Natalya Tishchenko, Artem Kovbel: how not to overlook theft in a company, and what does bankruptcy have to do with it

Tishchenko Nataliya

Arbitration manager,

managing partner of

Nobili Law Firm


Natalya Tishchenko, Artem Kovbel: how not to overlook theft in a company, and what does bankruptcy have to do with it


When a company discovers a corporate fraud and contacts us for investigation, it is often too late:

– assets by that time have long been stolen / stolen / sold;

– the manager is fired, wrote a letter of resignation or fled to another country;

– business is confidently tending to zero, liabilities are many times greater than assets.

And this is strange. Fraud, no matter how cunning, one way or another affects the company, the indicators of its profits, expenses and more. But practice shows that the owners do not notice changes in numbers. And often because they don’t know what to look at.

Let’s try to fix it. Let’s analyze the metrics that immediately signal the risk of theft within the company.

For convenience, we have divided them into two groups. The first will be of interest to beneficiaries who have invested in the business and do not want to lose their investments, the second – to lenders who do not want to lose sight of the borrowers.

Beneficiary metrics

  • Financial leverage (English – leverage) – the ratio of borrowed capital and equity. If this indicator falls, accounts payable grows (the amount of borrowed funds in comparison with the amount of equity capital). The stronger the drop, the higher the likelihood of fraud within the company;
  • A sharp drop in the company’s revenue indicates a decrease in the volume of sales, and the volume of sales, in most cases, indicates a decrease in market share. If there were no objective reasons for this – a reason to think about internal sabotage;
  • The fall in the size of the gross margin (English Gross margine). Gross margin is the monetary value of the sales minus the cost. Its sharp drop indicates an increase in costs, which may indicate a deliberate increase in the cost part. And this is already a sign of withdrawing money outside the perimeter of the asset.
  • Drop in EBITDA (Earnings before interest, tax. Appreciation and amortization) – profit before interest on loans, taxes and depreciation. A fall in this indicator indicates an increase in costs, the increase in which may be artificially high costs by paying money for fictitious enterprises.

All four metrics fall into the “must control” category. Shareholders and owners should regularly check them, recording all changes.

Metrics for borrowers and financial institutions

  • Active changes in membership and leadership. New members are most often nominal, with a dozen companies already listed. It is especially important now, when the likelihood of bearing subsidiary and joint liability for the minus has become a reality in connection with the reform of bankruptcy legislation. Although the criminal proceedings on bringing to bankruptcy existed before, but it rarely reached its logical conclusion. Today, the presence of such an instrument as bankruptcy allows, based on the results of forensics and the corresponding financial analysis of the arbitration manager, to bring the manager to financial responsibility, as well as to reimburse the missing amount of creditor claims at the expense of the beneficiary of the debtor.
  • Change of legal address. Hard-to-reach places in uncontrolled territories have become popular recently.
  • Renaming of the company. Quite a frequent occurrence. It helps companies with a name and high turnover to quietly leave the market.
  • Reducing the number of employees. Most often it happens simultaneously and in large quantities. In most cases, the manager and the accountant remain to work until the last, who are engaged in “cleaning up” the remaining assets and documents.
  • Domain name is the first thing that copyright holders stop paying for. Closing the site and blocking the domain can be seen in almost all companies leaving the market.
  • Alienation of intellectual property objects. If the name of the debtor was of value to the owners, then it must be resold to a friendly company so as not to lose customers. And this is easy to trace through the registries.
  • The presence of a number of criminal cases – this has always indicated the dishonesty of the company’s management.
  • Existence of corporate disputes. From my own experience – the presence of such disputes almost always leads to the bankruptcy of the company or its more barbaric withdrawal from the market.
  • The presence of court decisions on debt collection, arrears to the tax and stale enforcement proceedings – indicates an unwillingness to pay debts and, possibly, already withdrawn property.
  • Removal of property. Rarely does anyone want to leave their acquired property to be torn apart by creditors. As a rule, property is sold at a reduced price in order to minimize the costs of such transactions, and to affiliates in order to minimize the risks of fraud. The bankruptcy code provides an excellent tool for invalidating such transactions. Subsequently, the property withdrawn 3 years before the opening of the bankruptcy procedure is returned to the debtor’s liquidation estate and is used to pay off the creditor’s claims.

Thus, bankruptcy becomes a good tool for conducting forensic procedures in case of impossibility to gain access to documents, and forensics is a tool that prevents bankruptcy and prevents loss of assets.

Natalya Tishchenko, Managing Partner at Nobili.

Artem Kovbel, senior partner of Vigilant Forensic Botique, auditor, member of ASIS, ACFE, ASCP