Missing assets and directors on the run

Jody Freshwater and Nick Plested are managing directors of Silverbridge Intelligence, a global investigations and intelligence firm offering a full range of cross-border information gathering services. Given the strong ties between their line of work and the insolvency sector, we asked them about what they are seeing in the market, what industries they are seeing distress in, and where insolvent directors are absconding to these days.

Can you give a brief overview of the work Silverbridge does in the insolvency sector?

Nick Plested: We’re investigators; our work is about obtaining hard to find information. Silverbridge works with creditors – either directly for banks and debt funds – or through law firms and insolvency practitioners, to help unlock value in distressed situations. Often we’re asked to look for assets which have been unlawfully dissipated, or help nudge personal and corporate guarantors to honour obligations by highlighting the assets they haven’t declared to the lender.  We find that guarantors frequently forget about foreign properties that they own… or perhaps assets they’ve gifted to family members.

Jody Freshwater: We also get involved as buy-side advisors on portfolio debt trades. We help to profile borrowers and sponsors so that the portfolio buyer can better understand how each position is likely to perform or respond to a workout strategy. For example, knowing if a borrower will be able or willing to refinance their debt at a discount or not – essentially if there is the means and motivation to save the business or its collateral.

What are you seeing in the market these days? Especially as it relates to distressed situations? 

Nick: One main theme of the distress we’re seeing in the UK market is focused around property development. Obviously, that’s always been a riskier play for lenders because construction projects can run into problems. But I think the supply-side shocks caused by Covid meant a lot of projects got behind time and budget and the financing was then impacted. I know a lot of lenders have been extremely patient and worked these problems through with their customers; but in some instances the delay has compounded problems that were already there. Those tend to be the ones which are enforced.

It also seems like the problem loans are distributed to a much broader set of lenders. In the Great Financial Crisis the impaired loans were all concentrated in the hands of banks. Now we are dealing more with the shadow banking system: with peer-to-peer lenders, debt funds of every description, family offices who have got involved in credit opportunities.  Even litigation funders are taking an economic interest in larger single-credit NPL positions and funding recovery that way. So there is a more diverse set of players in the market and I think the different approaches are fascinating to observe.

At what stage of a file should an insolvency practitioner consider engaging a firm like yours?

Jody: Certainly if it becomes evident that there is a cross-border element, particularly into difficult jurisdictions. IPs tend to have pretty far reaching powers to obtain information themselves, particularly in the UK, but in our experience can need some help overseas.

We’re also frequently involved when there is a suggestion of wrongdoing or fraud by company directors. Sometimes there is a paper trail and a forensic accountant or IP can piece together what has happened. In other instances it requires some investigation to get under the skin of the situation and discover new data – that could involve forensically examining company computers or phones, interrogating open source information or developing some human intelligence.

For example we were recently looking at an insolvent construction company where materials and labour were suspected of being diverted to the wrong projects. As a company becomes more insolvent and less likely to survive, company directors can be tempted to protect themselves rather than creditors and that can result in fraud. You can’t unwind everything by looking at the company books and records that have been supplied.

Are there any legal or regulatory constraints when conducting investigations? And how do you and / or IPs operate within these?

Nick: Corporate investigators in the UK aren’t directly regulated. But there are statutes that govern what we can do: data protection legislation is probably the most talked about within our industry. We’re registered with the Information Commissioner’s Office and it’s a priority for us that we adhere to industry best practice, both for our own interests but also our clients who want to know that the information we provide can be safely relied upon.  Conceptually it is about proportionality and reasonableness.

Jody: We regularly get involved in matters that are either already being pursued through criminal law proceedings or could move into that arena after, or alongside, civil proceedings.  There are some guiding principles and standards in the public sector space which we work to in such instances.  RIPA (Regulation of Investigatory Powers Act 2000) is one, which sets out the rules for the use of surveillance and investigation by law enforcement and other public bodies.  We know that by meeting those standards, we will be collecting quality admissible evidence which could be used in a criminal context if required.

An example of this is a criminal private prosecution matter we’ve been supporting, on behalf of a corporate client who was defrauded of a large sum by a counter party they were working with.  The investigation has involved close collaboration with the relevant local police force and the sharing between us of their investigative output and our own.  The only way for that to happen—other than getting an MOU in place between us, the lawyers and the force—was being able to give them sufficient reassurance that our systems and processes were sufficiently robust.  So we are used to working to a high evidential and regulatory standard.

Do you have any good war stories?

Nick: Yes!  We’ve seen it all. In terms of assets we’ve identified boats, planes and property all over the world.  As well as tracking down assets, it’s quite common for us to be asked to locate directors who have absconded.  Going by the last few insolvency cases we have been working on, Dubai seems to be a particularly popular choice of destination right now!

Jody: Nick and I previously investigated the insolvent assets of a hotel group in southern Europe; their books were all over the place and there were sums of money which periodically went missing with no explanation as to where it had gone.  Well, through some local source inquiries we found that the eldest son of the owners—who had literally been given the keys to the vault—had an unhealthy appetite for various vices and would regularly turn up at the front desk of one of their hotels to tyrannise the poor staff until they did his bidding and went for a break.  At that point, he would raid whatever cash was in the vault and head off to the nearest casino, only to then blame and fire the front desk staff if the losses were questioned.

Nick: Last year I managed to track down an international crime gang which had intercepted one of our client’s communications and managed to divert the payment of a very significant invoice… the cash was gone but they felt better knowing exactly what had happened. They also managed to get their bank to reimburse some of the money.  From a legal perspective, the responsibility of the banks in instances of fraud is an interesting area with Quincecare duty remaining an evolving area of law; there’s been a number of significant judgments recently handed down that highlighted for the client.

Jody: There was one large fraud case I worked on some years back—a circa £500 million property fraud—which involved following the money from the UK, across Spain, into Gibraltar and on to the Caribbean, where it ended up being moved on and deposited into various bank accounts in a North African free trade zone.  We had a series of breakthroughs from some very serious computer forensics digging – but the funniest discovery was the suspect’s Amazon history, which included him purchasing a number of ‘Money laundering for dummies’ titles and a book on how to carry out the perfect fraud and get away with it.  We all had our bedtime reading sorted for the next couple of weeks!

Nick: Not long ago we had a property group in southern Europe whose directors had created a large number of bogus creditors which were linked back to associates and family. They knew the game was up and tried to squeeze out legitimate creditors by putting in huge claims for fictious work and materials. The IP knew it was suspect, but we helped to prove it was fraudulent by piercing the corporate veil in some opaque jurisdictions and showing the fake creditors were all linked to the shareholders.

Another quite good case involved shareholders of a company moving some critical intellectual property out of the company – mostly valuable domain names –  to a third party in order to try and keep them out of the bankruptcy process. It was quite easy to demonstrate when the transfers had taken place and the assets were ultimately returned. They’d also put some company funds in cryptocurrency which we managed to trace through various exchanges and wallets. It was all leverage for the insolvency practitioners.

Probably the oddest one over the years was when I had to employ some scuba divers to retrieve a laptop computer full of corporate secrets from the bottom of a lake. That was quite fun. Despite the best efforts of the company’s director, we managed to get some data from it. They should have dropped it off the side of a boat in the North Sea.