.

Subsequently, Microbilt Corporation ("MicroBilt") recruited an informal group of minority investors to support its alternative Chapter 11 plan, which was vague in structure and content. Among other things, the Microbilt plan left the Fund in bankruptcy for an indeterminate period of time.

The Board believed that the Microbilt plan was not in the best interest of the Company or other investors. As a result, the Company continued to support the Plan filed by the Chapter 11 Trustee and sought its confirmation before the Bankruptcy Court.

On 29 July 2019, the Princeton Trustee filed an adversary complaint in the Bankruptcy Court against MicroBilt and various related entities and individuals. The complaint alleged 15 separate causes of action on behalf of the bankruptcy estate for alleged wrongdoing by MicroBilt and other defendants.

On 5 and 8 August 2019, Ranger (the former investment manager) participated in a court-ordered settlement conference with a group of minority investors, MicroBilt and the Chapter 11 Trustee. The settlement conference did not result in a settlement of any claims in the bankruptcy proceeding. Soon thereafter, the Trustee filed a motion to affirm his authority to set the relative value of the investors' capital accounts under the terms of the limited partnership agreement governing the Fund. After a hearing on the motion on 10 October 2019, the Bankruptcy Court granted the Trustee's motion.

The MicroBilt Plan was based upon the use of net asset values as determined by Princeton's management as of February 2018, which was the last statement prior to the bankruptcy. The granting of the motion filed by the Trustee allowed the Trustee to discard Princeton's net asset values, since they were deemed unreliable. At the hearing on 10 October 2019, the Bankruptcy Court also rendered a decision on the Trustee's motion to disallow certain claims in the bankruptcy case. Among the disallowed claim was a claim by MicroBilt under its servicing agreement with the fund in excess of USD 4 million. As a result of these developments, the Trustee subsequently filed an amended Chapter 11 Plan that reset the relative values of the investors' capital accounts and moved forward with the liquidation of the fund under a liquidating trust agreement to be administered by a liquidating trustee approved by the Bankruptcy Court.

MicroBilt filed multiple appeals of these decisions made by the Bankruptcy Court and also filed appeals of other decisions made by the Bankruptcy Court approving the Trustee's settlements of the Fund's claims against multiple borrowers of the Fund, which would allow the Fund to be liquidated so that proceeds could be paid to creditors and investors under the Trustee's Plan. MicroBilt also filed a suit directly against the Trustee in the Bankruptcy Court. Moreover, MicroBilt sought to engage in extensive discovery related to the proposed confirmation of the Trustee's Plan, resulting in additional motion practice in the Bankruptcy Court. These litigation developments created additional costs, which could reduce the net distribution to investors, as well as the potential for substantial delay in investors receiving a distribution under the Trustee's Plan.

On 19 February 2020, the Chapter 11 Trustee filed a Fifth Amended Plan of Reorganisation (the "Amended Plan") and related pleadings requesting the Bankruptcy Court to confirm the Amended Plan and approve a settlement agreement incorporated under its terms. The Amended Plan was the result of extensive negotiations between the Trustee, the Company, other investors and MicroBilt and its related entities and persons. As a result of these negotiations, the Amended Plan had the support of all key economic constituents in the Chapter 11 case. The Amended Plan provided a cash payment to the Company on the effective date of the Amended Plan in the amount of USD 13,483,500.

The Bankruptcy Court set a hearing date of 13 March 2020 to rule on the confirmation of the Amended Plan. The effective date of the Amended Plan was expected to occur before the end of March 2020, at which time the Company was expected to receive the cash distribution under the terms of the confirmed Amended Plan and a related confirmation order.

On Friday, 13 March 2020, the United States Bankruptcy Court entered an Order confirming the Fifth Amended Chapter 11 Plan proposed by the Chapter 11 Trustee in the Princeton bankruptcy case. The Plan was negotiated with the Trustee and other parties-in-interest in the bankruptcy case and was actively supported by the Company.

The confirmed plan provided for the distribution of cash to the Company of USD 13,483,500 on or before 30 March 2020, pursuant to the terms of the confirmed plan. Upon the Effective Date of the Plan, all outstanding litigation related to the Princeton Fund was resolved, the bankruptcy case closed and the Company obtained a full release of all claims against it by the Princeton fund, its general partner, MicroBilt and its related entities and all other investors in Princeton. The Company received the cash payment of USD 13,483,500 on 2 April 2020.

Outlook

Your Board's overriding objective is to achieve a balance between delivering maximum value and making timely returns of capital to Shareholders, and we remain focussed on that. Whilst the portfolio is now much smaller, we will continue with our attempts to extract maximum value from the remaining balances whilst conscientiously focussing on cost reductions.

In the first half of 2020, we hope to realise a substantial part of the remaining assets and return the proceeds to our Shareholders. We will also continue to streamline management and other administrative costs and ultimately will look to delist the Company's shares once the remaining assets have been substantively returned to Shareholders.

The Board is fortunate to have the support of an excellent team of advisors whose industriousness, diligence and experience have enabled clarity of debate and comfort in the decisions it has made, and we are grateful for their continuing efforts.

Annual General Meeting

The Company's 2020 Annual General Meeting ("AGM") is due to be held on Tuesday, 30 June 2020. Due to the ongoing Covid-19 situation, the Board has taken into consideration the compulsory 'Stay at Home' measures that were published by the UK Government on 23 March 2020. The Board fully supports these measures to protect public health and safety and in light of these measures, and as our priority is the health, safety and wellbeing of all our stakeholders, the Company therefore wishes to notify its Shareholders that physical attendance in person at the AGM will not be possible. The meeting will take place with the minimum necessary quorum of two Shareholders, which will be facilitated by the Company in line with the Government's strict social distancing advice.

