Financial Fact Finding

Hermes Advisory specialises in performing financial fact finding to support parties in (potential) legal disputes. Through its many years of experience as a legal expert or as an advisor for a party in legal proceedings, Hermes Advisory is able to place its financial expertise in the right legal context. Based on the financial facts, in clear and understandable terms, using language which can be understood, we can help to answer the question whether a particular situation may have led to the infringement of a legal standard. Hermes Advisory focuses on performing three types of financial forensic investigations:

 

  1. Financial fact finding in bankruptcy cases;
  2. Cause and circumstances investigation;
  3. Second opinion on reports written by (other) financial experts.
  1. Financial fact finding in bankruptcy cases

In directors’ liability cases, it is essential that all relevant financial facts are disclosed and properly presented and interpreted. Hermes Advisory takes stock of the financial operations and the circumstances underlying the directors’ actions and links this to the resulting legal assessment.

Hermes Advisory conducts its investigations independent of the legal basis on which the directors’ liability is established. This means that the investigations, both in cases of bankruptcy and otherwise, on behalf or against directors, can be defined: the facts and circumstances, financial and otherwise, form the basis on which Hermes Advisory organises its work.

Preliminary investigation

The basis for the preliminary investigation in bankruptcy cases are the digital financial records for the relevant years prior to the bankruptcy. Based on these records, the statuses on specific reference dates and the progress of the balance sheet items over a specific period, can be clarified in an efficient manner  and an impression can be gained of the scope and composition of the turnover and different cost items, so that an understanding can be gained of the development of profit. Depending on the scope and quality of the digital financial records that are provided, a preliminary investigation of this kind (a “quick scan”) can be carried out within just one or two days.

Follow-up investigation

Whether or not as a result of an earlier preliminary investigation, a trustee may have further or specific questions about the facts arising from the records. Hermes Advisory can then perform a follow-up investigation of the digital financial records, but also the actual paperwork and/or, for example, on and in computer servers or mailboxes, or by means of interviews with involved parties.

As well as a general question whether, at any time, the company’s rights and obligations were evident from the records, the request which prompted the investigation relates to the scope and/or composition of balance sheet items at any time and the development in results. This includes investigations into possible fraudulent acts, incorrect representations of rights and obligations, such as the overvaluation of certain assets, or incorrectly omitting a provision, (settlements in) current account relationships and investigations into conducting a ‘shop in a shop’, allowing the company to act as a dumping ground for costs, or otherwise shifting costs or revenues. At Hermes Advisory there is experience with investigations into all of the aforementioned subjects.

In brief, Hermes Advisory conducts financial fact finding in respect of the following liability matters (amongst others):

 

  1. contravention of the duty to keep records pursuant to article 2:10 of the Dutch Civil Code;
  2. identifying financial facts, to enable a trustee to form an opinion as to whether a director has acted as a rational director;
  3. fraudulent legal acts;
  4. the company entering into financial obligations whilst the director knew or should reasonably have known that the company could not fulfil the obligations;
  5. the provision of misleading financial information;
  6. paying out dividend to such an extent that the company’s continuity has been endangered and/or the company is no longer able to fulfil its obligations that are due.

Hermes Advisory conducts its investigations independent of the legal basis on which the directors’ liability is established. This means that the investigations, both in cases of bankruptcy and otherwise, on behalf or against directors, can be defined: the facts and circumstances, financial and otherwise, are the basis on which Hermes Advisory organises its work.

  1. Investigation into the cause and circumstances

Investigations into the cause and circumstances identify the specific situation or acts that have led to certain (financial) facts. In addition to an investigation into the causes of, or irregularities in, a bankruptcy, this can relate to parties who have a different perspective about the course of events, for example, the transfer of a company or the amount of inventory. In this case, a reconstruction of the (financial) facts and circumstances may provide a solution.

  1. Second opinion

What makes an expert an expert? In practice, it is often the case that the actual conflict is overshadowed by experts (for a party in legal proceedings) with different findings, resulting in a ‘battle of experts’. Someone with a non-financial background will then soon no longer be able to see the wood for the trees. Hermes Advisory provides a second opinion on reports prepared by financial experts. The following questions are core to this second opinion:

  1. Which financial facts and circumstances has the expert included in his investigation?
  2. Do the financial facts and circumstances offer a sound basis for the expert to base his conclusions on?
  3. When conducting the investigation, did the financial expert act in accordance with the laws and regulations applicable to him and/or the regulations that may reasonably be expected based on his actions?

The results of the second opinion can be presented as a counterweight in legal proceedings or – if a legal expert is appointed – may give rise to further investigation or a revision of conclusions. In some cases, the second opinion can also give rise to disciplinary proceedings or legal action against the expert.

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