Case Study: Books of Accounts Reconstruction for a Resolution Professional Under IBC
Reconstructing 18 months of missing financial records and verifying Rs 112 crore of creditor claims
Executive Mandate Summary
Key Transaction & Governance Challenges
- •The final 18 months of accounting records were largely absent, with only approximately 1,300 Tally entries against an estimated 4,500 required entries.
- •The previous management was uncooperative, the company accountant had resigned and the registered office had been vacated. Reconstruction therefore had to rely heavily on evidence outside management's control.
- •Rs 112 crore of claims had been submitted, but the RP could not reliably determine validity without reconstructing the underlying financial records.
- •The RP needed reliable information on actual assets, inventory, receivables and liabilities to support the liquidation-value assessment and comparison with resolution plans.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
The RP took control of a Rs 95 crore manufacturing company under CIRP and found that its books were largely unavailable for the final 18 months.
Approximately 3,200 transactions had not been recorded, creating uncertainty around the company's assets, liabilities, cash flows and creditor obligations.
Section 2 - Reconstructing the Missing Books
Northrop started from every bank transaction during the missing period and attempted to classify each entry using four independent evidence sources: bank narrations, GST records, company documents and counterparty confirmations.
Approximately 180 entries worth Rs 3.4 crore remained unverified after the available evidence had been exhausted.
Section 3 - Financial Creditor Claims
Rs 74 crore of claims from four banks and two NBFCs were independently verified.
Two claims required adjustment: Rs 1.2 crore of excess interest and an Rs 18 lakh processing fee that had already been paid.
Section 4 - Operational Creditor Claims
Rs 38 crore of claims from 84 vendors were tested against GST data, historical bank payments and supporting invoices, purchase orders and delivery records.
62 claims were verified and admitted for Rs 26 crore, 14 were partially verified with Rs 5 crore admitted against Rs 8 crore claimed, and 8 claims totalling Rs 4 crore were rejected.
Verifiable Institutional Outcomes & Value Realized
- 18 months of incomplete accounting records reconstructed using independent and available evidence.
- Rs 112 crore of creditor claims assessed, with Rs 94 crore admitted.
- Rs 18 crore identified as disputed or rejected claims.
- Reconstructed net worth established at Rs 8 crore negative compared with Rs 12 crore positive in the last audited balance sheet.
Ashish Chaudhary
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