The Board recognises that the AGM is an important event for all Shareholders and is keen to ensure that they are able to exercise their right to participate and vote notwithstanding the current restrictions on attendance in person. If Shareholders wish to participate in the AGM, they are encouraged to vote online or appoint the Chairman of the meeting as their proxy and provide their voting instructions in advance of the meeting.

Details of the AGM will be available on our website at https://rdlrealisationplc.co.uk/ and Shareholders are encouraged to send any questions that would have been raised at the AGM to info@rdlrealisationplc.co.uk in advance of the AGM. Please refer to the Notice of AGM for further details.

Brendan Hawthorne

Chairman

3 June 2020

EXECUTIVE DIRECTORS' REPORT

As a reminder, the Board was entrusted by Shareholders with a mandate to realise assets and return capital to Shareholders. This investment policy was set out in a circular to Shareholders and formally approved by Shareholders at a general meeting in November 2018. During the year, the Directors made good progress in achieving the mandate.

The Executive Directors have spent considerable time in the USA this year, monitoring the portfolio, meeting investee platforms and working with the platforms on realisations. This work is ongoing. To assist in this task Joe Kenary, based in the USA, was appointed a Non-Executive Director in January and assumed executive responsibilities shortly thereafter. Some of the key achievements during the period are:

· in January 2019, the Company's exposure to the International MCA Platform was refinanced and its promissory notes paid off. The Company realised USD 38,007,954 (at carrying value) pursuant to this transaction.

· during the year, the Company reached agreement to repay the Group's outstanding ZDP Shares. As announced by the Company on 20 June 2019, resolutions to place its subsidiary, RDLZ, into a members' voluntary winding up and to amend the amounts payable in respect of the ZDP Shares issued by RDLZ in order that ZDP Shareholders would receive a final capital entitlement of 121.8887 pence per ZDP Share, were passed at the ZDP Class Meeting and the General Meeting of RDLZ held on 20 June 2019. The cost to the Company of repaying the ZDP Shares on 21 June 2019 amounted to approximately USD 70.7 million. Note that this figure does not include associated transaction expenses, which amounted to approximately USD 860,000.

· as a result of the early repayment of the ZDP Shares, the Company's ability to pay further dividends is no longer constrained by the cover ratio covenant that required the Company to keep 2.75 times asset cover. Accordingly, the Company was able to recommence the payment of dividends as and when it had excess capital.

· during the year, a total of USD 64.3 million or 326.77p per Ordinary Share was paid to Shareholders by way of dividends. A further dividend of USD 5.3 million or 33p per Ordinary Share was declared in January 2020 and a dividend of USD 20.0 million or 106p per Ordinary Share was declared in April 2020.

Shareholders should take note that a mandate requiring the active sale or timed liquidation of portfolios presents an inherent risk which does not present itself with the run-off of a portfolio, in that such assets may not be realised at their fair value. Although the Company is not currently considering offers which fall materially below the values referred to in note 18, the inherent risk of attracting opportunistic buyers must be managed with the optionality to run down a short-term portfolio in order to ensure the realisation of appropriate value.

As detailed in the Chairman's Statement, the Company received the sum of USD 13,483,500 on 2 April 2020 following the resolution of the Princeton matter. All outstanding litigation related to the Princeton Fund has been resolved, the bankruptcy case closed, and the Company has obtained a full release of all claims against it by the Princeton Fund, its general partner, MicroBilt and its related entities and all other investors in the Princeton Fund. 

Management arrangements

On 12 February 2019, the Investment Management Agreement between the Company and Ranger was terminated. The Company has, during the period, appointed IFM as its replacement Alternative Investment Fund Manager ("AIFM").

Following the appointment of IFM, the Executive Directors continue performing the functions they have been carrying out during the current management arrangements. In particular, any investment or divestment decisions relating to the Company's portfolio will not be implemented without prior Board approval. The Executive Directors are assisted by Steve Bellah, a senior credit professional and a financial controller, of Remuda Credit Advisors, LLC ("Remuda"), based in Dallas, USA, to assist with the management and realisation of the portfolio. A significant amount of time was spent by the Executive Directors in the run up to 12 February 2019 to ensure a smooth transition of management responsibilities and to avert any disruption to the portfolio management role.

Investment portfolio

No new investments were made during the year.

At 31 December 2019, 100% of the portfolio was invested in secured Debt Instruments (including loans, cash advances, and receivables financing) to mainly SME borrowers, and none of the portfolio consisted of unsecured consumer loans. For this purpose, a secured Debt Instrument is defined by the Company as a payment obligation in which property, financial assets (including receivables), or a payment guarantee has been pledged, mortgaged or sold to the Company as partial or full security with respect to such obligation.

Below is a brief summary of each investment platform/partner which provides:

· net balance at 31 December 2019 (estimated fair value); and

· commentary summarising primary activity and expected disposition of the investments

Please note that all amounts shown below are in USD.

SME/CRE Loans Platform

Since 31 December 2018, there has been a regular run-off of all performing investments. The Executive Directors have been in regular contact with this platform. All remaining investments will be run off in the normal course within the next 12 months.

Second SME Loans Platform

A significant cash paydown of USD 27.9 million was received in August 2019 as a result of a refinancing with a new lender. A separate USD 4.5 million loan remains outstanding to the manager of the platform and was valued at USD 0.2 million. The remaining loan is in the process of restructuring efforts which include the direct involvement of Mr Kenary on behalf of the Board.

Real Estate Lending Partner

There has been a combination of sales of some investments with help of the platform and regular run-off of all performing investments, particularly during the latter part of the year. The platform will continue to assist with the sale of some investments to its other investors throughout 2020, and the remaining investments will be run-off in the normal course within the next 12 months.

Princeton Alternative Income Fund

The Bankruptcy Court ruled on 13 March 2020 to confirm the Amended Plan. The settlement of USD13,483,500 was received on 2 April 2020.

