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Fraudulent bankruptcy: an increasingly articulated and complex practice area

Fraudulent bankruptcy is among the most serious bankruptcy offences. 

Since its foundation, ILA has had a team of experienced fraudulent bankruptcy lawyers, at its disposal to assist those who find themselves in the complex and complicated situation of fraudulent bankruptcy.

In the course of this in-depth legal analysis, we will shed more light on this discipline that is becoming, year after year, more and more inticate and complex.

Offence of fraudulent bankruptcy: when it can be said to exist

It occurs when an entrepreneur:

• diverts, conceals, disguises, disposes of or disperses all or part of his assets in such a way as to cause damage to creditors (in this case we speak of fraudulent bankruptcy by diversion, which we will discuss in greater detail below);
• misappropriates, destroys or falsifies all or part of its assets in such a way as to cause itself or others an illegitimate profit;
• shows non-existent liabilities in order to prejudice creditors (in this case, we speak of fraudulent asset bankruptcy);
• conceals books or other accounting records or keeps them in such a way as to make it impossible to reconstruct assets or the movement of business in order to prejudice creditors (in this case, we speak of document fraudulent bankruptcy, which we will discuss further below);
• makes payments or triggers pre-emption rights for the purpose of favouring certain creditors over others (in this case we speak of preferential fraudulent bankruptcy, which will be discussed below).

In general, this alleged criminal state of affairs integrates a bankruptcy-type offence attributable to the individual entrepreneur who is declared bankrupt; the entrepreneur, in this case, in order for such a charge to be brought, must engage (before or during the bankruptcy proceedings) in conduct that diminishes his own assets to the detriment of the assets of creditors. The offence of Fraudulent bankruptcy can be considered a typical corporate white collar crisis offence.

From ‘bankruptcy’ offences, it is necessary to distinguish tax offences, which provide for the mere taxpayer as agent. In the light of this distinction, therefore, a self-employed professional with VAT registration cannot be charged with a bankruptcy offence, who, on the contrary, may commit a tax offence.

These criminal offences represent an extremely complex category of criminal offences. It is for this reason, therefore, that it is absolute pre-requisite for individuals accused in some way involved in or under investigation for this type of offence to turn to truly experienced lawyers,ideally, as early as possible in the investigation stage such as those of the staff of International Lawyers Associates.

Fraudulent bankruptcy terms

In order for the terms of this offence to be said to be fulfilled, a number of subjective and objective factors must concur.

First of all, it is necessary for the subject to be a commercial entrepreneur, a company or one of its representatives. Bankruptcy is an offence in its own right, which as such presupposes specific qualities of the agent. This can only be a commercial entrepreneur declared in judicial liquidation, i.e. one who professionally carries on an organised economic activity for the purpose of production or exchange.

The mental element of the offence in question is intention. In this respect, the majority orientation of doctrine and jurisprudence seems to consider specific intent to be relevant. The reason for this approach is justified by the fact that a connection must be made between the material element of the offence and the mental element and, in this case, the material element does not take the form of simple conduct of removing goods from the assets but of fraudulent and therefore artificial conduct.

All this, however, does not mean that an external party cannot take part in the offence. As we shall see more clearly in the course of our discussion, in fact, the concurrence of the extraneous in the offence of fraudulent bankruptcy is also considered by the law to be an offence (Art. 216 – 217 and 223 of the Bankruptcy Act.

The offence of bankruptcy, then, is one of the main bankruptcy offences punishable only if the entrepreneur is declared bankrupt. From an objective point of view, therefore, it is the declaration of bankruptcy that represents an important constituent element of this offence. More specifically, the material object is represented by the assets of the entrepreneur subject to judicial declaration or by the assets of the entrepreneur himself, understood as the set of economically assessable legal relations pertaining to the entrepreneur himself.

As regards conduct, we can distinguish:

• the diversion, which occurs when the asset is given a destination other than that imposed by the legal rule;
concealment, which consists in ‘hiding’ assets so as to make it impossible for the apprehension by the bodies in charge of the judicial liquidation procedure;
dissimulation, in which the assets are not materially removed from the creditors, but the agent makes it impossible for them to be apprehended by making it appear, by means of simulated legal transactions, that such assets belong to others;
destruction, which consists in conduct aimed at the material disintegration of the asset, with the consequent elimination of its economic value;
dissipation, which consists in the ‘legal’ destruction of wealth, which can be identified with the unjustified squandering of wealth through gratuitous or onerous acts.

