The Extent and Depth of the Investigation on Assets

Investigation on assets is an important part of business investigation.

Because of the diversity of business activities, the components of a company or an individual’s assets are rather complicated. So the biggest problem for investigators in the investigation on assets is that how to determine the extent and depth of the investigation under a certain budget of a case and thereby reaching the requirements of the clients

At the beginning of this essay, it is necessary to define the investigation on assets.

I. Investigation on Assets and Assets Tracing

Investigation on assets includes two aspects. One is property investigation, which is always involved in business credit investigation and aiming at a certain subject’s properties. In fact property investigation is the narrow sense of investigation on assets. The other is assets tracing for special intention.
Property investigation, the narrow sense of investigation on assets, is always conducted in business credit investigation cases, the aim of which is to obtain information on a certain subject’s assets and economic strength. Property investigation is a kind of comprehensive investigation into all components of a subject’s assets.
Assets tracing can be divided into two parts by different intentions and the contents: Assets searches and verification, and searching hidden assets before and after lawsuits. The former one aims at a certain property and its situation and whereabouts for non-litigation purpose. The latter one aims at a certain subject’s assets, which can be executed for the purpose of security before lawsuit or execution after lawsuit.
Generally, compared with property investigation, there are always more specific purpose and content of assets tracing. From this point of view, assets tracing is actually the special cases or extension of the investigation on assets.
In practice, the subjects of investigation on assets are often corporations rather than individuals. So in this essay, investigation on assets refers to the investigation on corporations and companies.

II. The Extent of Investigation on Assets

The extent of investigation on assets means which content should be involved in the investigation on a corporation’s assets, namely the scope of the investigation.

A. Scope of Investigation on Assets
From the viewpoint of law, the assets of a corporation can be mainly divided into two parts, one is estate and the other is chattel, the latter of which includes material and immaterial properties. From the viewpoint of economy and financing, the assets of a corporation also can be divided into paicl-up capital, external investment, receivables and etc. In practice, when an investigator conducts investigation on assets of a corporation, the following aspects should be considered as main issues:
a. Permanent assets, namely estate, which mainly include the house properties, such as workshops, operation locations, investment estate. In some special cases, land properties are also involved.
b. Expensive chattel, which mainly include vehicles, equipments, office facilities, etc.
c. External investment, which mainly include the shareholding, stock or bond.
d. Receivables, namely the creditor’s rights. Such property is important to assets tracing before or after lawsuit for the rule of subrogation in civil law.
e. Branches. The properties and profits of a corporation’s branches, which have no independent corporate qualification, belong to the corporation. So such branches’ assets should also be involved in the investigation on the corporations’ properties.
f. Intelligent properties and know-how. Such properties often cannot be executed. However, as a kind of estimated property, intelligent property or know-how is regarded as a certain component of a company’s assets, and it also can be used in investment. Therefore, Such properties are important for totally understanding a subject’s economic status.
g. The assets of the shareholders or copartners. Such properties should be considered for the legal rule of that the copartners of a partnership and the investor of an individual investing company should take unlimited responsibility to their enterprises.

B. Basic Principles
a. Principle of Validity
Actually, besides the above seven kinds of assets, there is still another kind of way to directly know a subject’s economic situation – bank accounts. But according to laws and regulations, as a business secret to the enterprises, bank accounts are protected strictly. Any organization and individual have no right to check others’ bank accounts with the exception of judiciary departments and the police.
In fact, principle of validity is one of the fundamental rules of all investigative activities. So the investigators have to follow it at first when they determine the scope of the investigation on assets.

b. Principle of Rationality
In practice, it is not necessary to check all of the above seven kinds of assets in any case. The scope of the investigation should be determined based on the actual requirements of the clients and the special conditions of different cases and crucial issues should be pointed out and investigated more deeply.
For example, in a case of assets tracing, the client’s purpose is to know the subject’s assets situation for the aim of execution. In such cases, the key point of investigation is valuable and expensive properties that can be executed, such as houses and vehicles, while the investigation on intelligent properties is not necessary. On the contrary, in property investigation, the narrow sense of investigation on assets, intelligent properties are important because the purpose of the client is to roundly know the real economic strength of a subject.

It is favorable to both the investigator agencies and the clients to follow the above two principles to determine the scope of the investigation on assets. To the investigator agencies, the benefit is more effective operation and avoidance of risks. To the clients, according to the suggestions of the investigator agencies, they can understand the subject’s economic status more clearly and pertinently, thereby saving the expenses at last.

III. The Depth of Investigation on Assets

The depth of investigation on assets means how deep the investigation on assets should be, namely the degree of the investigation.