Canadian SME Lending Platform

This platform portfolio is now serviced directly by the Company. Using the information from the former Investment Manager's direct contact with the borrowers, the Company continued its servicing and re-structuring of payment obligations with individual borrowers whose loans were originated by the platform. These loans are venture loans to mainly small and early stage companies with underdeveloped profit profiles which bear certain risks common to venture lending. The remaining investments are expected to be run off in due course under a variety of collection efforts. Current collection efforts include litigation and realisation of collateral proceeds, restructured pay out terms with longer amortisation, and participation in royalty streams from future company sales to be applied to the outstanding loans.

Equipment Loans Platform

Since 31 December 2018, there has been a regular run-off of all performing investments. The remaining investments are expected to be run-off in the normal course.

Second Consumer Loans Platform

Since 31 December 2018, there has been a regular run-off of all performing investments. All remaining balances were collected or written off in 2019.

Invoice Factoring Platform

Since December 2018, there has been a regular run-off of all performing investments. The remaining balance was written off in 2019.

Third SME Loans Platform

Since December 2018, there has been a regular run-off of all performing investments and there are no remaining investments outstanding.

Consumer Loans Platform

In October 2018, all performing loans were sold to a third party which left the non-performing loans to run-off. All remaining balances were written off in 2019.

Independent valuation of the portfolio

Duff & Phelps, an independent valuation firm is engaged to perform valuation consulting services on the Company's portfolio. This excludes the investment in Princeton, owing to a lack of available information for this investment and the Canadian SME loans. The consulting services consisted of certain limited procedures that the Company identified and requested the independent valuation firm to perform.

A copy of the report from Duff & Phelps (the "DP Report") as at 31 December 2019 has been delivered to the Board.

The Company is ultimately and solely responsible for determining fair value of the investments in good faith, and following its review of the report, the values at 31 December 2019 were updated based on the Duff & Phelps valuation with the exception of the Canadian SME Lending Platform. The Canadian SME loans are venture loans with little to no scheduled payments. Payments are determined annually and are reliant upon Canadian Government tax rebates and credits. Further, well over 90% of the portfolio is non-performing. Thus, Duff & Phelps has indicated that traditional valuation methods do not apply.

Sector Reporting

As at 31 December 2019, the portfolio (excluding Princeton, cash and cash equivalents) was diversified as follows:

GROUP STRATEGIC REPORT

Cautionary Statement

The Group Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Business Model

The Company is an Investment Trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

Following the Company's announcement on 11 June 2018 that it will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the principles of good investment management, with a view to returning cash to its Shareholders in an orderly manner.

The Directors expect that the process of realisation will result in a transition to voluntary liquidation to preserve the Company's Investment Trust status. The timing of such move is uncertain as the Directors progress the orderly realisation of the portfolio as soon as practicable and with regard to cost efficiency and the working capital requirements of the Company.

During the year under review, the Board operated three working committees to provide the necessary oversight of the Company's investments.

The first committee, which comprised of Dominik Dolenec, Brendan Hawthorne, Joe Kenary and Brett Miller is responsible for the wind-down and realisation of the Company's existing portfolio (excluding Princeton) with the specific aim of maximising returns for Shareholders. With effect from 31 March 2020, this committee was disbanded. The Board as a whole maintains full responsibility for the wind-down and realisation of the Company's remaining portfolio

The second committee, which comprises all Board members, is tasked with management of the Princeton proceedings and the strategic decisions associated with those proceedings. In view of the resolution of the Princeton proceedings in March 2020, this committee has been disbanded.

The third committee, which was disbanded in July 2019 following the payment of the revised final capital entitlement in relation to the ZDP Shares issued by RDLZ, was initially formed to consider proposals relating to retiring the ZDP Shares. Brendan Hawthorne and Joe Kenary as Directors of RDLZ were not members of this committee.

Any final decisions regarding the approach to the investment portfolio and any other proposals to be put to Shareholders are decided by the Board as a whole.

In order to focus on the progress of the realisation of assets within the Company's portfolio, the Board delegated set responsibility to certain of its members. During 2019, Mr Dolenec had executive responsibility for the lead on the management of the Princeton proceedings and reported into the Princeton working committee. Mr Kenary is lead for the day-to-day management of the remaining assets in the portfolio, working closely with Steve Bellah of Remuda. Mr Miller has executive responsibility for governance and reporting. Whilst these Directors have been allocated these executive responsibilities, the Board as a whole makes all decisions relating to the realisation of assets and each Director regularly reports to the Board.

IFM is the Alternative Investment Fund Manager of the Company and is subject to the AIFMD only to the limited extent applicable when a non-EEA Alternative Investment Fund Manager (an "AIFM") offers or markets an EEA Alternative Investment Fund (an "AIF") in the EEA. For the purposes of the AIFMD, the Company is the AIF and IFM is the AIFM.

Outsourced principal service providers include the following:

Borrowing policy

In accordance with the Company's investment policy, the Company will not undertake new borrowing other than for short-term working capital purposes.

During the year, the Company repaid in full its only loan payable to RDLZ (2018: USD 70,979,233).

Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results. The Board of Directors has overall responsibility for risk management and internal control within the context of achieving the Company's new investment objective. The Board agrees the strategy for the Company, approves the Company's risk appetite and monitors the risk profile of the Company.

The Company has a risk map which consists of the key risks and controls in place to mitigate those risks. The risk map, which is reassessed regularly by the Audit Committee, provides a basis for the Audit Committee and the Board to regularly monitor the effective operation of the controls and to update the matrix when new risks are identified. The Board's responsibility for conducting a robust assessment of the principal risks is embedded in the Company's risk map and stress testing. The Board, through delegation to the Audit Committee, undertakes this robust annual assessment and review of the principal risks facing the Company, together with a review of any emerging risks which may have arisen during the year.

