How forensic technology can benefit your next appointment.
This article was originally published in the September 2021 edition of the ARITA journal.
Increasing globalisation and associated global insolvencies – such as the recent collapse of Greensill Capital – pose a significant challenge for insolvency practitioners. Just how do you go about understanding and winding up such a complex entity? Regardless of the size of the entity or the level of complexity, a sound and scalable methodology is critical to success.
The collection of books and records is always one of the first tasks to be ticked off an insolvency appointment checklist. However, as business matures and technologies evolve, the location, volume and format of data often leaves more questions than answers. Thus, practitioners must continue to adapt how they manage their appointments from the outset to determine how to most appropriately capture company books and records.
The traditional approach of sending the most junior staff on site to collect boxes of company records and lugging physical hard drives back to the office is on its way out. COVID‑19 has expanded our reliance on technology.
It has sped up digitisation and automation across many businesses. The use of forensic technology specialists in the initial collection of company records is becoming more critical to the effective management of insolvency appointments.
The collection and preservation of data
What awaits a practitioner on day one as they open the doors of an insolvent business is usually unknown. Will there be complex information systems with data from a variety of sources, such as computer servers, cloud systems, complex databases and mobile phones? Or perhaps an uninhabited office space with inaccessible computer systems? How do you deal with a myriad of unstructured data files stored in the cloud, on work premises and in email?
In a recent acrimonious liquidation in Sydney, the appointed practitioners arrived at the premises to find a hastily abandoned office, computers unceremoniously jerked from a rack mounting, a few randomly scattered records and no assistance at all from the business operators and directors.
In the face of chaos and disorder, practitioners are still responsible for the orderly administration of the insolvency. When time and money are limited commodities, an efficient and cost‑effective solution is essential.
Forensic technology specialists can assist insolvency practitioners by capturing all of a business’ electronic data and resurrecting operational IT systems (particularly financial) in a process whereby the businesses information technology (IT) systems are replicated.
When completed at the outset of an appointment, this will pay dividends at almost all turns. It will ensure the implementation of a comprehensive platform to enable the access and review of large volumes of financial and business data, the ability to conduct enhanced searches on all data sources, and the operational replication of the business IT systems which can be used by staff remotely.
The number of electronic data sources, ranging from email to mobile devices, social media platforms and cloud technology, is rising exponentially in the digital age. Effective search and review functions, cost minimisation, chain of custody of evidence and data analytics are just a few of the many potential benefits that derive from the initial capture of all electronic data of a business.
In the Sydney liquidation, the forensic technology team identified a backup unit complete with associated drives which had been missed in the hasty departure – presumably as non‑IT staff did not know what it was, or what it contained.
This proved critical to the success of the appointment, as it contained the data needed to successfully resurrect the operational functions of the business and ascertain exactly what had been happening in the lead up to the collapse, including critical funds transfers that were subsequently able to be rolled back as voidable transactions.
Consider a simpler example of a company actively trading. As the appointed administrator, you arrive at the business premises with your staff on day one. You have to control the data and the IT systems in order to effectively trade on the company. It can be difficult to discover where all of the data lies. You may not have passwords to all platforms the business uses. What about a data map? Where does all the creditor information sit, and which email addresses are invoices sent to?
Understanding all of this may come down to finding the right people within the business. Do they still work there or were they terminated as a cost savings measure? Key business data you need may be stored in a variety of sources or in formats that may be incompatible with your own IT systems. Is information such as correspondence with creditors saved on a former employee’s desktop or online on social media platforms or a website?
Leveraging the expertise of forensic technology specialists to assist in this initial process at a bare minimum can remove many of the headaches insolvency staff face at the outset of an appointment.
Once the initial collection, preservation and replication of a company’s IT systems has been completed, you’re now in the driver’s seat. You can control the day‑to‑day management of an appointment to allow the business to function, even after closure of the premises. Further, it allows for you to continue accessing data and generating financial reports from your own office, as if you were still on the premises.
These few simple steps can be the difference between a complete collapse or a restructure and successful sale of the entity or its component assets.
Lehman Brothers, Bridgecorp, Westpoint and Kleenmaid have all seen directors coming under regulatory scrutiny, facing charges and being jailed over conduct issues relating to the collapse of the companies.
Conducting investigations into director misconduct, insolvent trading and potential voidable transactions are routine requirements of liquidators. The days of full scope linear reviews of all a company’s books and records however are long gone. Budgets no longer accommodate this approach, data volumes continue to exponentially increase, and modern technology makes it unnecessary.
The benefit of involving forensic technology in the initial phase of collection and storing of data allows a smooth and cost‑effective approach to reviewing data for investigations.
This was highlighted in a recent appointment when our forensic technology professionals were able to collect, process, filter and review tens of thousands of emails to identify voidable transactions.
Having the businesses IT systems already imaged and stored, and with the enhanced search functions available with eDiscovery platforms, keyword and concept‑based searches were utilised to ensure only the pertinent emails were considered for review.
Forensic tools can index the high volume of email messages in a company’s system and organise this data to allow a practitioner and their staff to rapidly identify and access relevant information as they need it. This includes tracking email chains, their associated attachments as well as all Microsoft Office documents. Not only does this save time, but it ensures duplicated emails aren’t reviewed twice and important emails aren’t missed.
When a new appointment commences, it is often difficult, if not impossible, to identify at the outset all the information and data that will eventually be deemed relevant, particularly in an appointment of any complexity.
If subject to proceedings, investigations and the recovery of claims can often take months and even years to finalise. Very often, certain facts and information may not be deemed relevant until raised as an issue by another party.
The process of collecting and storing data is all forensic by nature and conducted to a legally defensible standard, meaning you don’t leave yourself open to criticism.
Forensic technology specialists are able to assist when identifying potentially relevant data sources – including where it is located and how it is stored. This is particularly important at the commencement of an insolvency appointment, so that data sources can be replicated and stored and a full chain of custody for the data can be demonstrated. This is crucial if the data is later used as evidence in any legal proceedings.
Selling a company's assets
The initial phase of the collection of records doesn’t just assist with the day‑to‑day running of a company and conducting investigations. It can be a vital tool to help with asset recovery in the complex world of digital assets.
Consider when a business or business assets are sold off. Data separation can become an issue if the data and any attached intellectual property needs to be split in accordance with legal contracts and agreements.
The ability to search, collect, preserve, analyse and use data requires skilled people using leading technology tools and methodology. As technologies evolve, so too does the approach to effectively managing appointments.
Data is changing at a rapid pace, including its use, source and sheer volume. Insolvency practitioners are entrusted to act swiftly while ensuring they follow best practices. Those who remain attuned to the complexities involved in the process can gain a tremendous advantage in ongoing effective management by understanding and leveraging the value of forensic technology support.