Reconstructing intercompany loans used to strip value

An intercompany loan that moves value out of a target entity and parks it in a related party is one of the oldest dissipation techniques in cross-border fraud. The paper trail is deliberately incomplete. Repayment terms are vague. Security is absent. The money leaves and does not come back – and by the time a creditor, an insolvency practitioner, or a referring lawyer looks closely, the operating company is empty.

Reconstructing these transactions is possible, even when records are missing. The technique combines forensic accounting, corporate registry analysis, banking disclosure orders – particularly a Bankers Trust order – and, where the funds cross borders, coordinated disclosure across multiple forums. The goal is to trace where value settled and to build an evidentiary record capable of supporting freezing or recovery action.

This guide sets out the steps in order: what to gather first, how to reconstruct the flow, which legal instruments assist at each stage, and how cross-border structures complicate and extend the process.

Why Intercompany Loans Are a Preferred Stripping Mechanism

Intercompany loans strip value because they are superficially legitimate. A loan between related companies is a normal commercial event. That appearance is the point. The wrongdoer creates documentation thin enough to satisfy routine audit and thick enough to obstruct an initial investigation.

In our experience, the most common patterns share certain features. The "loan" is advanced without board approval, without a credit assessment, and without security. Interest, if stated, is never collected. Repayment is deferred indefinitely or assigned to a subsidiary that itself has no assets. The receiving entity is incorporated in a jurisdiction with limited disclosure obligations – a private company in a secrecy-permissive registry, or a vehicle held through nominees.

What makes reconstruction tractable is that the loan still required a bank transfer. Money moved. That movement created records at correspondent banks, at the sending institution, and at the receiving institution. Those records survive even when the internal accounting has been altered or destroyed. The question is how to reach them.

Insolvency practitioners encounter this pattern frequently when a solvent group company has been systematically drained before a trading entity enters administration. Defrauded shareholders and minority investors see it when earnings are quietly re-routed upward or sideward before a buy-out or squeeze-out. In both contexts, speed matters: the longer the delay, the more layers of onward transfer obscure the original movement.

Step One: Mapping the Corporate Structure Before You Chase the Money

Start with structure, not with transactions. Without an accurate map of every entity in the group – and every entity that received funds – you cannot identify which transfers were intragroup and which were genuine third-party payments. Chasing individual transfers without that map wastes time and misses the pattern.

Useful sources at this stage include public corporate registries, UBO registers where accessible, company filing databases, and any group financial statements obtained during the underlying dispute or insolvency. Even where UBO register access is restricted, filings in one jurisdiction often reference related entities in others. A single public filing naming a subsidiary can anchor a chain of requests across five registries.

We map entities against the following attributes: jurisdiction of incorporation, registered agent, directors and shareholders on record, and date of incorporation relative to the date of the first suspect loan. A shell incorporated shortly before the first transfer is a strong indicator of purpose. A nominee director whose name appears across dozens of unrelated entities confirms the structure is managed, not organic.

Once the structure is mapped, annotate each entity with its known bank accounts or jurisdictions of banking. That annotation becomes the target list for disclosure applications.

Step Two: Assembling the Documentary Record – and Identifying the Gaps

What documents exist, and what is missing? Answering that question precisely determines which legal instruments are needed next.

Available sources typically include: general ledgers and sub-ledgers of the stripped entity, intercompany loan schedules, bank statements for the company's known accounts, board minutes (authentic and, sometimes, fabricated), loan agreements, and correspondence between group entities. In insolvency, the officeholder has power to demand these from directors and officers. In a civil fraud claim, a disclosure order against the target entity or its officers is the usual route.

Gaps are equally informative. Missing board minutes for the period of the loan. A loan agreement dated months after the transfer. An absence of any interest payment records. Inconsistencies between the general ledger balance and the bank statement – where the ledger shows the loan as outstanding but the bank account shows the funds were withdrawn immediately. Each gap is a forensic finding, not merely an absence.

At this stage we produce a gap schedule: a structured list of what is missing, from where, and what type of order could compel its production. That schedule drives the litigation strategy. If a Bankers Trust order is needed to compel the sending bank to disclose the payment instruction and beneficiary details, the gap schedule tells us which bank to target and what the application must specify.