The Company's investment management and administration functions have historically been outsourced to external service providers. In February 2019, Ranger's contract expired, and the Company appointed IFM as its AIFM working with the Board. In addition, the Company continues to rely on external service providers for a number of management and administrative functions. Any failure of any external service provider to carry out its obligations could have a materially detrimental impact on the effective operation, reporting and monitoring of the Company's financial position. This is likely to have an effect on the Company's ability to meet its investment objective successfully. The Company receives and reviews internal control reports from its key external service providers on an annual basis from its Administrator, AIFM and Registrar. The Audit Committee has reviewed and considered the guidance supplied by the Financial Reporting Council ("FRC") on Risk Management, Internal Control, and Related Finance and Business Reporting. Information regarding the Company's internal control and risk management procedures can be found in the Corporate Governance Statement in the full annual report.

The Board will continue to keep the Company's system of risk management and internal control under review and will continue to ensure that the principal risks and challenges faced by the Group are fully understood and managed appropriately.

An overview of the principal risks and the main uncertainties that the Board considers to be currently faced by the Company are provided below, together with the mitigating actions being taken.

Risks arising due to Managed Wind-Down

In a managed wind-down, the value of the portfolio will be reduced and concentrated in fewer holdings, and the mix of asset exposure will be affected accordingly.

The Company might experience increased volatility in its NAV and/or its share price as a result of possible changes to the portfolio structure.

The Company's assets may not be realised at their fair market value, and it is possible that the Company may not be able to realise some assets at any value.

Sales commissions, liquidations cost, taxes and other costs associated with the realisation of the Company's assets will reduce the cash available for distribution to Shareholders.

Due to the time it would typically take to repatriate the proceeds from the sale of assets to the UK, it is expected that there could be potentially significant time lags between sales made by the Company and any subsequent returns of capital to Shareholders.

The timing and ultimate amount of any returns will be impacted by the tax regimes of the countries in which the Company invests.

The liquidity profile of the portfolio is such that Shareholders may have to wait a considerable period of time before receiving all of their distributions pursuant to the managed wind-down. During that time, the concentration of the value of the portfolio in fewer holdings will reduce diversification and the spread of risk. This may adversely affect the portfolio's performance.

The maintenance of the Company as an ongoing listed vehicle will entail administrative, legal and listing costs, which will decrease the amount ultimately distributed to Shareholders. Although the Board intends to maintain the Company's listing for as long as the Directors believe it to be practicable during the managed wind-down period, the Directors shall immediately notify the Financial Conduct Authority ("FCA") and may seek suspension of the listing of the Shares pursuant to the requirements of the Listing Rules (which may include Shareholder approval prior to any suspension or de-listing) if the Company can no longer satisfy the continuing obligations for listing set out therein including, but not limited to, the requirements in respect of Shares held in "public hands" (as such phrase is defined in the Listing Rules) and in relation to spreading investment risk, and consequently the listing of the Shares may be suspended and/or cancelled. Once suspended and/or cancelled, the Shares would no longer be capable of being traded on the London Stock Exchange, which would materially reduce market liquidity in the Shares. The Company would also lose its "Investment Trust" tax status in the UK as a result of such suspension or cancellation which may impact on the returns to Shareholders.

It should also be noted that there may be other matters or factors which affect the availability, amount or timing of receipt of the proceeds of realisation of some or all of the Company's investments. In particular, ongoing redemptions will decrease the size of the Company's assets, thereby increasing the impact of fixed costs incurred by the Company on the remaining assets. In determining the size of any distributions, the Directors will take into account the Company's ongoing running costs. However, should these costs be greater than expected or should cash receipts for the realisations of investments be less than expected, this will reduce the amount available for Shareholders in future distributions.

Declarations of dividends will be made at the Directors' sole discretion, as and when they deem that the Company has sufficient distributable reserves available to make a distribution. Shareholders, therefore, have little certainty as to whether or not the Company will make a declaration of dividend.

Mitigation

The Board have designated a number of its members as "Executive Directors" who are focused on addressing the risks associated with the managed wind-down.

Risks in relation to COVID-19

Whilst the full impact of the global pandemic is yet to be felt by businesses worldwide, it is likely to have a negative impact on the Company's remaining portfolio. As a result, the risk that Company's assets may not be realised at their fair market value, or at any value, has increased.

The highest risk of realisation are the SME platforms which contain many small businesses that are reliant on consumer spending for food and retail. The CARES Act passed in the US is providing meaningful support to this economic demographic, but the lasting impact of this government stimulus is yet to be proven. Further, financial reporting has been disrupted making it difficult to assess the financial health of these borrowers. The platform manager has indicated that no permanent impairments have been assessed but material deferments and relaxed payment schedules have been adopted. The Canadian SME portfolio is made up of venture loans to small tech-oriented companies. Repayment of these loans is heavily reliant on capital raise and new equity investment support. The capital markets in Canada have been disrupted as well making it difficult to assess the survivability of these borrowers.

Another material exposure is the CRE/real estate loan portfolio. The realisation of these loans rely more on the capital market for refinance and construction loan availability than consumer spending. The refinance and construction loan activity has slowed significantly thus delaying the payment of these loans. These loans are materially backed by hard asset collateral making it more likely to be repaid albeit on a much-delayed basis.

Mitigation

The Company is holding ongoing discussions with platform managers regarding portfolio impacts and ensuring that the results of these discussions are reflected in future portfolio valuations as appropriate.

Legal and compliance risk

Laws applicable to Debt Instruments may govern the terms of such instruments and subject the Company to legal and regulatory examination or enforcement action.

Further, any proceeding brought by the federal or state regulatory authorities to any of the Direct Lending Platforms could result in cases against the Company itself and could affect whether the Debt Instruments are enforceable in accordance with their terms.

Mitigation

To manage this risk, the Directors take legal advice as and when deemed required. Further, regulatory risk is a standing item at Board meetings.

