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FORENSIC INSOLVENCY

The Inquesta forensic insolvency service combines the expertise of our corporate recovery experts and the attention to detail that comes with forensic accounting.

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What is Contentious Insolvency and How do Forensic Accountants Help?

While most cases of business insolvency, particularly those of an involuntary nature, may come with some level of dispute between directors and shareholders, contentious insolvency can be particularly divisive. It most commonly stems from more serious issues within the company, such as fraud and wrongful trading. 

The task of resolving contentious insolvency cases will usually fall to forensic accountants performing a forensic insolvency investigation. This is because contentious insolvency is considered to be highly complex and requires the highest level of attention-to-detail. This is where forensic accountants excel. 

What makes contentious insolvency cases particularly difficult is the fact that company directors can face serious ramifications if found to be in breach of their obligations or duties. These potential consequences can range from personal liability for company debt, right the way through to having criminal charges brought against them. 

Forensic insolvency is often a multi-disciplined process that sees forensic accountants join forces with insolvency practitioners and other areas of corporate financing to carry out a thorough evaluation of the case. It can even result in the location of hidden assets from businesses where it was assumed that no tangible assets existed. 

Without the input of a forensic accountant, contentious insolvency cases can be a minefield to navigate. There is huge scope for key assets to go unaccounted for, and the sheer complexity of the circumstances means only those with a keen eye for detail and specialist expertise in going through information with a fine tooth-comb will be up to the job. Indeed, the involvement of a forensic accountant is often vital to securing a positive outcome for the client.

Why a Forensic Insolvency Recovery Service is Important

A specialist forensic recovery service can be the difference between creditors receiving the funds they are owed and not. Practitioners are highly-skilled and adept at locating assets that may have otherwise remained undiscovered. This includes even the most complex of cases that span across multiple jurisdictions. 

Forensic insolvency experts also have powers to force any uncooperative parties to provide information that may prove crucial to a case. This can be a huge benefit to both prosecution and defence teams, as it has the potential to unlock a powerful witness statement or evidence that could swing the case in their favour.

Documents Used to Investigate Forensic Insolvency Cases

The following are methods of sourcing information to help with a forensic insolvency claim: 

  • Company Records
  • Bankruptcy Records
  • Solicitors’ Files
  • Accountants’ Files
  • Bank Records
  • Auditors’ Files
  • HM Revenue and Customs Files

The team at Inquesta has the experience and know-how required to thoroughly investigate any insolvency case to collect key pieces of evidence and identify a root cause.

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If you need specialist guidance with a contentious insolvency case, no matter how complex, you can rely on Inquesta’s forensic insolvency service to help. 

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Contentious Insolvency Issues

There are a wide range of contentious insolvency issues. From misfeasance and preferential payments to creditors, to wrongful and fraudulent trading, each one can have serious consequences if proven and therefore needs to be handled with the utmost care and attention to detail. 

The main types of contentious insolvency issues are as follows:

Wrongful Trading

If a company director opts to continue to trade despite being fully aware that insolvency is likely on the horizon for their business, they could face allegations of wrongful trading. A director will also be guilty of wrongful trading if it is deemed that they should have been aware of the dire circumstances their firm was in.  

For wrongful trading allegations to be formalised, it will have to be proven that a director acted unlawfully, and their actions resulted in a clear loss of financial return for creditors. Any director found guilty of wrongful trading could find themselves liable for company debts. 

Some examples of wrongful trading are: 

  • Paying a bonus that the company cannot afford
  • Entering into a credit agreement while knowing that repayment would not be possible 
  • Taking a customer deposit knowing that the service cannot be completed
  • Accepting goods/services knowing that the company will not be able to pay

Fraudulent Trading

The act of fraudulent trading refers specifically to a company continuing in its operations with the obvious intention to deceive/defraud creditors, investors and customers. 

Fraudulent trading is in definition similar to wrongful trading. However, while wrongful trading is deemed a civil offence, fraudulent trading is a criminal one. Therefore, being guilty of fraudulent trading is deemed a significantly more serious offence, one which could lead to criminal court, and a much more serious consequence. 

The thing that makes fraudulent trading so much more serious an offence to wrongful trading, and can lead to the latter being ‘upgraded’ to the former, is the intent to defraud a certain party or individual.

Preference Payments

A preference payment refers to a payment made by an insolvent company immediately prior to them becoming insolvent. A payment may be deemed to be preferential if a business chooses to pay one party, while apparently being unable to pay off creditors who are higher up the pecking order. 