The area of bankruptcy offences is undoubtedly one in which our team of lawyers is most specialised. International Lawyers Associates, in order to provide adequate assistance in this insidious matter, avails itself of the collaboration of specialised technical consultants and lawyers who have gained significant experience by participating in major trials for the crime of Fraudulent Bankruptcy.

Fraudulent bankruptcy: regulations and types

The discipline governing this offence is very complex and articulated and covers:

the Bankruptcy Law (Royal Decree No. 267 of 16.03. 1942), as amended by Decree-Law No. 59 of 3.05.2016, converted and amended by Law No. 119 of 30.06.2016 in force since 3.07.2016;

Articles 216 and 217 of the Bankruptcy Law, which regulate the offences of fraudulent bankruptcy and simple bankruptcy, respectively;

Article 223 of the Bankruptcy Law (to be interpreted in conjunction with Articles 216 and 217, which regulate the concurrence in bankruptcy offences).

In this regard, it is worth noting that the current rules under analysis will presumably be profoundly reformed with the entry into force of the Business Crisis and Insolvency Code scheduled for 1 September 2021.

In addition to simple bankruptcy, however, the following types of the offence in question are contemplated:

1# Fraudulent Bankruptcy by Distraction

The offence in question occurs when the entrepreneur (or company director) embezzles, conceals, misappropriates or destroys assets and financial resources from his own or the collective assets in order to enrich himself, thereby depriving the creditors of any form of asset guarantee on which they can be satisfied (Criminal Cassation, Sec. V, no. 18981 of 6.05.2016).

2# Fraudulent Preferential Bankruptcy

In this hypothesis, the person – whether physical or legal – declared bankrupt pays only some of the creditors to the detriment of the others. It follows that the principle of pars condiciocreditorum is violated (Criminal Cassation, Sec. V, no. 35365 of 23.08.2016).

3# Fraudulent Documentary Bankruptcy

When a person decides to carry on a business activity, he is required to compile, keep and maintain certain books of account. He is therefore liable for the offence of Documentary Fraudulent Bankruptcy when he destroys or misappropriates the books of account in order to obtain an unfair profit, thereby damaging his creditors (Criminal Court of Cassation, Sec. V, no. 24059 of 9.06.2016).

In general, then, what differentiates the offence of Simple Bankruptcy from that of Fraudulent Bankruptcy (in its various ‘declinations’) is the subjective element; in the case of Simple Bankruptcy, the agent acts without wilful intent, in a reckless and imprudent manner, in Fraudulent Bankruptcy, on the other hand, the subject acts with a fraudulent will and intent, in the awareness of committing conduct that will diminish the company’s assets and those of its creditors.

The Concurrence in the Offence of Bankruptcy

In order to understand specifically what the concurrence in the offence of fraudulent bankruptcy consists of, it is sufficient to faithfully quote what was stated in a recent Supreme Court ruling, according to which: “the crime of fraudulent bankruptcy can be committed by a person extraneous to the bankruptcy if the conduct carried out in complicity with the bankrupt was efficient for the production of the event and the third party competitor acted with the awareness and the will to help the failing entrepreneur to destroy the fulfilments provided by law to protect the company’s creditors, and again, the normatively postulated intent consists in the voluntariness of one’s own conduct of contribution to that of the intraneus, with the awareness that it results in a depletion of the company’s assets to the detriment of the class of creditors, the specific knowledge of the company’s state of insolvency not being required (Criminal Court of Cassation no. 8349 of 01/03/2016.

With regard to other types of concurrence in the offence under analysis, doctrine and jurisprudence agree that there is no causal connection between the offence under analysis and the offences of forgery, whereas concurrence is generally admitted with the offences of fraud and theft.

In addition, it is important to identify the precise terms within which this offence can be said to exist. The latter, for example, must be considered different from the abusive use of credit, which constitutes another offence under the bankruptcy law and which, rather, can be said to have been committed when an entrepreneur persists in using credit by concealing his bankruptcy.

In conclusion, therefore, in the light of the brief discussion above, the considerable complexity of the subject matter, as well as its high technicality, make it easy to understand how, in this case, qualified legal assistance by lawyers experienced in fraudulent bankruptcy, such as that of International Lawyers Associates, is essential!