Investment risk

The Group has residual investments remaining in Debt Instruments and the major risks include market and credit risks.

Link to KPICapital returned to Shareholders

Mitigation

The number of investments held, and sector diversity enable the Group to spread the risks with regard to market volatility, currency movements, revenue streams and credit exposure.

Throughout 2019, the Company continued to actively engage with the trustee, who was appointed in relation to the bankruptcy proceedings of Princeton and its other advisers in connection with its investment in Princeton. The Bankruptcy Court ruled on 13 March 2020 to confirm the Amended Plan. The settlement of USD13,483,500 was received by the Company on 2 April 2020.

Taxation risk

As an investment company, the Company needs to comply with sections 1158/1159 of the Corporation Tax Act 2010.

Link to KPITotal dividends for the year

Mitigation

The Administrator prepares management accounts which allow the Board to assess the Company's compliance with Investment Trust conditions. Further, contractual arrangements with third party external service providers are in place, to ensure compliance with tax and regulatory requirements.

Cyber security risk

The Company relies on services provided by its external service providers and is therefore dependent on the effective operation of their systems in place. Likewise, the Company is dependent on the Direct Lending Platforms' ability to effectively manage vulnerabilities to technological failure and cyber-attacks.

Any weakness in their information security could result in a disruption to the dealing procedures, accounting and payment process.

Mitigation

The Company performs a due diligence review before entering into contracts with any external service provider. Subsequently, the Company receives a controls performance report such as ISAE 3402 report on an annual basis from key service providers which is subject to the Audit Committee's review.

Brexit risk

The Company has also considered Brexit's current and potential impact on the Company. The majority of the Group's portfolio is denominated in USD. Therefore, the Board has concluded that this event does not represent a principal risk to the Company.

Viability Statement

Given the change in Investment Policy and in accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over its expected realisation timeframe.

In their assessment of the viability of the Company, the Directors have considered each of the principal risks and uncertainties above. The Directors have also reviewed the Company's income and expenditure projections and the fact the Company's investments (including those held through the Trust) do not comprise readily realisable securities which can be sold to meet funding requirements if necessary. The Company maintains a risk register for its stress test to identify, monitor and control risk concentration.

The Company has processes for monitoring operating costs, share price discount, compliance with the investment objective and policy, asset allocation, the portfolio risk profile, counterparty exposure, liquidity risk, financial controls and stress-testing based assessment of the Company's prospects.

The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the managed wind-down period.

Going Concern

The Board are continuing to progress with the disposal of the Company's assets in an orderly manner and returning Shareholders' capital to them.

Given the intention to wind down the Company, the use of the going concern basis in preparing the financial statements of the Group is not considered to be appropriate. As such the financial statements have been prepared on a basis other than that of a going concern, under which assets are measured at their net realisable value. There were no adjustments made to the carrying values of the assets and liabilities of the Group in the current or prior year as a result of this change in the basis of preparation, because the Directors consider the carrying value of assets to approximate their net realisable value.

No provision has been made for the costs of winding up the Company as these will be charged to the income statement on an accruals basis as they are incurred or as the Company becomes obligated to make such payments in the future.

The Directors believe that the Company and Group have adequate resources to continue in operational existence until the anticipated liquidation of the Company.

Performance

The Company's NAV as at 31 December 2019 is below:

Dividends

The following dividends were declared and paid during the year under review.

Since the year end, the following dividends have been declared and paid or are payable:

Please refer to note 11 for further details.

Key Performance Indicators and Investment Restrictions

The Company's investment policy calls for an orderly wind-down of the Company's investments with the aim of maximising risk-adjusted IRRs to Shareholders. New investments are restricted only to existing exposures and are subject to a number of pre-conditions.

Environmental, Human Rights, Employee, Social and Community Issues

Corporate responsibility covers many different aspects of business. The Group has no direct social or community responsibilities and the Company has no employees. As an Investment Trust, the Company's own direct environmental impact is minimal, and it has no direct impact on the community and as a result does not maintain specific policies in relation to these matters.

The Company falls outside the scope of the Modern Slavery Act 2015 as it does not meet the turnover requirements under that act. The Company operates by outsourcing significant parts of its operations to reputable professional companies, who are required to comply with all relevant laws and regulations and take account of social, environmental, ethical and human rights factors, where appropriate.

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, including those within its underlying investment portfolio.

In carrying out the realisation of the portfolio, the Company aims to conduct itself responsibly and ethically.

Board Diversity

The Board consists entirely of male Directors. A description of the Company's Board diversity policy is set out in the Corporate Governance Statement in the full annual report.

Stakeholders

In accordance with the AIC Code of Corporate Governance (the "AIC Code") and the Companies Act 2006 (the "Law"), the Board is required to understand the views of the Company's key stakeholders and describe in the Annual Report how their interests and the matters set out in section 172 of the Law have been considered in board discussions and decision-making. This section of the Law requires the Directors to have regard to the following matters:

· the likely consequences of any decision in the long term;

· the need to foster the Company's business relationships with suppliers, customers and others;

· the impact of the Company's operations on the community and the environment;

· the Company's reputation for high standards of business conduct; and

· the need to act fairly as between members of the Company.

The importance of stakeholder considerations, in particular in the context of decision making, is taken into account at every Board meeting. All discussions involve careful consideration of the consequences of any decisions and their implications for stakeholders.

Our Stakeholders

The Board seeks to understand the needs and priorities of the Company's stakeholders and these are taken into account during all of its discussions and as part of its decision making. The Board has discussed which parties should be considered as stakeholders of the Company, whilst having regard to the Company's position. In view of the Company being in a managed wind-down and realising its remaining investments, the Board believes that the Company's stakeholders during this process are its Shareholders and portfolio companies.

Shareholders

The Board recognises that the Company has certain responsibility to its Shareholders. Continued Shareholder support and engagement are critical to the wind-down and delivery of the Company's Investment Objective.