How Do Disclosure Orders Reach Funds That Have Crossed a Border?

Cross-border dissipation is the norm, not the exception. Value stripped through intercompany loans rarely stays in the same jurisdiction as the stripped entity. It moves – often immediately, often through an intermediate account in a privacy-permissive centre, and then into real property, further corporate layers, or digital assets.

A Bankers Trust order, obtained from a court with jurisdiction over the sending or receiving bank, can compel disclosure of account details, payment instructions, and the identity of the account holder. Where the bank is outside the forum, letters of request provide the mechanism to reach it – though timing varies significantly depending on the receiving jurisdiction's cooperation regime.

A Norwich Pharmal order serves a parallel function against any third party who, innocently or otherwise, holds information that would identify the wrongdoer or trace the asset. Accountants, registered agents, corporate service providers, and – increasingly – VASPs fall within this category. In cross-border matters, we regularly advise on the sequencing of these applications across forums to avoid tipping off the defendant before assets can be frozen.

Where the reconstructed trail leads to assets capable of being frozen, a worldwide freezing order can, in principle, reach those assets across borders. The application is typically made without notice to the defendant to preserve the element of surprise. The same principle applies to proprietary injunctions where the claimant can identify specific funds or property as representing the original value.

Does the presence of a nominee or trust structure at the receiving end defeat the claim? Not necessarily. A sham-trust analysis or an application to pierce the corporate veil can establish that the apparent legal owner is not the beneficial owner – redirecting the claim to where the value actually sits. This is slower work, but it is recoverable ground.

Step Three: Reconstructing the Loan Flow from Partial Records

Missing records do not mean a dead trail. They mean the trail must be reconstructed from secondary sources and from the records of intermediaries who were not party to the fraud.

The reconstruction process works in layers. First, use the records that exist – even fragmentary bank statements – to identify transaction dates, amounts, and counterparty reference numbers. SWIFT payment references, even when partially redacted, carry metadata that assists in locating the originating institution. Second, cross-reference those references against any corporate filings or audited accounts that mention the transaction. Third, use disclosure orders to fill specific identified gaps rather than fishing broadly.

In one matter we traced in a Gulf jurisdiction during the second half of 2024, a series of intercompany advances had been recorded in the general ledger as unsecured loans to a related holding company. The holding company's jurisdiction of incorporation had no public filing requirement. Bank statements for the stripped entity showed the transfers but no repayment. A Bankers Trust order in the sending country identified the correspondent bank used for the onward transfer. A subsequent disclosure application in the receiving country confirmed the funds had been further distributed to three separate accounts, two of which were held in the name of individuals connected to the controlling shareholder.

The reconstruction did not rely on the target's cooperation. It relied on the fact that banks keep records and that those records are compellable. Even where the debtor's own books have been altered, correspondent bank records and SWIFT message archives are independently maintained and not within the wrongdoer's power to destroy.

Step Four: Building the Evidentiary Standard for Recovery

Tracing is not an end in itself. The output of a reconstruction exercise must meet the evidentiary standard of the forum where recovery action will be taken. That standard shapes how the forensic work is structured from the outset.

Courts granting freezing or disclosure relief on an urgent basis require evidence sufficient to establish a good arguable case on the merits and a real risk of dissipation. Both elements can be met through a well-documented reconstruction – the loan transaction establishes the merits; the absence of commercial rationale and the speed of onward transfer establish the risk.

For enforcement and final judgment, the threshold is higher. The reconstruction must show, on the balance of evidence in most civil-law and common-law systems, that the intercompany loan was not a genuine commercial transaction. Evidence of the following is typically assembled: absence of independent credit assessment; no security taken; interest not charged or collected; no repayment despite maturity; the loan routed immediately to connected parties or dissipated; and the contemporaneous financial position of the lending entity making the transaction uncommercial.

Where the claim involves insolvency, the legal basis may include provisions governing transactions at an undervalue or preferences. The forensic evidence is the same; the framing shifts to place the transaction within the relevant avoidance regime.

The bridge from the steps above to an actual enforcement position is often the moment that matters most. Assets may still be reachable – but only if the evidentiary record is prepared to the standard the forum requires. If you are at this stage, we recommend a structured case review before committing to a jurisdiction.

