One of the areas where I have been involved over recent years is investigating fraud arising out of insolvent estates and organisations.  This is where a bankrupt person or director of an insolvent company has, in preparationn for, or in contemplation of the impending crash hidden or removed assets.  This is theft of course from the creditors of any bankrupt estate and there are provisions within the Insolvency Act 1986 for returning these assets.

This means that whenever I have investigated such a fraud it has been on behalf of an Insolvency Practitioner who has a licence to hold office as for example a trustee in bankruptcy, a receiver or a liquidator.  Acting as a fraud investigator or asset tracer means that I can excercise powers that he is granted under the Act and allow me to recover documents and question directors, employees and suppliers etc in order to determine where the assets have gone and how much could potentially be recovered.

An example of the powers granted by the Act is whereby under S236 the Insolvency Practitioner (or somebody acting on his behalf… i.e. me) has the right to demand information from say a director about a particular payment he authorised just before his company went under.  It may be that the payment was not at arms length to a bone fide supplier, but a preferential payment to a friend.  Under these circumstances this payment can be recovered for the benefit if the disadvantaged creditors of the insolvent company.

Recovering the preferential payment may need a court order, in which case it may be necessary to question the director before a judge (in the High Court) in order to get an order made for repayment.  A tennacious Insolvency Practitioner or his representitive may undertake this questioning in court as this would be cheaper and more efficient that employing a barister!  I have undertaken this task on a couple of occasions and I can assure you that asking the questions before the judge is a whole lot better that being on the receiving end which I usually am as an expert accounting witness specialising in fraud matters!

These investigations have been a little quiet over the past 24 months but I can see the opportunities as a fraud investigator approaching as a result of the current economic downturn.  There are a lot more frauds to surface as a result of the way companies have been run over the past year or two in an attempt avoid collapse as the credit crunch bites.

It is possible to divide asset recovery into a number of different camps depending on the circumstances giving rise to the need for claiming back money or goods that rightfully belong elsewhere. 

The first of these areas include criminal asset recovery or confiscation, from fraudsters and other criminals who benefit from their crime such as drug dealers or those that deal in human trafficking.  Such asset recovery is carried out through the criminal justice system but can also involve civil asset recovery using both the civil and the criminal courts depending on the circumstances.

The next area is the asset tracing and recovery from fraudsters or persons or organisations involved in sharp business practice through the civil courts.  This involves civil litigation through the civil courts.

Last but not least is the recovery of assets from insolvent individuals and organisations.  This is recovery of assets after the fact, attempting to trace assets that should be available to creditors of the insolvent entity.  A fraud investigator investigating such losses must need to be aware of both criminal and civil considerations when dealing with bankruptcies, receiverships and liquidations.  An insolvency will normally be investigated under the provisions contained within the Insolvency Act 1986 which details of numerous criminal offences.

Whatever powers and provisions used to investigate and recover assets, there can be no better outcome to asset recovery than when negotiated settlemement and recovery is achieved.  This means that costly litigation is avoided and a fraudster may well avoid the most serious sanctions if he pays the money back. 

When deciding to investigate a loss due to fraudulent activity with a view to recovering assets an understanding of the likelihood of recovery must be obtained before substantial resources are expended on protracted analysis, interviews and other research.  This is to reduce the risk of the gamble taken as to whether or not an asset recovery action will be successeful.  It is quite easy for legal fees to reach six figures and more when asset freezing injunctions, search orders, financial investigations and legal counsel are employed by lawyers progressing a case.  This is why it is always a good idea to have a fraud response plan in place within any organisation (in addition to a fraud policy) which sets out how to act if a fraud or loss is suspected.  Provisions can be made for an immediate and totally confidential appraisal by a fraud expert in order that the correct decisions can be made at the start and costly mistakes avoided.