Improper bankruptcy for malicious transactions

Bankruptcy crimes, and especially fraudulent bankruptcy, no doubt play a crucial role in corporate criminal law.

This type of crime can be integrated by various conducts, such as the one indicated by article 223, paragraph 2, no. 2 of the Bankruptcy Law. The article configures a hypothesis of improper fraudulent bankruptcy for which directors, general managers, auditors and liquidators of bankruptcy companies that have caused the willful bankruptcy of the company due to malicious transactions can be held accountable.

 

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The difference between improper, patrimonial and documentary bankruptcy

There are different types of bankruptcy: improper, patrimonial and documentary. The latter two punish the conducts of distraction and dissipation of corporate assets with danger for credit reasons, regardless of the circumstances that caused the bankruptcy, an event that must occur in any case. On the other hand, improper bankruptcy punishes malicious conducts and operations – not necessarily distractions or dissipations – which must have an etiological connection with the company’s bankruptcy.

In particular and as clarified by the jurisprudence of legitimacy, to configure the crime of improper bankruptcy, the immediate impoverishment of the company does not necessarily have to be detected, but it will be sufficient to detect the creation or aggravation of a situation of economic distress which, predictably, will lead to bankruptcy.

It is for this reason that this type of crime is increasingly common in legal matters relating to the management of companies of any size and industry. In this regard, a recent ruling by the Criminal Cassation, section V, 02.18.2021, no 22765, establishes that “it is a free-form crime, supplemented by active or omissive conduct, constituting failure to comply with the duties respectively imposed on the subjects indicated by the law, in which the bankruptcy is an event of damage. It is believed that the case occurs not only when the failure situation finds its cause in malicious conduct or operations, but also when such conducts and operations have aggravated the failure situation, which is the objective prerequisite for declaring bankruptcy.”

The role of the administrator and the meaning of “malicious operation” 

Concerning the figure of the company director, who has an obligation of loyalty toward the company, it is believed that any violation committed by the director can integrate an intentional operation in the presence of other conditions. As established by the jurisprudence of legitimacy, such intentional operation “consists in performing of any intrinsically dangerous act for the economic and financial health of the company and, therefore, is also an omissive conduct that creates and impoverishment unjustifiable in terms of interest for the company.” (sentence, Criminal Court, section V, 05.15.2014, no 29586).

It is no coincidence that we speak of “operation”, a much broader term than “action” (i.e., merely active conduct) and also including omissive conduct. In this regard, in the case law it is precisely stated that malicious operations may also consist of the systematic failure to pay social security contributions or taxes.

 

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“Willful misconduct” in improper bankruptcy

The regulatory use of the word “willful” in the context of the subjective element of the crime must be understood as follows: bankruptcy must be foreseen and wanted by an agent as a consequence of their action or omission. Hence, it only refers to cases in which the company’s bankruptcy was the agent’s goal. In the hypothesis of malicious transactions, however, bankruptcy is only the effect of the agent’s voluntary conduct but not intentionally aimed at generating bankruptcy.

Therefore, the first instance is punished only in direct event fraud, while in the second case generic fraud will suffice.

With regard to the case for malicious transactions, the Supreme Court (with the sentence cited, Criminal Court, Section V, 02.18.2021, no. 22765) found that “reference was made to a hypothesis of unintentional bankruptcy, to underline that the connection with the event is purely coincidental, as the ‘for the effect of’ formula suggests, where the fraud only refers to the operations that cause the failure.” It is hence “sufficient for the prosecution to prove” the awareness and intention of the administrator of the complex action affecting patrimonial damage in its natural elements and contrast with his/her duties, in the face of the interests of the company, and their insertion in the wake of the aforementioned need for the abstract predictability of the event of instability as an effect of the illegal action. “

Considering what is established by the jurisprudence of legitimacy and in light of the increasingly significant impact of improper fraudulent bankruptcy in corporate affairs, we suggest requesting the support of legal professionals experienced in Criminal Bankruptcy Law, both in the judicial and extrajudicial phases. Stella Law Firm can help you.

 

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