Asset Stripping: How Forensic Economic Expertise Proves It

Asset stripping rarely looks like theft. More often it is a chain of outwardly lawful contracts that raise no suspicion on their own, yet together leave a company with no property and no cash exactly when bankruptcy arrives. A forensic economic examination does not judge whether these transactions were “honest” — it counts: what the property was worth, what it was sold for, to whom, at what moment, and how that affected the company’s ability to pay its debts. It is the figure, not the emotion, that becomes evidence in a case.

In my practice I have repeatedly seen a well-drafted statement of claim fall apart in court because asset stripping was described with words like “fictitious” and “deliberate” but was never supported by an economic calculation. Below I explain what exactly the expert records, which proceedings this works within, and what a lawyer, investigator or company director should pay attention to even before an examination is ordered.

What asset stripping means to an economist

For an economist, asset stripping is the disposal of a company’s property or property rights on terms that objectively do not serve its interests: without adequate payment, in favour of related parties, or at a moment when the company was already unable to settle with its creditors. The legal characterisation — misappropriation, driving a company into insolvency, fraud — is the task of the investigator and the court. The expert’s task is to show the movement of assets in figures and on the basis of documents.

The key difference from an ordinary business transaction is its economic unsoundness and its loss-making nature for the company itself. Selling a warehouse at market price to a solvent buyer is normal. Selling that same warehouse for a third of its value to a firm registered in the director’s brother’s name, a week before a bankruptcy petition is filed, is a subject for investigation.

Legal framework: which proceedings order the examination

A forensic economic examination of asset stripping most often accompanies the following proceedings:

• Criminal — on indicia of appropriation, misappropriation or seizure of property through abuse of office (Article 191 of the Criminal Code of Ukraine), driving a company into bankruptcy (Article 219 of the Criminal Code), and, for the banking sector, driving a bank into insolvency (Article 218-1). Pre-trial investigation of such economic crimes is in many cases carried out by the Bureau of Economic Security (BEB).
• Commercial (insolvency) — within the Code of Ukraine on Bankruptcy Procedures, where the insolvency administrator or creditors challenge the debtor’s transactions concluded to the detriment of creditors, seeking to have them declared void and the property returned to the liquidation estate. The Code sets specific periods preceding the opening of proceedings within which such transactions can be contested.
• Civil and administrative — where the dispute concerns recovery of losses, the subsidiary liability of a director or owner, or the tax consequences of transactions; in the latter case the bodies of the State Tax Service (DPS) are often drawn into the assessment.

The examination itself is conducted under the Law of Ukraine “On Forensic Expert Activity” and the relevant Ministry of Justice Instruction (approved by Order No. 53/5), within the economic expert specialties — 11.1 (accounting and tax records), 11.2 (economic activity of enterprises) and 11.3 (financial and credit operations). It may be ordered by an investigator, a prosecutor or a court, and in criminal proceedings the defence is entitled to engage an expert on a contractual basis.

Economic signs of asset stripping

In an examination I look not at a single “suspicious” transaction but at a combination of signs. Here are the most typical.

Disposal of property below value to related parties

The most common scheme. Real estate, vehicles, equipment or inventory are sold at a price substantially below market, or even below book value. The expert compares the contract price with the market price (using data on comparable assets, and, where needed, an appraiser) and with the book value in the accounts. The difference is the preliminary amount of the loss.

Assignment of claims and manipulation of receivables

A liquid receivable — a debt owed by a solvent counterparty — is assigned for a pittance or exchanged for questionable assets. A parallel sign is the “dissolution” of receivables: real debts are written off as bad without proper grounds, while in fact the money was received and settled outside the company.

Fictitious debts and artificial obligations

The company “acquires” creditors — it documents loans, penalties and services that never existed or were inflated many times over. The aim is to create a debt owed to the right people, so as to later transfer property to them as “repayment” or include them in the register of creditors in bankruptcy. Here the expert checks whether the transaction was real: are there primary documents, did money and goods actually move, does the price match the market.

