Emerging Landscaping of IBC Role of Forensic Auditor under Insolvency CA Chandra Prakash Jain FCA, with more than 33 years experience Insolvency Professional Certified Forensic Auditor C P Jain & Co. Chartered Accountants Ahmedabad, India

Insolvency and Bankruptcy Code

Key aspects of the Insolvency and Bankruptcy Code The code aims to resolve companies in a strict time-bound manner. IBC proposes a paradigm shift from the existing 'Debtor in possession' to a 'Creditor in control' regime. The code is having an overriding effect on all other laws relating to Insolvency & Bankruptcy. Moratorium period consist of 180 days (extendable upto 270 days). Introduce a qualified insolvency professional (IP) as intermediary to oversee the process and takes over the management of the Company. It clearly defines 'order of priority' or the waterfall mechanism. Antecedent transactions can be investigated and in case of any illegal diversion of assets personal contribution can be ordered by court.

Forensic Audit

Meaning : An examination and evaluation of a firm's or individual's financial information by using forensic methodologies such as data analytics, document review, market intelligence, etc., for use as evidence in court or other stakeholders. Forensic Audit in IBC: The forensic audit process is inherent part of the insolvency proceeding as it justifies the spirit of the code. Forensic Auditor assists IPs by investigating transactions which may have hidden under multiple complex layers and conduct background checks on the entities involved in any undisclosed relationship with the corporate debtor company. Forensic Audit

Need of forensic Audit Sec- 43 Sec- 66 Sec- 45 Sec-50 To Identify Preferential transactions and transactions defrauding Creditors To identify Fraudulent and Wrongful Trading To improvise the authenticity of Information Memorandum To Identify Undervalued / Overvalued transactions through related/other entities To identify Extortionate transactions executed by the Promoter to benefit themselves/ relatives/ other parties Decision making by COC can be supported by Forensic Audit Report Sec- 43 Sec- 66 Sec- 29(1) Sec- 45 Sec-50

Need of forensic Audit Need of forensic Audit To Identify any Diversion or siphoning of funds To ensure/ find officer, if any, of the Corporate Debtor is in involved in falsification or alteration of Books of Accounts, Records, Securities etc To assess the accountability of Suspended Board Members To check any willful concealment/ removal/ partying/ alteration of any Property by any officer of Corporate Debtor To ensure that the dubious or fraudulent promoters may not exploit various stake holders such as financial institution, revenue departments or public. To evaluate Resolution/ Liquidation of Company

Introduction of Forensic Auditor in Insolvency The Role of Forensic Auditor is very crucial and therefore required in every sphere of Business. The Forensic Auditor can identify the Fund Diversion, Siphoning of Funds and other related activities, which may be carried out by the management of the Company. With the support of Forensic Audit Report, the Committee of Creditors can identify and declare the Promoters/ Directors of the Corporate Debtor Company, as “Willful Defaulter” and thereby take necessary steps. To review, analyse and report the past actions taken by the CD, Forensic Audit is the best Methodology Forensic Auditor analyses the entire information collected by IRP Sec: 20 (2)(a) It empowers the IRP to appoint other professionals hereby has authority to appoint Forensic Auditor Sec- 18: IRP performs the duty of collecting all information related to the assets, finances and operations including business operations for the previous 2 years Sec- 17: It gives powers to IRP for managing the affairs of CD Sec- 16 : IRP is appointed

Role of Forensic Auditor in Insolvency 1.Review of Claims 2. Review of specific transactions 3. Asset Tracing 4. Due diligence of Resolution Applicants 5. Evaluate Insolvency Resolution plan 6. Evaluate Resolution/ Liquidation

1. Review of claims Forensic auditor can assist the Insolvency professional (IP) and COC in reviewing the claims using forensic methodologies, including but not limited to: Identify any potential inflated or fictitious claims including background checks, Claims collation and administration process, Assessing unliquidated claims.

2. review of specific transactions Data analytics, review of transactions to identify potential preferential transactions and quantify the financial impact. Preferential Transactions (Sec-43) Identify potential undervalued transactions and independent assessment of comparative prices/value. Undervalued Transactions (Sec-45) Forensic review of banking facilities to identify potential extortionate credit transactions and quantify the financial impact. Extortionate Credit Transactions (Sec-50) Identify fraudulent transactions through forensic review of books of accounts to determine diversion or siphoning of funds. Fraudulent or Wrongful Trading (Sec-66)

3. Asset Tracing Forensic Auditor uses sophisticated array of tools and resources to analyze financial systems and reconstruct records to find where funds have been diverted to create undisclosed assets. Forensic Auditor’s asset tracing exercise involves the following elements: Verification of asset ownership either through enquiries or documented evidence, Family tree/layering of disclosed/undisclosed entities and structures to understand potential corporate ownership, Proof of ultimate beneficial ownership trail, or evidence that assets represent proceeds of a fraud or other crime

4. Due diligence of Resolution Applicants Forensic auditor assist IPs in assessing and analyzing the reputation and overall structures of Resolution Applicant. He also looks into the integrity of promoters, shareholders & management. Forensic Auditor use both publicly available information and a network of external resources to identify background information of Resolution Applicant such as Financial capability, Corporate structure, Undisclosed hidden relationship with corporate debtor, Tax evasion, Default in compliance with any law.

5. Compliance and monitoring of insolvency resolution plan Forensic auditor may also assist IPs as an independent expert with monitoring of compliance with the agreed resolution plan in the following ways: Monitoring business transactions and payments to determine end use of funds in order to identify any potential diversion or siphoning of funds during implementation of resolution plan Reviewing whether terms of the agreed resolution plan have been complied with by relevant stakeholders

Resolution Liquidation 6. Evaluate Resolution / Liquidation Forensic experts can help RP / liquidator realize maximum value for the benefit of all stakeholder and help resolution of the matter from the estate in following manner: Resolution Assess the viability of Debtor’s business to continue and the options for its rescue and resurrection Review of bidding process for transparent and competitive evaluation to optimize Resolution Process Liquidation Sets up a compliant and monitored liquidation process Reviews financial and accounting records to determine the appropriateness of complex accounting adjustments impacting asset valuation

CA Chandra Prakash Jain Insolvency Professional : Regn no. IBBI/IPA-001/IP-P00147/2017-18/10311 Certified Forensic Auditor Mobile: +9824036127 Email: jain_cp@yahoo.com ; cpjain@cacpjain.com Address: D-501, Ganesh Meridian, Opp. High Court, S.G. Road,  Ahmedabad - 380060.