During 2019, two of the Directors on the Board were representatives of the Company's two largest Shareholders and provided input directly to the Board. The presence of these Directors as members of the Board ensured effective engagement to understand their views on the managed wind down of the Company and encouraged participation from all Shareholders.

The Board is committed to maintaining open channels of communication and to engage with all Shareholders in a manner which they find most meaningful, in order to gain an understanding of the views of Shareholders. These include:

· Annual General Meeting - The Company welcomes participation from Shareholders at the AGM and Shareholders are encouraged to vote online prior to the AGM. Shareholders have the opportunity to address questions to the Directors. The Company values any feedback and questions it may receive from Shareholders ahead of the AGM and will take action or make changes, when and as appropriate. In view of the current compulsory 'Stay at Home' measures, Shareholders will not be permitted to attend the AGM in person;

· Publications - The Annual Report and Half-Year results are made available on the Company's website and the Annual Report is circulated to Shareholders. These reports provide Shareholders with a clear understanding of the Company's progress in manging the wind down of the portfolio and its financial position. Feedback and/or questions the Company receives from Shareholders help the Company evolve its reporting, aiming to render the reports and updates transparent and understandable; and

· Shareholder concerns - In the event Shareholders wish to raise issues or concerns with the Directors, they are welcome to do so at any time by emailing the Chairman at info@rdlrealisationplc.co.uk. Other members of the Board are also available to Shareholders if they have concerns that have not been addressed through the normal channels.

Portfolio companies

Day to day engagement with portfolio companies is undertaken by Remuda and Joe Kenary. The Board attends a weekly call to receive detailed updates on the performance and return analyses of the portfolio and progress on the realisation of assets where possible. The Board retains responsibility for making decisions in respect of the realisation of the portfolio.

The Board is committed to engaging with portfolio companies in a manner which they find most meaningful, in order to maximise the return from their realisation but also in a timely manner.

Culture

A company's culture would conventionally be defined as a blend of attributes and behaviours people experience while at work and which inform actions and decision making. While the Company has no employees and is in a managed wind down, the Company recognises the importance of culture in terms of the Board's behaviour and its alignment with the Company's sole purpose of realising its assets and returning capital to Shareholders.

The Board's own culture promotes a desire for strong governance and transparency of debate. The Directors are required to act with integrity, lead by example and promote this culture with its commitment to conducting the managed wind down of the portfolio in a manner to maximise the return to Shareholders.

The Group Strategic Report was approved by the Board of Directors on 3 June 2020 and signed on its behalf by:

Brendan HawthorneChairman

Board of Directors

Brendan Hawthorne - Non-executive director and Chairman

Brett Miller - Executive Director

Gregory Share - Non-executive Director and Chairman of the Remuneration and Nomination Committee

Joseph Kenary - Executive Director

Nicholas Paris - Non-Executive Director (Resigned on 31 March 2020)

Dominik Dolenec - Executive Director (Resigned on 1 April 2020)

EXTRACTS FROM DIRECTORS' REPORT

Current Share Capital

As at 31 December 2019 and as at the date of this Report, the Company had 16,122,931 Ordinary Shares of GBP 0.01 each in issue, all of which are admitted to the official list maintained by the Financial Conduct Authority and admitted to trading on the London Stock Exchange. No shares were held in treasury during the year or at the year end. During the year, there were no purchases of Ordinary Shares made by the Company.

The rights attaching to the Company's Ordinary Shares are set out in the Company's Articles. Further details are shown in note 14 to the consolidated financial statements.

Dividend Policy

As advised to Shareholders in the Company's circular dated 29 October 2018, the Board does not intend to make quarterly dividends and will instead make payments by way of ad-hoc special dividends, where appropriate, during the course of the managed wind-down process so that the Company is able to return available cash to Shareholders as soon as reasonably practicable after cash becomes available in the portfolio.

Results and Dividends

A summary of the Company's performance in respect of the progress made in realising its investments during the year and the outlook for the forthcoming year in the full annual report.

The declaration of interim and special dividends can be made at the Directors' sole discretion, as and when they deem that the Company has sufficient distributable reserves available to make a distribution. The Company will also look to structure its dividend payments to maintain its investment trust status for so long as it remains listed. Details of the dividends paid during the year, can be found in the full annual report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and financial statements in accordance with United Kingdom applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial period. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period. In preparing these financial statements, the Directors are required to:

· properly select and apply accounting policies consistently;

· make judgement and estimates which are reasonable and prudent;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. As explained in note 2 to the financial statements, the Directors do not believe the going concern basis to be appropriate for the preparation of the financial statements of the Group and accordingly the financial statements of the Group have not been prepared on a going concern basis. No provision has been made for the costs of winding up the Company as these will be charged to the income statement on an accruals basis as they are incurred or as the Company becomes obligated to make such payments in the future.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent and detect fraud and other irregularities.

The Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with relevant laws and regulations, and for ensuring that the Annual Report includes information required by the Disclosure and Transparency Rules of the UK Listing Authority.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's and Stock Exchange websites. Legislation in the UK governing the preparation and dissemination of financial statements may differ from the legislation in other jurisdictions.

Responsibility Statement

We, the Directors listed above, being the persons responsible, hereby confirm to the best of our knowledge that:

· the financial statements, have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial positions and profit or loss of the Group and the Company; and

· the Group Strategic Report and the Executive Director's Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties the Company faces.

The Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's and Company's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 3 June 2020 and is signed on behalf of the Board.

Brendan HawthorneChairman

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2019 but is derived from those accounts. Statutory accounts for 2019 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report at: www.rdlrealisationplc.com

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

The financial statements for the year ended 31 December of RDL Realisation Plc, a public listed company limited by shares and incorporated in England and Wales with the registered number 09510201, were approved and authorised for issue by the Board of Directors on 3 June 2020.