A preference payment takes place if the payment occurred immediately prior to the business going insolvent, or if that particular payment is what led to insolvency.

Misfeasance

Misfeasance refers to a knowing breach of fiduciary duties that results in losses incurred by company creditors. An administrator appointed to oversee an insolvency will look for signs of misfeasance and signs that a director has knowingly compromised their position.

Unlawful Dividends

Dividends are deemed to be unlawful if a company has insufficient profits to cover the particular amount paid. They can also come under scrutiny if it is discovered that appropriate authorisation has not been provided for their release. 

As a result of the clear breach of their duties, any director who authorises the payment of unlawful dividends could find themselves personally liable for whatever amount was paid out.

Transactions at an Undervalue

A transaction at undervalue involves the gifting or selling off of an asset at a rate considered much lower than its actual market value. It can be seen as a way to get around having to pay debts to creditors. 

It is possible for an investigation to take place for transactions that occurred up to two years prior to a company going insolvent, provided the firm was unable to pay its bills at that time. Should malpractice be proven, the court may order that the asset in question be returned to the company, or all proceeds from the sale be restored and given to the administrator.

Free eBook: The Complete Guide to Forensic Accounting

Whether you’re in the middle of a divorce, are having a disagreement with a fellow shareholder, you’re accused of/have been victim to financial crime, or are the subject of a POCA order, there is a huge variety of ways a forensic accountant can assist and support you through any situation, no matter how complicated. 

Whatever your situation, our free guide to forensic accounting is designed to help you to better understand the work done by our team of experts. We cover how the process works, when a forensic accountant’s skill set can help you, their specific areas of expertise, and much more.

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Inquesta, the Expert Contentious Insolvency Practitioner

No matter what the cause of insolvency or how severe, our team of forensic insolvency practitioners have all the skills and expertise to investigate and assist you. 

Insolvency can be a complicated and delicate process. This is why when instructed we will investigate with tact, without ever losing the effectiveness and the efficiency we pride ourselves on. 

Our director-led service begins by offering a no-obligation consultation, where we will perform a preliminary review of the case to assess its validity, if/how we can help, and the information we would require to proceed. We place the best interests of our clients at the forefront of everything we do, and work tirelessly to achieve the best possible result.

As both specialist forensic accountants and licensed insolvency practitioners, Inquesta is able to provide an all-encompassing service that is not available anywhere else. Contact us today to see how we can help you.

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Our Specialist Team

Meet the expert team of forensic insolvency practitioners at Inquesta ready to investigate your case and provide you with an unmatched service.

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Rob Miller

Director of Forensic Accounting

A co-founder of Inquesta, Rob Miller is a chartered accountant, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), and a Practising Member of The Academy of Experts.

With decades of experience in providing specialist forensic accounting services, Rob has been instructed to assist with numerous cases — such as financial investigations, criminal defence and confiscation proceedings, commercial and contractual disputes, valuation matters, and much more besides. He has acted on behalf of claimants, defendants, and as a single joint expert.

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Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Rob Miller is a chartered accountant, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), and a Practising Member of The Academy of Experts.

With decades of experience in providing specialist forensic accounting services, Rob has been instructed to assist with numerous cases — such as financial investigations, criminal defence and confiscation proceedings, commercial and contractual disputes, valuation matters, and much more besides. He has acted on behalf of claimants, defendants, and as a single joint expert.

“Rob Miller is my first choice for forensic accountancy on criminal cases. He has an impressive eye for detail and adopts a ‘user-friendly’ approach to interaction with our clients and other professionals which ensures the smooth running of any task we instruct him to undertake.”

Jennifer Richardson, Solicitor-Advocate

FAQs

As a specialist forensic accountant and licensed insolvency practitioner, Inquesta has everything necessary to conduct a thorough investigation under one roof. A holistic service is guaranteed.

While some cases of insolvency look on face value to be relatively straightforward and a business has just fallen on hard times, the reality could be that something untoward has taken place. If there is ever any doubt, this should be explored as it could bring about an important settlement for creditors that would otherwise not have happened.

While forensic insolvency investigations may seem out of reach for many creditors, especially if they suspect a debtor has no assets to their name, a specialist practitioner such as Inquesta will be able to keep costs to a minimum and offer a tailor-made solution to suit the needs of their client.

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