Act revising the Criminalisation of Bankruptcy Fraud Criminalisation Act

On 25 April last, the Act of 8 April 2016 revising the penalisation of bankruptcy fraud was published in the Bulletin of Acts and Decrees (Bulletin of Acts and Decrees 2016, 154). The new Act aims to improve the legal possibilities to take criminal action against bankruptcy fraud.

According to the legislator, it is a sticking point in practice that the current incriminations contained in the Penal Code (Articles 340 to 344 of the Penal Code) relating to bankruptcy fraud are difficult to read and give rise to misunderstandings about their exact meaning. On this point, the new law provides for streamlining and modernisation and, where possible, simplification, which will make the texts clearer and more applicable.

According to the new legal provisions, bankruptcy fraud is deemed to exist if a natural person, who has been declared bankrupt, or a director/supervisor of a legal person, who has been declared bankrupt, has incurred excessive expenses before the bankruptcy entered into force, as a result of which one or more creditors have been disadvantaged in their rights of recourse (art. 340 and 342 Sr new).

Furthermore, according to the new legal provisions, bankruptcy fraud is deemed to exist if a natural person, who has been declared bankrupt, or a director/supervisor of a legal person, who has been declared bankrupt, before or during a bankruptcy, as a result of which one or more creditors have been disadvantaged in their means of redress, has withdrawn any property from the estate, has favoured one of his creditors and/or has incurred excessive expenses as a legal person (art. 341 and 343 of the Penal Code).

In addition, the new Act provides for a stricter criminalisation of the obligation to administer, retain and surrender (Articles 344a and 344b of the Penal Code) in connection with a bankruptcy. These criminal provisions relate, among other things, to preventing a fraudster from going unpunished in the absence of a proper administration and signals of fraud can therefore not or insufficiently be investigated. After all, an incomplete administration almost always has adverse consequences for the rights of creditors in the event of bankruptcy. In addition, the failure to keep records, also independent of the occurrence of a bankruptcy, is independently punishable as a WED offence.

In addition, it is important for an effective approach to bankruptcy fraud that, in serious cases, criminal law can be instituted against reprehensible acts that place a legal person in serious financial difficulties with the demise of a company and the possible detriment of creditors as a result. On the other hand, the possibility to take action is justified even if bankruptcy has not (yet) occurred (art. 347 Sr new).

Finally, effective investigation and prosecution will help to ensure that all bankruptcy offences are subject to pre-trial detention. This allows, among other things, the application of certain special investigative powers and the arrest and detention for questioning the suspect of these offences out of the commission of reckless acts.

It is still unknown when the law will enter into force.