Practical guidelines

Financial and Economic Expert Examination as a Tool of Proof in Disputes on Bringing to Subsidiary Liability

ATTACK
Expert examination to determine the causes of bankruptcy
The Determination of the Supreme Court of the Russian Federation No. 305-ES19-10079 dated 30 September 2019. It is always carried out, regardless of the basis for bringing to subsidiary liability.
Reporting Concealment/Misrepresentation
 
 
Prove that the absence/misrepresentation of accounting and reporting documents made it impossible to generate a bankruptcy estate
Check reporting for validity (inventory compliance), analyze it to identify the assets withdrawal schemes
Debtor reporting expert examination
Prove that trustworthy financial statements were prepared, an audit was periodically carried out etc., the person controlling the debtor undertook activities in good faith
The bankruptcy petition deadline was missed
 
 
Prove that, based on financial indicators, the person controlling the debtor was aware of signs of insolvency or the property deficiency
Determining the presence/absence of signs of objective bankruptcy
Expert examination of the determination of objective bankruptcy
Prove that there were no signs of objective bankruptcy
Conclusion/Approval of Transactions with Legal Defects
 
Prove that the debtor was declared bankrupt as a result of deliberately unfair acts
Prove that the concluded transaction was intended to cause harm
Disposal of an asset which was key (basic)
Expert examination of an impact of the asset disposal on financial condition
Prove that the counterparty analysis before the transaction was made in good faith
 
 
 
The price was non-market
Marketability analysis of transactions
Prove that there was a crisis bailout plan, transactions were concluded on market terms and were part of the plan
 
 
 
The transaction went beyond the normal course of business (NCB)
Expert examination of transactions within the normal course of business (NCB) framework
Prove that transactions relate to NCB
 
 
Prove that bankruptcy was intentional or fictitious
 
Expert examination for intentional and fictitious bankruptcy
Prove that there was no control over the debtor's activities (directly/indirectly), he was not the center of decision-making. Assessment of the degree of involvement
 
 
Prove who is the actual beneficiary, perform "piercing the corporate veil»
Prove the synchronism of actions of entities in the absence of economic reasons, the contradiction of their actions to the debtor and creditors economic interests
Expert examination of economic relationships
Prove that the participant/founder of the debtor, a member of the Board of Directors, Committee etc. did not have any information and did not approve losing transactions
 
Fact to be proven by the attack
 
Fact to be proven by the defense
 
Proof tool

DEFENSE

Possible issues when conducting financial and economic expert examination in disputes on bringing to subsidiary liaibility

Reporting Concealment/Misrepresentation
Debtor reporting expert examination
1
Do the Alfa LLC reported financials as of xx.xx.xxxx correspond to the accounting registers/documentary data/inventory data?
Analysis of the presence of asset withdrawal (connective of three issues)
Determine the factors that influenced the change in the debtor’s financial condition.
Which transaction or group of transactions resulted in a change in the debtor's financial condition?
Do the terms of transactions concluded (executed) by the debtor correspond to market conditions?
The bankruptcy petition deadline was missed (Application submission deadline was missed)
Expert examination of the determination of objective bankruptcy
2
Determine the date of Alfa LLC objective bankruptcy—the debtor's inability to satisfy creditors' claims in full due to the excess of the total amount of obligations over the real value of assets.
Determine the occurrence of signs of Alfa LLC objective bankruptcy as of a certain date xx.xx.xxxx — signs of insolvency and property deficiency
Analysis of transactions after the objective bankruptcy occurrence:
Determine the presence of operations/ transactions completed after the date of objective bankruptcy, which significantly worsened the debtor’s financial condition.
Analysis of an insolvency recovery plan
Was there an economically sound insolvency recovery plan for the debtor Alfa LLC on the date xx.xx.xxxx?
Was the business plan economically sound? (specify document or other source of the plan)
What would be the impact of achievement of the targets set out in the document/source on the Alfa LLC financial condition?
Awareness analysis of the controlling person of the debtor:
What was the financial condition of Alfa LLC as of хх.хх.хххх?
Conclusion/Approval of Transactions with Legal Defects
Expert examination of an impact of the asset disposal on financial condition
3
What impact did the "specify the transaction" have on the Alfa LLC financial condition?
What economic consequences did the “specify the transaction" have for Alfa LLC?
Marketability analysis of transactions
4
Do the terms of "specify the transaction" correspond to the market conditions?
Expert examination of transactions within the normal course of business (NCB) framework
5
Was the "specify the transaction" economically feasible/reasonable for Alfa LLC?
What economic consequences did the “specify the transaction" have for Alfa LLC?
Can we refer a debtor’s transaction to the normal course of business (NCB) or is it beyond its scope?
Determine the impact of transactions made during the last three years before the date of objective bankruptcy and before the date of initiation of bankruptcy proceedings against Alfa LLC on the debtor financial and economic condition.
Expert examination for intentional and fictitious bankruptcy
6
Are there any signs of Alfa LLC intentional and fictitious bankruptcy based on the requirements of the Provisional Rules for checking by a bankruptcy trustee for signs of fictitious and intentional bankruptcy approved by Decree of the RF Government No. 855 dated 27 December 2004?
Expert examination of economic relationships
7
Determine the direction of retirements and payments from/to the settlement account (financial flows) for the period.
Were there any business transactions between companies A and B during the period? If so, what impact did these operations have on Alfa LLC financial condition? What complex of business transactions was carried out between the companies? What economic benefits were generated by the results of these operations for the parties to the transaction/participants in the operations? What was the economic center of decision-making within the group based on the financial flows analysis?
The causes of bankruptcy* expert examination
Establish the reasons and conditions that led to the inability of Alfa LLC to fully satisfy creditors' claims for monetary obligations and/or fulfill obligations to pay mandatory payments.
It is always carried out, regardless of the basis for bringing to subsidiary liabilityt is always carried out, regardless of the basis for bringing to subsidiary liability
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