Investigating Suspect Company Collapse: Old School Forensics Are No Longer Enough
An FTI Consulting independent review into the financial dealings of Queensland Nickel, an Australian nickel refining company owned by a high-profile politician, demonstrates the state of the art when it comes to investigations into companies in distress.
Over the last 2 years, the world’s media has been feeding on an investigation into the affairs of Clive Palmer, an Australian multi-millionaire (and self-professed billionaire) turned politician, and one of his companies, Queensland Nickel (QN). The company, which operated a nickel refinery located in the far north of the state of Queensland, Australia, collapsed in January 2016, taking with it almost 800 jobs and leaving behind AU$300 million in debt owed to 1,500 creditors, including the Australian Federal government.
The run-up and aftermath of the collapse has been under investigation by the Australian Securities and Investments Commission, FTI Consulting, and special purpose liquidators. Palmer’s outsized personality has played a starring role in the press coverage. That wildcard, plus other factors, have presented a number of challenges to FTI Consulting’s investigations. Some of those factors include resistance by Palmer’s political associates, frozen bank accounts, complex ownership structures, a remote location, a disgruntled workforce, the disappearance of Clive Mensink (Mr Palmers’ nephew and sole Director of QN) on an extended overseas “holiday”, the collapse of the price of nickel and the overall downturn in Australia’s resources industry.
The FTI Consulting review demonstrates a state of the art approach to investigating suspect company collapse using new school techniques while relying on experts from across FTI Consulting such as corporate finance, restructuring, investigations, forensics, technology, data analytics and strategic communications. Here’s a look at some of those techniques:
Open Communication Channels
Purpose: Encourage employees to come forward voluntarily with concerns related to the investigation. (This became especially difficult when three days prior to FTI Consulting’s appointment, 237 of 787 employees were let go.)
Old School: Identify relevant stakeholders and stay in touch through circulars and reports to creditors either distributed by mail, email or posted on websites.
New School: Used social media, in this case, largely Facebook, to monitor stakeholder concerns posted to numerous groups with interests centered around QN and Clive Palmer, with particular attention paid to commentary posted in response to Palmer’s own announcements. A proactive rather than defensive approach was taken in dealings with media. While aware of immediate issues, FTI Consulting regularly updated a series of ‘Frequently Asked Questions’ to respond to employee and creditor queries.
Collect and Preserve Data
Purpose: Identify, collect and preserve potentially relevant information from the company’s information systems in a forensically sound manner using specialised forensic techniques.
Old School: Relying on a company’s corporate and IT staff to identify and collect requested information using standard IT operations processes that lack the forensic rigor required. Also, previously travel would be required to remote locations, for QN it would have meant travelling to far north Queensland to collect and secure hardcopies, including documents, ledgers, and records, involving 11,371 boxes of documents dating from 1972 to 2012.
New School: FTI Consulting's digital forensic experts worked alongside the corporate finance and restructuring team and QN technical staff to understand the corporate IT environment and identify potentially relevant sources of data. They coordinated the extraction of numerous data sources, including network file servers, email servers and complex virtualized corporate IT systems. Terabytes of data were collected, preserved and processed in FTI Consulting’s forensic laboratory. Forensic digital experts then undertook the forensic analysis, searching and correlating the QN information.
Purpose: Review QN’s financial records to identify assets currently and historically owned by the company and trace their source and funding arrangements. Determine how and why assets no longer in the company’s possession were transferred.
Old School: Begin with a high-level analysis of the financial statements — usually hard copy — verifying the existence of assets and identifying material changes. Use this information to focus the investigation towards a review of the accounting ledger and interview accounting staff. Print copies of accounting ledger extracts and journal entries to support legal claims.
New School: Forensic specialists engaged directly with the company’s accounting staff to obtain access to the enterprise resource system and generate accounting reports. Once leads were found, funds were traced “live” as transactions were recorded from the purchase order to the funds being cleared in electronic bank statements. At each step, FTI Consulting extracted supporting documents, which had been scanned into the system, exported accounting reports, and took screenshots to support the steps taken in the investigation and the results obtained.
Note: Due to QN’s long corporate history, QN’s accounting staff was disciplined in keeping records of asset movements. This meant most transactions of interest were recorded in related-party loan accounts, which greatly narrowed the investigation. After filtering through thousands of transactions and piecing together what actually happened, the forensic accounting specialists identified and retained evidence of more than AU$189 million in related party loans being forgiven. Most were associated with expenses paid and assets forfeited by the company, which are alleged to have ultimately benefited the related parties. In addition, accounting evidence was gathered related to the AU$21.5 million in political donations paid by QN in support of Mr. Palmer’s political ventures.
Purpose: Identify and extract relevant financial data from QN’s enterprise resource system to assist in the reporting, analysis and investigation into the operations of the company.
Old School: Engage with finance personnel to assist in the generation of standard system reports. The reports are uploaded into Excel then reformatted, standardized and cleansed prior to review and analysis.
New School: Data analytics specialists with in-depth knowledge of the resource system extracted the relevant data tables and fields for the scope period. The data was then loaded onto FTI Consulting’s infrastructure to analyze disparate financial and operational data. Analysis of the data made use of advanced techniques (proprietary coding) to identify matters of significance and transactional anomalies for validation and investigation by the engagement team. Types of analysis included identification of preferential payments, payments to related parties and duplicated payments.
Track Down Additional Assets
Purpose: Examine people’s assets, movements, and roles in organizations to determine whether there is enough value to justify moving forward on recovery.
Old School: Travel the world as needed to visit financial institutions, track down relevant parties, and interview sources.
New School: FTI Consulting’s global risk and investigations team utilized online and public records to pore through news articles referencing Clive Palmer and relevant QN parties, their interests in other organizations and personal profiles, to trace the extent of worldwide assets, including finances, properties, and vehicles. The team used modern intelligence techniques and visual mapping to understand how and where assets were held and used social media analytics to identify networks of connected individuals.
In April 2016, FTI Consulting detailed its investigations and findings in a report to creditors with the recommendation to liquidate the company. The creditors overwhelmingly approved the winding up, which accelerated the actions FTI Consulting previously identified to seek to recoup AU$300 million owed to remaining creditors. Numerous cases relating to QN are currently or have been overseen by Australia’s Supreme, Federal and High Courts. FTI Consultants have been called on to testify this year.
Senior Managing Director