Signed on behalf of the Board of Directors:

Brendan Hawthorne

Chairman

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

The total column of this Statement of Comprehensive Income was prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

The total column of this Statement of Comprehensive Income was prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

Other comprehensive income

There were no items of other comprehensive income in the current year or prior year.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

The accompanying notes below are an integral part of these financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

1. GENERAL INFORMATION

The Company was incorporated and registered in England and Wales on 25 March 2015 and commenced operations on 1 May 2015 following its admission to the London Stock Exchange Main Market. The registered office of the Company is 6th Floor, 65 Gresham Street, London, EC2V 7NQ.

The consolidated financial statements ("financial statements") include the results of the Trust and RDLZ. The Company will be managed, either by a third party non-EEA investment manager or internally, by the Company's Board of Directors with the intention of realising all remaining assets in the portfolio in a prudent manner consistent with the principles of good investment management, with a view to returning cash to its Shareholders in an orderly manner.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below.

Basis of accounting and preparation

These financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The financial statements were also prepared in accordance with the Statement of Recommended Practice ("SORP") for Investment Trusts issued by the AIC (as issued in November 2014 and updated in January 2017), where this guidance is consistent with IFRS.

Basis of measurement and consolidation

The financial statements have been prepared on a historical cost basis as modified for the revaluation of certain financial assets. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Trust is fully consolidated from the date on which control is transferred to the Group and deconsolidated from the date that control ceases.

Going concern

As the Company is in a managed wind down, the use of the going concern basis in preparing these financial statements of the Group is not appropriate. As such the financial statements have been prepared on a basis other than that of a going concern, which require assets to be measured at their net realisable value. There were no adjustments made to the carrying values of the assets and liabilities of the Group as the Directors' consider the carrying value of assets to approximate the net realisable value. The Directors believe that the Company and Group have adequate resources to continue in operational existence until the anticipated liquidation of the Company.

Viability statement

In line with the Investment Policy and in accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over its expected realisation timeframe.

In their assessment of the viability of the Company, the Directors have considered each of the principal risks and uncertainties in the strategic report. The Directors have also reviewed the Company's income and expenditure projections and the fact the Company's investments (including those held through the Trust) do not comprise readily realisable securities which can be sold to meet funding requirements if necessary. The Company maintains a risk register for its stress test to identify, monitor and control risk concentration.

The Company has processes for monitoring operating costs, share price discount, compliance with the investment objective and policy, asset allocation, the portfolio risk profile, counterparty exposure, liquidity risk, financial controls and stress-testing based assessment of the Company's prospects. The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the Managed Wind-Down period.

New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") adopted during the current year

The Directors have assessed the impact, or potential impact, of all New Accounting Requirements. In the opinion of the Directors, there are no mandatory New Accounting Requirements applicable in the current period that are relevant and/or material to the Company. Consequently, no such mandatory New Accounting Requirements are listed. The Company has not early adopted any New Accounting Requirements that are not mandatory.

New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") not yet adopted

In the Directors' opinion, all non-mandatory New Accounting Requirements are either not yet permitted to be adopted or would have no material effect on the reported performance, financial position or disclosures of the Group and consequently have neither been adopted nor listed.

Use of estimates, judgements and assumptions

The Company based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

The following are areas of particular significance to the Group's financial statements and include the use of estimates and the application of judgement.

Key source of estimation uncertainty - fair value of financial assets at fair value through profit or loss

The determination of fair values based on available market data requires significant credit judgement by the Group.

Management has applied certain estimated potential impairments to these financial instruments as of 31 December 2019. For the material financial instrument positions at 31 December 2019, a combination of factors was taken into consideration, see note 18 and the Principal Risks and Uncertainties in Group Strategic Report.

In addition to the credit judgement of management related to the reserves for potential impairment, third party valuations and analysis were also employed for the material financial instruments for comparison and consideration. For these third-party valuations, a weighted average IRR for each platform was used. Included in the discount analysis by third parties were increased discount rates for individual non-performing loans. Such valuations considered actual and market default rate comparisons for the discount rate.

Functional and presentation currency

The financial statements are presented in US Dollars ("USD"), the currency of the primary economic environment in which the Company operates, the Company's functional currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the Statement of Financial Position date.

Financial Instruments

IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.

· Classification - Financial assets

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") and Fair Value through Profit or Loss ("FVTPL").

Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

The Group has designated its investments as financial assets at FVTPL.

· Impairment - Financial assets and contract assets

IFRS 9 utilises a forward-looking 'expected credit loss' ("ECL") model which requires considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.

The impairment model applies to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets.

Under IFRS 9, loss allowances will be measured on either of the following bases:

· 12-month ECL: these are ECLs that result from possible default events within the 12 months after the reporting date; and

· lifetime ECL: these are ECLs that result from all possible default events over the expected life of a financial instrument.

Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset's credit risk has not increased significantly if the asset has low credit risk at the reporting date.

The Group believes that impairment losses are likely to become more volatile for assets in the scope of the IFRS 9 impairment model.

Under IFRS 9, the Group has to classify all financial instruments in scope for impairment into 3 Stages - stage 1, stage 2 or 3, depending on the change in credit quality since initial recognition.

Investments in equity instruments and financial assets at FVTPL are out of scope of the impairment requirement.

Stage 1

This includes loans where there is no significant increase in credit risk since initial recognition or loans that have low credit risk on reporting date. For loans in stage 1, interest is accrued on the gross carrying amount of the loans and a 12-month ECL is factored in the profit and loss calculations.

Stage 2

This consists of loans with significant increase in credit risk since initial recognition but not credit impaired. Interest for loans in stage 2 is accrued on the gross carrying amount. However, a lifetime ECL is factored into the profit and loss calculations.

Stage 3

This includes loans which demonstrate evidence of impairment on the reporting date. Interest is accrued on the net carrying amount of the loans and a lifetime ECL is factored into the profit and loss calculations.

