Bankruptcy criminalism

Author: Law Agency “Absolute”

Systematic and systemic changes adopted by a number of countries to create a transparent field for business partnerships, as well as the ongoing struggle for taxpayer money, update the issue of the scope of criminal liability in bankruptcy proceedings.

Crimes in the field of bankruptcy

One of the main trends of modern legislative reform is the process of creating the most transparent relations between the debtor and creditors.

For the first time at the international level, there was talk of transnational fraud in bankruptcy in the wake of the 2008 crisis. The most grandiose scandals erupted in Singapore and Hong Kong, when, due to fraud on the part of shareholders, foreign investors suffered huge losses, leading to financial insolvency in their own jurisdictions.

It was in the wake of the 2008 crisis that approaches to the definition of crimes in the field of bankruptcy were revised. Nevertheless, the changes were twofold, envisaging on the one hand the decriminalization of a number of economic crimes, and on the other, significantly tightening the control over the financial and economic activities of enterprises. Also, measures were taken to counter fraud in individual bankruptcy.

Note that one of the main trends in protecting the rights of creditors in the EU today is the possibility of instituting bankruptcy cases before the actual onset of insolvency. For example, in Germany, in the event of serious suspicions of a significant loss of assets, creditors are entitled to claim for possible bankruptcy. In such conditions, enterprises that are restructured as part of a change in the overall corporate structure enter the risk zone.

World practice identifies several main types of crimes related to bankruptcy:

• concealment of assets and submission of knowingly untrue data on property;
• destruction of documents and information on economic activities;
• conclusion of unprofitable transactions.

In addition to the above, the simultaneous declaration of bankruptcy in several jurisdictions and the bribery of the administrator (trustee) with property are also singled out.

Interestingly, such actions as deliberate bringing to bankruptcy are not considered as a crime in the field of bankruptcy, but qualify as fraud. As a result, the responsibility is entirely the responsibility of the directors of the company or of shareholders and, except for criminal liability, the perpetrators bear financial responsibility to creditors with personal property.

Rules of analysis The

Movement of assets. The rationality of asset management is the first thing that is analyzed during the bankruptcy procedure.

So, in the process of bankruptcy, all transactions relating to assets concluded by the enterprise during the last year preceding the submission of an application for bankruptcy are analyzed.

Let’s note, in order to avoid problems connected with the termination of contracts of the enterprise, it is necessary to take care of the economic justification of the benefits that are planned to be received. In addition, do not neglect the timely audit of financial and economic activities.

Family ties. The movement of tangible and intangible assets between persons related by kinship is thoroughly investigated in the bankruptcy procedure.

This requirement is increasingly spreading in the legislation of different countries. The transactions between affiliated persons are examined in particular, and, in order to avoid their dissolution, such decisions should be made collegially, and document the reasons and key facts that facilitated the conclusion of transactions of this kind.

Destruction of documents. The tendency to tighten the rules of document circulation is present both in the EU countries and in the USA.

The active implementation of the BEPS plan has led to the responsibility for the loss of financial and economic documentation assigned to the debtor.

Persons found guilty of incomplete submission of documents, their damage or loss are held accountable without a discount for possible force majeure.

It is believed that it is the debtor who must keep the documents from their possible damage in case of fire, flooding or other factors.

Conclusion of knowingly unprofitable contracts. To date, most countries have decriminalized the bankruptcy of the enterprise.

Based on the jurisprudence of the United States and Britain, tax crimes include even transactions that are not aimed at making a profit.

Also, in the bankruptcy procedure, restitution is actively used (for transactions made between one year and three years before filing for bankruptcy).

These rules are also relevant for transnational business groups that are going to change their corporate structure.

We draw attention to the fact that in order to redistribute assets it is better to use the opportunities of corporate structuring than the possibilities of provisions of contract law.

Concealment of incomes

The greatest number of crimes in the field of bankruptcy is registered in the procedure of individual bankruptcy. One of the most common crimes is fraud in order to conceal their assets and incomes.

So, one of the most high-profile cases of fraud in bankruptcy is the process of attorney Phil Shiner, who has ventured out of assets worth more than half a million pounds sterling in favor of his family and affiliated lawyer associations.

The British insolvency service said that Phil Shiner had made a series of transactions relating to his assets six months before the planned bankruptcy.

So, Mr. Shiner sold his commercial real estate, and paid the money received as a debt of a limited liability company. His house and works of art Mr. Shiner transferred to the management of the trust. In January 2017, he sold the second batch of commercial real estate for £ 305,000 and again sent funds to the PIL funds and then transferred the company’s accounts 94,908 pounds to a personal pension fund and another £ 74,485 to a trust account for his family. The rest of the money was allegedly paid to the creditors of the firm that the attorney was running.

During the bankruptcy procedures, these transactions were identified, collateral was imposed on the property, and the remaining transactions were canceled. The actions described helped to restore 483,538 pounds sterling, the total amount of creditor claims for today is almost 6.5 million pounds sterling.

This case clearly characterizes the attitude not only of the courts of England and Wales to the deliberate disposal of assets – the same position is observed in virtually all EU countries and in the US.

The bankruptcy law provides for a wide range of possibilities regarding the seizure of property transferred to family members for the purpose of concealing it. In addition, even divorce with subsequent separation of property is not sufficient protection of assets.

Ukrainian legislation

Article 219 of the current Criminal Code provides for liability for willful bringing to bankruptcy.

Ukrainian legislation, unlike the legislation of the EU countries and the US, gives the arbitration administrator opportunities to effectively search for property owned by the debtor, and also assigns a number of responsibilities to verify the financial and economic activities of the enterprise.