Transaction Audit under IBC

Under the Insolvency and Bankruptcy Code, 2016, a resolution professional managing the corporate insolvency resolution process is required to review the corporate debtor's historical transactions to identify preferential, undervalued, extortionate credit, and fraudulent transactions, commonly referred to as PUFE transactions. A transaction audit examines the company's dealings over the look-back periods prescribed under the Code to determine whether value was improperly extracted from the company prior to insolvency, to the detriment of creditors. Given the technical accounting analysis involved and the tight timelines within which resolution professionals must act, specialist support is often essential to meet this obligation effectively.

Why This Matters

A resolution professional who fails to identify and report avoidable transactions within the process can face scrutiny from the Adjudicating Authority, the Insolvency and Bankruptcy Board of India, and the committee of creditors, and may lose the opportunity to recover value for the creditors' estate. For creditors, a properly conducted transaction audit can be the difference between a resolution plan that reflects the true value of the corporate debtor and one that overlooks assets or value improperly siphoned off before insolvency. Given the strict look-back periods and evidentiary requirements for applications before the Adjudicating Authority, timely and well-documented analysis is essential.

How We Help

Identification of Preferential and Undervalued Transactions

We review the corporate debtor's transaction history over the relevant look-back periods to identify payments, transfers, or dispositions of assets that may constitute preferences to related or unrelated creditors, or transactions entered into at undervalue, applying the tests set out under the Code and relevant judicial precedent.

Review of Related Party Dealings

Given the extended look-back period applicable to related party transactions, we map the corporate debtor's related party relationships and scrutinise transactions with such parties for evidence of value extraction, non-commercial terms, or arrangements designed to disadvantage unrelated creditors.

Assessment of Fraudulent and Extortionate Transactions

We examine transactions and financing arrangements for indicators of intent to defraud creditors or of extortionate credit terms, gathering supporting documentation and analysis needed to substantiate a finding that a transaction falls within these categories under the Code.

Reporting to Support Applications Before the Adjudicating Authority

Our findings are documented in a structured transaction audit report that sets out the transactions identified, the basis on which they are considered avoidable, and supporting quantification, in a form that assists the resolution professional in making applications to the Adjudicating Authority under the relevant provisions of the Code.

Who Needs This

• Resolution professionals conducting corporate insolvency resolution processes
• Committees of creditors seeking assurance on value recovery from avoidable transactions
• Liquidators reviewing pre-liquidation conduct of the corporate debtor
• Financial creditors assessing the historical conduct of a defaulting borrower

Our Approach

We work closely with resolution professionals within the compressed timelines of the insolvency process, prioritising the transactions and periods most likely to yield significant findings while ensuring the overall review remains comprehensive. Our analysis is grounded in the specific statutory tests for preferential, undervalued, extortionate, and fraudulent transactions, supported by clear documentation designed to hold up to scrutiny before the Adjudicating Authority and, where relevant, appellate forums.

Get in Touch

To discuss how we can support you with transaction audit under IBC, write to us at info@agarwalurs.com.