AI-Powered Solutions for Financial Restructuring

Restructuring and turnaround management often requires renegotiating creditor terms, vendor negotiations, scenario modeling, evaluation of selling off divisions or assets, improving operational efficiencies, or addressing internal financial issues such as improving billing and collections practices.

Meeting the Demands of Financial Restructuring Cases

Before diving into investigations, it’s critical to establish a baseline of truth. Accountants and advisors must first ensure the accuracy and completeness of financial data, which involves meticulously gathering and verifying bank statements, credit card transactions, and other financial records. This baseline provides the foundation for all further analysis, enabling a clear understanding of the company’s financial situation and allowing for informed decision-making during the restructuring process.

Once this baseline is established, the focus can shift to deeper investigations and ongoing monitoring of cash flow budgets and actuals, crucial for guiding the turnaround efforts.

Restructuring professionals and fiduciaries play a crucial role in the restructuring process. In many cases, their primary and initial responsibility is to conduct a thorough analysis of the company’s financial situation to identify the root causes of financial distress. This involves a detailed examination of generating a historical lookback of cash flows by way of bank statements, credit card transactions, brokerage accounts, and even checks and deposit slips. The sheer volume and diversity of these records present significant challenges, particularly when it comes to precision and completeness in the analysis.

In addition, close monitoring of cash flow budgets and actuals is a critical and  ongoing need during the restructuring/turnaround engagement.

The success of these restructuring efforts hinges on good information at a high level, and at a more detailed level the ability to swiftly and accurately analyze financial records, a task that has traditionally been labor-intensive, prone to human error, and fraught with delays. With the advent of AI-powered tools, the landscape is evolving, offering forensic accountants new avenues to accelerate their processes and focus their expertise where it is most impactful.

Addressing the Pain Points with AI-Driven Solutions

As the demands on forensic accountants and advisors  have grown, so too has the need for more advanced solutions to assist in the data analysis process. AI technology has paved the way for innovative tools that address the challenges associated with traditional methods. Valid8’s Verified Financial Intelligence (VFI) platform is one such solution, specifically designed to meet the unique needs of forensic accounting, tackling these challenges with precision and efficiency.

1. Overcoming Data Extraction Challenges

In financial restructuring, one of the most significant hurdles is the accurate extraction and organization of data from a wide array of financial documents. This task is particularly daunting when dealing with non-standard formats or large volumes of complex financial records, which often require extensive manual verification. Valid8’s platform addresses these challenges by leveraging advanced AI to seamlessly adapt to various document formats, eliminating the need for static templates and reducing the risk of errors.

Valid8’s platform excels at automatically reading and matching transaction details—such as payee, payor, amounts, dates, check numbers, memos, and MICR data—with corresponding bank transactions. This streamlined process not only saves significant time but also ensures that all relevant data is accurately captured and reconciled, allowing forensic accountants to focus more on analysis and less on manual data entry.

2. Tracing Funds and Supporting Multicurrency Transactions 

In financial investigations, it's crucial to “follow the money” by tracing where all income originates. This process helps uncover the origins of assets, identify potential fraud, and ensure transparency in financial activities. Valid8 automates this task by tracking every movement of money across accounts with high accuracy. The platform captures details like payee and payor information, cross-referencing them with bank transactions, which allows investigators to pinpoint where funds come from and where they go, revealing hidden connections and irregularities in financial records.

Additionally, the platform’s Multicurrency feature uses daily exchange rates from the European Central Bank to convert transactions into a base currency, enabling forensic accountants to easily compare accounts and identify international transfers across different currencies. This automation significantly reduces the time needed for manual reconciliation and helps uncover data discrepancies and undisclosed accounts, providing a more complete and accurate picture of financial activities.

3. Refining Analysis with AI Categorization

Valid8’s platform excels in AI Categorization, which automatically classifies all income and expenses by transaction type, location, main category (e.g., retail, travel), subcategory, and counterparty (e.g., person, vendor, merchant). This advanced capability not only accelerates data preparation but also contributes to a compelling narrative, with a visualization that shows the flow of funds from sources through to categorized uses. Additionally, through the Stories feature, users can quickly separate transactions of interest and group them into different collections. Each collection is a Story that helps users understand how financial activities unfolded over time and across locations.This leads to a more comprehensive understanding of financial activities and gives professionals more time to focus on analysis and strategy.

4. Enhancing Clarity with Data Visualizations

The platform transforms large datasets into clear, evidence-based visual narratives, which are crucial for tracing the flow of funds, identifying transfers, and presenting findings effectively to stakeholders. Visualizations are supplemented with a detailed Financial Activity Report, an indexed PDF that details the flow of funds and ties every transaction back to the source material.

Case Study: How Somerset Capital Accelerated an Out-of-Court Settlement

Cannabis-related businesses face unique challenges when financial difficulties arise, primarily because filing for bankruptcy under Chapter 11 is not an option. Due to federal regulations, cannabis remains illegal at the federal level, which means bankruptcy courts will not handle cases involving these businesses. This legal roadblock often leads to heightened tensions and disputes between creditors and business owners when things go awry, as was the case with one of Somerset Capital’s clients in Colorado.

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In this instance, a cannabis business found itself in financial distress and attempted to file for Chapter 11 bankruptcy. However, the filing was dismissed, and the business was placed into a receivership—a process that quickly became problematic. Recognizing the need for expert intervention, Somerset Capital was brought in to help stabilize the situation and guide the company toward an out-of-court settlement.

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By leveraging the Valid8 platform, Somerset Capital was able to quickly take control of the situation. Within days of posting the relevant documents to Valid8, the team identified missing statements, traced the flow of funds through numerous legal entities, and accurately quantified what was owed. This comprehensive analysis, achieved by fully verifying reconciled data within hours, provided a clear picture of the company’s financial landscape. The ability to pinpoint missing periods and statements strengthened subpoena requests and brought additional assets into the settlement discussions. As a result, the clarity and specificity of the financial insights facilitated by Valid8 led to accelerated settlement discussions and a more favorable resolution for all parties involved.

Paving the Way for a New Era in Financial Restructuring

The integration of AI-powered solutions into the field of financial restructuring represents a significant advancement for forensic accountants. These tools address many of the long-standing challenges associated with traditional methods, from the extraction and reconciliation of financial data to the visualization of intricate financial flows. By enhancing speed, confidence, and cost-effectiveness, AI allows forensic accountants to focus on the strategic aspects of their work, ultimately contributing to more successful restructuring outcomes.

In a domain where precision and timeliness are paramount, the subtle yet powerful impact of AI cannot be overstated. By leveraging these advanced technologies, forensic accountants are better equipped to navigate the challenges of financial restructuring, ensuring that their analyses are both thorough and reliable, and that they can deliver their insights with confidence. Schedule an intro call to discover how our advanced platform can accelerate your financial restructuring process.