Background

FRP Partner Nishad Morjaria was appointed as independent accounting expert by solicitors acting for the claimant (a company in liquidation) in a dispute regarding its involvement in a large-scale VAT fraud. Before the company entered liquidation, some of the proceeds of the fraud were used to buy two companies. The claimant asserted that the companies were worth significantly less than the purchase price, and that the payments represented a sham transaction designed to conceal the dissipation of the proceeds of the fraud. The defendants argued that the purchase of the companies represented a genuine commercial transaction conducted at arm’s length.

Action

FRP was instructed to perform a valuation of the two companies. However, they were both based in jurisdictions that did not require financial statements to be filed, and neither maintained proper books or accounting records. The only financial information available was a series of hard copy invoices. Our Forensic Services team had to reconstruct the companies’ accounts from those invoices; although the sales invoices totalled hundreds of thousands of pounds, the purchase invoices disclosed represented a fraction of that amount.

With no other contemporaneous documentation regarding the costs that commercial businesses such as these would incur, nor their profit margins, the team had to make assumptions in preparing the analysis. The team then valued the companies using a valuation multiples methodology, which indicated an underlying value significantly less than the price at which they were sold.

Outcome

The report from our Forensic Services team clearly explained the process, findings and assumptions. After submission of our expert report and the joint statement of experts, the matter settled in favour of our client.