Forensic Audit: Preventing the Abuse of Insolvency Code

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The significance of forensic audit has gained paramount importance as the corporate debtors are moving for restructuring and bidding themselves for stressed assets. The concern has gained momentum particularly after the Essar Steel & Bhushan Steel has undergone Insolvency proceess and news of their promoters bidding for stressed assets has been in media. The bankruptcy of the corporate debtors may be due to the genuine business losses suffered by the corporate debtor arising out of arising out of variety of adverse economic condition beyond the control of the corporate debtors. It may be due to the misappropriation or fraud played by the corporate, siphoning the public or bank’s money. In case of siphoning the funds, the act of the corporate debtors to exploit the Insolvency process and getting the haircut of the liabilities or bidding for the stressed assets is getting advantage out of it’s own wrong.     The imperative need is felt to bridge this gap so that the dubious or fraudulent promoters may not exploit the gap playing further scam with various stake holders such as financial institution, revenue departments or public. Such an outcome would seriously hamper the effort of the government to revitalise the economy or improve the financial discipline in the country. The filling of such a lacuna requires the conducting of the forensic audit of the corporate debtor to rule out the possibility of any fraud perpetrated by the promoters in the corporate debtor themselves particularly when corporate debtors approaches for insolvency proceedings or bid for the stressed assets in the liquidation proceedings. In case of no fraud, the genuine promoters may be allowed to proceed for insolvency proceedings or bidding for stressed assets and in situation of fraud/siphoning, the promoters may be charged and misappropriated funds be recovered.      Read Full Article at –