To assess whether a reconstruction exercise can support recovery action in your matter, contact info@axiomtracel.com for a confidential review.

What Does Reconstruction Actually Produce – and What It Cannot?

A completed reconstruction produces a forensic report mapping each identified transfer, the entity or individual that received value, the jurisdiction where value currently appears to sit, and the legal instruments available to freeze or recover it. It also identifies the gaps that remain – the parts of the chain that could not be closed on available records – and recommends which disclosure orders would close them.

What reconstruction cannot do is guarantee recovery. Asset tracing establishes where value went. Whether it can be recovered depends on the law of the forum where the asset now sits, on whether a local court will grant relief, on whether the asset remains there, and on whether enforcement against the identified defendant is practicable. These are separate questions, and honest advice requires keeping them separate.

What reconstruction can rule out is the assumption that missing records mean a dead trail. In our experience, that assumption – the most common myth held by clients who have been through a first round of investigation without success – reflects an investigation that stopped too early or relied too heavily on voluntary disclosure by parties with every incentive to withhold. Forensic reconstruction using compelled third-party disclosure is a different exercise.

A second assumption worth addressing: that intercompany loans are untouchable because they are documented. Documentation does not make a transaction genuine. Courts regularly look through the form of a transaction to its substance. A loan with no commercial rationale, made at a time of financial stress, to a connected party, with no security and no repayment, is not a loan in any meaningful legal sense. That characterisation is the analytical starting point, not the conclusion of the exercise.

Related Topics in Financial Forensics

• Financial Forensics – follow-the-money investigations, dissipation tracing, and payment-trail reconstruction
• Asset Tracing Services – how Axiom Trace traces assets across banking, corporate, and on-chain layers
• Bank Account Discovery in the Bahamas – compelled disclosure in an offshore banking centre

Frequently Asked Questions

Q: Can a money trail be reconstructed from incomplete records?

A: Yes, and this is the norm rather than the exception. Forensic reconstruction uses secondary sources – correspondent bank records, SWIFT message archives, corporate filings, and compelled disclosure from third parties – rather than relying on the target's own books. A Bankers Trust order or a Norwich Pharmal order can compel production of records the wrongdoer has withheld or destroyed. Incomplete records signal where the investigation must focus, not that the trail is closed.

Q: How do you trace funds routed through several jurisdictions?

A: Follow-the-money tracing across jurisdictions requires sequenced disclosure applications in each relevant forum, coordinated to avoid alerting the defendant before assets can be frozen. We identify the correspondent and receiving banks, obtain disclosure orders where needed, and map each onward transfer until value can be located. Where letters of request or mutual legal assistance mechanisms are required, timing varies – which is why urgent applications in the primary forum are typically filed first, before parallel requests are activated.

Q: What information do you need from me to start tracing?

A: The more the better, but the absence of records does not prevent us from starting. Useful starting points include any bank statements, general ledger extracts, intercompany loan agreements (even if incomplete), corporate structure charts, and correspondence identifying the parties involved. If you have a rough timeline of when funds moved and which entities were involved, that is sufficient to scope the reconstruction and identify which disclosure instruments apply. A confidential case review is the first step – contact info@axiomtracel.com to arrange one.

About Axiom Trace

Axiom Trace is an independent boutique focused on cross-border and crypto asset recovery. We trace assets that have moved across borders or on-chain and coordinate their freezing and recovery – working with defrauded principals, insolvency practitioners, and the lawyers and funders who refer them. We work lawfully and within applicable sanctions regimes, alongside local counsel where proceedings must be filed.

We reconstruct payment trails from partial records and identify where value settled – including in intercompany structures designed to obscure movement. Our forensic work has supported freezing applications, avoidance claims in insolvency, and enforcement actions across multiple forums. To discuss a matter in confidence, contact info@axiomtracel.com.

Disclaimer: This publication is for general information only and is not legal advice, nor a promise or prediction of recovery. No outcome is guaranteed. Asset recovery depends on the specific facts and on the law and procedure of each relevant jurisdiction, where local admitted counsel must act. Axiom Trace assumes no liability for actions taken or not taken based on this material. For advice on your situation, contact info@axiomtracel.com.