Stripping assets immediately before bankruptcy

Special attention is drawn to the period preceding the opening of bankruptcy proceedings — several months or years. The mass disposal of property, early repayment of debts to “friendly” creditors to the detriment of others, and the withdrawal of cash disguised as dividends or repayable financial aid, all occurring precisely at this moment, are a classic marker. Individual large and atypical financial transactions in this period may also fall within the view of the State Financial Monitoring Service as subject to mandatory control.

The methods used to prove it

Expert analysis relies on accounting and reporting data, not on assumptions. The main methods are:

1. Analysis of the balance sheet (Form 1) over time. I compare the lines for non-current assets, inventory, receivables and equity across several reporting dates. A sharp “thinning” of assets alongside growing liabilities is a signal for deeper analysis.
2. Analysis of the movement of non-current assets. From the turnover on the relevant accounts I trace what property left the company, when and for how much, and match it against the contracts.
3. Analysis of receivables and payables. Who owes whom and how much, when the debts arose and how they “disappeared”.
4. Comparison of market and contract value. This quantifies the loss from a specific transaction.
5. Analysis of solvency and liquidity on successive dates, to establish the moment from which the company was already unable to meet its obligations.

The documents the expert needs

The quality of the opinion depends directly on how complete the submitted materials are. The minimum list is as follows.

Document group	Specifically	What it shows
Contractual	sale-purchase, assignment of claim and loan agreements; supplements	the terms and price of the transactions
Primary	acceptance-transfer acts, delivery notes, payment documents	the reality of the movement of property and funds
Accounting	trial balances, account cards, the general ledger	how the transactions were recorded in the company’s system
Reporting	financial statements (balance sheet, income statement)	the state of assets and liabilities on given dates
Reference	counterparty registers, Unified State Register data, information on founders and beneficiaries	the connections between the parties to the transactions

If part of the documents is not provided, or was deliberately not preserved, this too is recorded in the opinion: the expert states which questions cannot be examined on the available materials and exactly which documents must be added.

Establishing related parties

Stripping “to the outside” almost always happens in favour of controlled parties. Formally the buyer may be an “independent” limited liability company, but the same people stand behind it. I establish the connection from open and submitted data: information from the Unified State Register (EDR) on founders, directors and ultimate beneficial owners, shared addresses and contacts, chains of ownership, and the nature of the transactions themselves (atypical terms that arm’s-length parties would never agree to).

An important caveat: the final conclusion on “relatedness” in the legal sense is made by the court. The expert sets out the economic and documentary grounds that point to it.

A typical mistake: substituting economics with legal assessment

The most frequent mistake that strips an opinion of its evidentiary force is when the expert (or whoever frames the questions) goes beyond their competence and writes about “fictitiousness”, “intent” or “abuse”. These are legal categories — the court establishes them. The economic expert’s task is to prove facts: the asset left the company, the price was understated by a specific amount, the transaction was loss-making for the company, and solvency was lost from such-and-such a period.

That is why questions to the expert should be framed in economic terms, for example:

• Does the contract value of the disposed property correspond to its market (book) value, and by what amount does it differ?
• What is the amount of the losses caused to the company by these transactions?
• From what moment, according to the reporting data, did the company show signs of insolvency?

A properly framed question saves time and money and protects the opinion from being rejected by the court.

What the client receives

A properly conducted examination delivers two key results, both usable in court:

• The amount of stripped assets (the size of the loss) — a specific figure for each episode and in total, supported by documents and a calculation.
• The moment insolvency set in — the date or period when the company actually lost the ability to settle with its creditors. This is critical for cases on driving a company into bankruptcy and for defining the window within which the debtor’s transactions can be contested.

Together, these two findings turn a set of “suspicious contracts” into a structured evidentiary base that can be worked with in court — to recover losses, return property to the liquidation estate, or substantiate a criminal charge.

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If you see signs that assets are being stripped from a company, my advice is to secure the documents and seek a consultation before filing a claim or petition: properly framed questions and timely gathered materials often decide the fate of a case more than the amount of the loss itself. I am ready to help assess the prospects and carry out a forensic economic examination within the bounds of the law.