The Role of a Forensic Accountant in a Liquidation Scenario
A liquidator’s duty to investigate
Most liquidators will accept that the first step in ensuring that returns to the estate are maximised is seeking to fully understand the events leading up to the liquidation and the asset profile of the estate. Doing so will require specific investigation skills and most likely the review of a large amount of data. Forensic accountants are well versed in understanding the story behind headline figures and reported values, which often tell a different story to the underlying facts. A forensic accountant will perform the necessary investigations with an enquiring mindset and will review the information at hand for the ever-present anomalies that can lead to uncovering the true facts of a situation. For example, does a director’s recorded salary and benefits support the lifestyle or assets they purport to have?Incomplete Books and Records
A common struggle faced by many liquidators is compiling books and records sufficient to understand not just the asset structure of the estate they have inherited, but also the former operations, the ongoing obligations and to investigate the necessary facts behind the liquidation. A forensic accountant is experienced in reconstructing records in exactly these situations, where books and records are inadequate. Unlike a normal accounting scenario, a forensic accountant understands that not every debit is matched by a corresponding credit, but that often various “pieces” of information need to be put together to understand the “puzzle”. As well as records being incomplete, those that are obtained are often received in a piecemeal and unstructured format from a number of different sources. A forensic accountant is experienced in not simply relying on an index of information, but has the ability to trawl through and review a significant amount of unstructured and imperfect information to find the necessary, or sometimes hidden, facts. A liquidator is granted a number of statutory powers in relation to obtaining books and records, which an ordinary forensic investigation may not benefit from. The use of forensic accounting skills provides liquidators with the ability to thoroughly consider the content of the data in order to optimise its usefulness.Communications in multi-party procedures
Through the course of the engagement, a liquidator is often required to communicate with a significant number of parties and, whilst sometimes these communications are for information only, often the input of relevant parties or stakeholders is required where, for example, they may be seeking approval from a liquidation committee, or commitments from potential funders. For a number of reasons, including but not limited to, concerns regarding confidentiality, privileged information, or a lack of time and resources, a liquidator may be required to condense a significant amount of complex and detailed analysis into a more digestible format. An often unknown, yet key skill, of a forensic accountant is this ability to condense a significant amount of complex data and analytics into a “simpler” story. As an example, a large number of people, without accounting or legal experience, will be able to explain the broad basics of a “Ponzi” scheme, because forensic accountants have summarised the principles behind such a complicated fraudulent scheme into an understandable format. A liquidator can utilise forensic accounting skills to ensure that those being asked to opine on certain matters are doing so with a thorough understanding of the facts without all of the specific details or without having to review the often complicated analysis associated with the messaging.No prior year file
On ‘Day 1’ a liquidator often has very limited knowledge of the situation and it can be surmised that no two liquidations are the same; each case has a unique fact pattern and set of challenges. It is a very different situation to an auditor performing an annual audit with the benefit of a prior year file as background knowledge for example. Liquidators and forensic accountants are experienced in exactly these scenarios; working out how to navigate from point “A” to point “B”, without a map. In the same way that no two liquidations are the same, no two forensic reviews will be the same, and a forensic accountant will be able to apply their investigatory, analytical and quantitative skill sets to the data at hand to build up and consider the current fact profile without relying on previous review or analysis.Litigation
Given that the circumstances leading up to liquidation may include an element of wrongdoing or misadventure, litigation will invariably be a feature of many liquidations, and potentially a key source of recovery for the stakeholders. As well as demonstrating the facts, it is important for any plaintiff to consider the “so what” question of the purported wrongdoing and quantify the damages caused. Utilising forensic accounting capabilities which combine analytical ability, review skills, and accounting expertise together with an understanding of legal principles, a liquidator will be able to estimate damages and present them in a manner that can be used as support in a litigation.Corporate investigation
This expertise includes restructuring, fund fiduciary, trust, corporate, accounting and fund administration professionals who hold relevant financial industry licenses in their respective jurisdictions, holding us to the highest of global regulatory standards. We regularly work with our colleagues in these affiliated companies to provide clients with a team tailored to their needs.R&H Restructuring
R&H Restructuring is a multidisciplinary team with offices in the Cayman Islands and British Virgin Islands. We have a diverse range of experience and specialist skills and are well placed to provide you with a team which possess not only a deep knowledge of complex insolvency and restructuring engagements but also a significant amount of varied and diverse forensic accounting skills putting us in the best position to maximise outcomes for stakeholders. Should you wish to discuss any of the above, or how we might best address your needs, please do not hesitate to contact any of our team below.
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