Insolvency Frauds – when will the floodgate open?

I was reflecting on the direction that my fraud investigation case portfolio would be taking over the coming few years – part of the anticipation many of us have about the fall out from the global economic downturn that is currently facing us. I think that my focus will be largely on frauds arising from companies that have gone bust. This is the time when the inner workings of a fraud are exposed, and thefts and defalcations would often simply carry on as long as a company is healthy. I have investigated many businesses that have been abused by the fraudster for many years, have passed through their annual audits with flying colours only to become exposed due to an unfortunate incident such as defaulting creditors or litigation that causes them to nosedive. A recession can crystalise such problems of course.

Do not be deceived into thinking that the recovery will protect those frauds that are currently taking place!

Commentators are split between those that say that the “green shoots of recovery” are showing and those that say we are bouncing along the bottom of the recession still.
In a way they are both right! The recovery from what is accepted to be, for the UK at least, the deepest recession (in 100 years?) will be complex. Just because houses are selling and yes, some green shoots are showing, it doesn’t mean that the throwback from the irresponsible credit problems of recent years will be swiftly cleared up.
Insolvencies are increasing and practitioners, in London at least, are busy. However, the floodgates have not yet broken and we don’t yet have a tidal wave of administrations, receiverships and liquidations revealing a vast array of fraudulent activity. I think that it is still to come though, with reports saying that many businesses are teetering on the brink. Just because we are making progress with mending the economy does not mean that the problems are over for many.
The ease with which many companies are phoenixed using the “pre pack” administration tool is open to abuse. The regulators are wise to it and look closely at obvious examples. This is clearly an area where fraud will come to light in the coming months and years – and the process will be examined in more detail in my latest research article on my Fraud Advisory Website.
Read my regular investigators diary blog for further fraud developments resulting from the Global Credit Crunch!

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