subject: How To Recover Assets After Fraud [print this page] Year on year, the problem the world faces from fraud is getting bigger. The fraudster targets the major economies around the globe, from London to New York and from Hong Kong to Tokyo. It is impossible to calculate how much fraud there is, and its cost to the world's economy. It is a hidden crime, and when it is discovered is often not reported for fear of bad publicity.
Where an organisation does suffer from the fraudster and does want to do something about it, there are a number of paths it can take. These depend on the required outcome. A company might want to send a message to all its staff that fraud will not be tolerated, and make an example of the fraudster. It may want to fire the culprit and report the matter to the police, hoping for a prosecution which will definately get their message across. On the other hand a different company may not want this publicity and be happy to simply identify the weaknesses in its accounting controls and make sure the problem doesn't repeat itself in the future. However, many organisations will want to get their money back. For some the loss might be too much to bear and cause business failure. In this case it might enter the insolvency process and go in to administration or liquidation.
When a business comes under the management of an insolvency practitioner there should be an investigation if there are reasons to suspect fraud. Not all practitioners will be as diligent as others when it comes to investigating the directors of a failed company, especially if there are no assets to speak of left with which to pay their fees! Frequently, it is the directors that have defrauded the company and then caused it to enter the insolvency process. Sometimes insolvency practitioners are too close to the directors and are reluctant to enquire deeply into the causes of a company failure.
Fortunately there are insolvency practitioners that see the merit of employing forensic accountants to analyse the reasons for company failure and find out if any assets of the company have been diverted - thus causing the insolvency and also placing the assets out of the reach of the disadvantaged creditors.
The practice of investigating companies that have gone under is one method of recovering assets from the initial fraud. In some cases it is possible for a major creditor of a company that has suffered a fraud to petition for its winding up thus allowing an investigator to work under the provisions contained within the Insolvency Act 1986 (in the UK). This will provide some robust powers of investigation to the investigator who is able, for example, to demand information and documents from anybody under the provisions contained within Section 236 of the Act. Not only that, if a person refuses, he can be brought before a judge in a court of law to be questioned under oath.
The use of the Insolvency Act 1986 is a way to recover asets fraudulently stolen. It is only suitable where the best result can be obtained by encouraging the business to fail completely, which is often not the case of course.
by: Mark Jenner
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