31.03.2023

Criminal liability of a manager for disposing of property during a period of insolvency risk

plpolski (Polish)

The article focuses on the criminal liability of managers of entities operating in Poland at risk of insolvency or bankruptcy.

With regard to such a person, the legislator criminalizes two types of behavior:

– frustrating or limitating the satisfaction of a creditor by removing, concealing, disposing of, donating, destroying or by actually or apparently encumbering or make unfit for use his or her assets (art. 300 par. 1 of the Criminal Code);

–  paying or satisfying only some of the creditors when payment of all the liabilities is not possible (Article 302 par. 1 of the Criminal Code).

When it is possible to commit these crimes?

It is important to determine from which moment we are dealing with a state of risk of insolvency or bankruptcy.

Insolvent is a debtor:

– who has lost the ability to perform his payable liabilities

– whose liabilites exceed the value of his assets, and this situation persists for more than twenty-four months.

A state of insolvency risk occurs when the entity is still able to perform its liabilities. However there is a real risk and prediction it will not be able to perform them in the near future.

What activities can a manager perform during a period of insolvency risk?

A literal interpretation of the provisions of Articles 300 § 1 and 302 § 1 of the Penal Code would lead to assume that, any disposition of property made by the manager leads to harming creditors, as it diminishes the assets that can be used to satisfy them. However, such an interpretation, would result in a complete “freeze” of the entity’s activities.

In a situation where an entity is at risk of insolvency, making dispositions of property by manager, even to pay current debts, is on the court or authorities discretion.

Persons managing an entity in financial crisis should be particularly careful about any disposition of its assets. To avoid criminal charges, it is necessary to refrain from making any atypical dispositions of the managed entity’s property. All transactions should have economic justification, as well as be carried out at market prices. The manager should also not selectively satisfy individual creditors. Repayment of liabilities should be carried out in accordance with payment dates. Any derogation in this regard should have a real economic justification.

However, law enforcement authorities make the final decision on whether to bring charges in the case. In this regard, it is important to have complete documentation showing the process of making individual dispositions of property. It always may happen that the authority will assess the facts of the case differently. This may result in a lengthy criminal trial, in which the burden of proof will be on the person managing the entity in a state of risk of insolvency to prove that his management decisions were economically justified and were not intended to harm creditors.

 

Full article is available in Polish here.

plpolski (Polish)

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