For the Group's loan investments, the assessment is performed on a collective basis per platform as the underlying loans have shared risk characteristics. However, individual assessment may be performed depending on the magnitude and available information from the platform providers.

For short-term receivables and cash and cash equivalents, the ECL model is not likely to result in a material change of the balance due to their short-term nature therefore the Group will apply the simplified approach for contracts that have a maturity of one year or less.

· Classification - Financial liabilities

IFRS 9 allows financial liabilities to be designated at amortised cost or fair value, under IFRS 9 these fair value changes are generally presented as follows:

- the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in the OCI; and

- the remaining amount of change in the fair value is presented in profit or loss.

The Group has not designated any financial liabilities at FVTPL, and it has no current intention to do so.

Financial assets held at fair value through profit or loss

The Group's financial assets consist of loans at fair value through profit or loss and equity investments in funds. The Group designates its investment as financial assets at fair value through profit or loss in accordance with IFRS 9: Financial Instruments as the fund is managed and its performance is evaluated on a fair value basis and the Group now holds the investments with the intention to sell rather than to collect contractual cash flows.

Purchases and sales of financial assets are recognised on the trade date, the date which the Group commits to purchase or sell the assets and are derecognised when the rights to receive cash flows from the financial assets have expired or the Group has transferred substantially all risks and rewards of ownership. Financial instruments are initially recognised at fair value, and transaction costs for financial assets carried at fair value through profit or loss are expensed. Gains and losses arising from changes in the fair value of the Group's financial instruments are included in the Statement of Comprehensive Income in the period which they arise.

Financial liabilities at amortised cost - Zero Dividend Preference Shares

These are initially recognised at cost, being the fair value of the consideration received associated with the borrowing net of direct issue costs. Zero Dividend Preference Shares are subsequently measured at amortised cost using the effective interest method. Direct issue costs are amortised using the effective interest method and are added to the carrying amount of the Zero Dividend Preference Shares.

Derivative financial instruments

Derivative financial instruments, including short-term forward currency and swap contracts are classified as held at fair value through profit or loss, and are classified in current assets or current liabilities in the Statement of Financial Position. Derivatives are entered into to reduce the exposure on the foreign currency loans. Changes in the fair value of derivative financial instruments are recognised in the Statement of Comprehensive Income as a capital item. The Group's derivatives are not used for speculative purposes and hedge accounting is not applied.

Taxation

Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains. The Company has taken advantage of modified UK tax treatment in respect of its qualifying interest income for an accounting period and has chosen to designate as an "interest distribution" all or part of any amount it distributes to the Shareholders as dividends, to the extent that it has qualifying interest income for the accounting period. As such, the Company is able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. It is expected that the Company will have material amounts of qualifying interest income and therefore may decide to designate some or all of the dividends payable as interest distributions.

The current tax payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the Statement of Financial Position date.

Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax rates that have been enacted or substantively enacted at the Statement of Financial Position date.

The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Investment and other income

Investment income and other income are recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Income for all interest bearing financial instruments is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Dividend income

Dividend income from investments is recognised when the Shareholders' rights to receive payment have been established.

Dividends payable

Dividends payable on ordinary shares are recognised in the Statement of Changes in Equity when approved by the Directors in respect of interim dividends and by the Shareholders if declared as a final dividend by the Directors at an AGM. As advised to Shareholders in the Company's circular dated 29 October 2018, the Board does not intend to make quarterly dividends and will instead make payments by way of ad-hoc special dividends, where appropriate, during the course of the managed wind-down process so that the Company is able to return available cash to Shareholders as soon as reasonably practicable after cash becomes available in the portfolio. 

Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing securities with original maturities of three months or less.

Segmental reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Directors perform regular reviews of the operating results of the Group and make decisions using financial information at the Group level only. Accordingly, the Directors believe that the Group has only one reportable operating segment.

The Directors are responsible for ensuring that the Group carries out business activities in line with the transaction documents. They may delegate some or all of the day-to-day management of the business, including the decisions to purchase and sell securities, to other parties both internal and external to the Group. The decisions of such parties are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Directors; therefore, the Directors retain full responsibility as to the major allocation decisions of the Group.

Earnings per share

The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary Shareholders by the weighted average number of ordinary shares outstanding during the period.

The diluted EPS is the same as the basic EPS as there is currently no arrangement which could have a dilutive effect on the Company's ordinary shares.

Share capital and share premium

Ordinary Shares are not redeemable and are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Expenses (including finance costs)

Expenses are accounted for on an accruals basis and are recognised in the Statement of Comprehensive Income. Investment management fee is 100% allocated to revenue, along with all other expenses which are also charged through revenue.

3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The Group's financial asset at fair value through profit or loss represents all its loan investments.

The financial assets amounting to USD 13,483,500 represents assets realised subsequent to the year-end and therefore, are classified as current assets. The remaining assets are classified as non-current.

Following the Company's announcement on 11 June 2018, that it will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the

principles of good investment management with a view to returning cash to its Shareholders in an orderly manner. In the prior year, all loans which were previously held at amortised cost have been reclassified as at fair value through profit or loss.

Fair value estimation

Please refer to the Executive Directors' Report for Princeton update, the Audit Committee Report and note 18 for the valuation of financial assets at fair value through profit or loss.

4. LOANS HELD AT AMORTISED COST 

Up to 1 July 2018, the Group's loans were accounted for using the effective interest method and held at amortised cost. The carrying value of such instruments includes assumptions that are based on market conditions existing at each statement of financial position date. Such assumptions include application of default rate and identification of effective interest rate taking into account the credit standing of each borrower as assessed by each direct lending platform.

5. ADVANCES TO/FUNDS RECEIVABLE FROM DIRECT LENDING PLATFORMS

6. INVESTMENT IN SUBSIDIARIES