A. The Basis - The Purpose of the Client
Before determining the depth of the investigation on assets, the real purpose of the client must be identified at first.
Generally, in property investigation, the clients often ask to investigate on a certain enterprise and aim at the total actuality of the subject’s assets. Based on the result of the investigation on assets, the client can analyze the real economic strength and business records thereby estimating the credit of the subject. According to such purpose of the client and the limited budget, rather than doing very deep investigation on a certain aspect of a certain kind of asset, the pivot of investigation is trying to touch every aspect of the subject’s assets, especially the uptodate situation of the assets in order to reflect the subject’s economic strength roundly and completely to the client.
However, in assets tracing before or after lawsuit, the purpose of the client is different, which is to find out the subject’s properties for execution thereby retrieving the lost or protect the right. So in such cases, after knowing the basic components of a subject’s assets, the investigator should pay more attention on the important certain properties that can be executed, doing deep investigation to get related information on the certain properties’ status, value, property right owner, and so on. Take the example of intelligent property once again, in assets tracing after lawsuit, it is not necessary to do deep investigation on such asset.

B. Different Analysis on Different Kinds of Assets
The depth of the investigation on assets should be determined also based on the different types and characteristics of different kinds of properties.
In practice, investigation on a corporation’s assets status has to be operated as the investigation into certain property. So determining the depth of the case is actually to determine the depth of the investigation on a certain or a certain kind of idiographic property.
Based on the experience, in the case of assets tracing, the importance is such property as the permanent assets or external investment. To a permanent asset, all the information should be obtained is just its status in quo, including the location of asset, its present value, ownership adscription, mortagage, etc. To the external investment, besides the present situation of the property, the following information is also necessary to be investigated: the former investment situation, the invested company’s business, distribution of the dividend in history, the possibility of melon-cutting in the near future, and so on.

C. Time-analysis Method
The essential of the investigation is a process of collecting and analyzing information. From the angle of time, there is no more information of any property besides the three types: present information, history information and future information. Accordingly, after clearing about the client’s purpose, time-analysis method can be used in determining the depth of the investigation on different types of assets. The analysis of the permanent asset and external investment above is an example.

a. Present Information
Present information takes the first place in the investigation on assets. Therefore, to almost every kind of property, it is necessary to obtain such information.
Generally, present information involves the components of the assets, the situation, the ownership, the relationship of the owners and so on. Not only should what assets the subject has be known, but the investigators should also do deep investigation on the ownership of those properties. For example, to such assets as house and vehicles that should be registered in government, the investigators should check and verify the ownership and other registered information with the government, nailing down whether there is mortagage or impawn on those assets. To such immaterial assets as the intelligent properties that are used in investment, the investigators should estimate the value of those with the assistance of certain professional departments. To the branch institutions, whether the branches are still exit and in operation and the relationship between the branches and the subject must be investigated.

b. History Information
History information is important to the investigation on receivables and external investment.
To the receivables, the history information refers to the reasons of forming, time of existence, the alteration of or succession to related creditor’s rights and liabilities, and so on.
To the external investment, the information of the investing in history is necessary, such as the manner and amount of the investment. Also the invested company’s business profit or loss in history, the records of distribution of dividend and other related information are important. All the above information is good for reference to estimate a corporation’s business credit and its investment profits.
Here is a case, which indicates the importance of the history information to the investigation on certain assets.
The subject is a corporation named “A”, and the case is assets tracing after lawsuit. After basic investigation on the whole situation of A’s assets, the investigator found that 30 percent of the registered capital was the receivables transferred from the exclusive investor – corporation B. According to the legal rule of subrogation, all those receivables should have been enrolled in the list of assets for execution. However, through the deep investigation on the receivables’ history information, the fact was discovered. Nearly 20 percent of the receivables formed in 80’s. Before B transferring those 20 percent receivables to A, it had never claimed its creditor’s rights to the related obligors. Time goes by, the period of limitation had terminated and A’s claim rights of many receivables of the above had already gone for a long time. From the point or view of law, A had actually lost its creditor’s rights on the above 20 percent receivables. Moreover, investigation showed that other 10 percent receivables had been paid back to B by the debtors, but B never transferred the related funds to A. Based on the result of the investigation as above, the investigator suggested the client to superadd B as another appellee and apply to the court to execute the 10 percent receivables.

c. Future Information
In assets tracing before or after lawsuits, future information is really important and helpful. Such issues are often valuable for investigation as that whether there is some dividend that will be distributed in the near future or whether there is any debt due for return, etc.
In cases of property investigation, because of the importance of the intelligent properties to estimating the economic strength of a subject, the term of the right of intelligent property should also be investigated, for example, the termination of the right.
Time-analysis method is useful and practical. By this method, the investigators can divide a big case into some small cases that can be conducted step by step according to the detailed requests and the budget of the client.
For example, in property investigation, based on the client’s requirement of knowing the real economic status of a subject, the investigators can take the first step to do basic investigate on the present information of all assets. After that operation, the investigators may analyze all information and choose the most important assets, which is worth of being further investigated. To such assets, the investigators can suggest the client to do more work on collecting the history or future information and the further investigation should be treated as another new case.
In this way, the investigation can be conducted more easily as a continuous process with different emphases in divided steps. Moreover, the client also can save money on a big case with the suggestion from the investigators by spending limited expenses on the most valuable assets while getting the most important and useful information.