Insolvency and criminal liability: risky business

In recent years, criminal law has focused on the business world more than ever before. Consider, for example, environmental offences, breaches of social and tax legislation, violations of the Companies and Associations Code, and similar matters. As a result, criminal law has become an integral part of modern business operations. 

Directors of a company are increasingly at risk of being held criminally liable for acts committed by or within the company they manage. It is therefore extremely important for directors to remain vigilant in this regard. Especially when a company is facing financial difficulties, it is crucial for directors to keep a cool head.

In this blog post, we provide an overview and a brief discussion of the main offences related to insolvency. 

Entering into excessively burdensome obligations (Article 489, 1° Criminal Code) 

A first offence to which we wish to draw attention consists of entering into excessively burdensome obligations for the benefit of third parties without sufficient consideration in return. To hold a director criminally liable for this offence, it is sufficient that he acted knowingly and intentionally. In other words, the director must know that he is committing a criminal offence and must have intended to do so.

An example of this is when, after payments have ceased, funds are transferred to a third party without any (adequate) consideration in return. 

This offence may give rise to a prison sentence of one month to one year and/or a fine of 800 euros to 800,000 euros.  

Failure to cooperate with the trustee in bankruptcy (Article 489, 2° Criminal Code)

As a director, it is important to respond to all summonses from the supervising judge or the trustees in bankruptcy and to provide all required information. Failure to cooperate with the trustee in bankruptcy may indeed lead to penalties. 

If you fail to cooperate with the bankruptcy trustee, you may be sentenced to imprisonment for one month to one year and/or a fine of 800 euros to 800,000 euros.  If a director can demonstrate that they were lawfully prevented from providing cooperation, they may – if this is regarded as a valid reason – avoid criminal liability.

Offences related to the bankruptcy declaration (Article 489bis, 1°- 4° Criminal Code) 

Article 489bis of the Criminal Code provides for four different offences related to the bankruptcy declaration. These are punishable acts committed with the intention of delaying the bankruptcy declaration. It must therefore be proven that the director who performed this act did so with the aim of postponing the bankruptcy declaration. The penalties for these offences are severe, namely imprisonment from 1 month to 2 years and/or a fine from 800 euros to 4 million euros. Below you will find an overview:

1. making purchases for resale below the normal market price or agreeing to loans, securities transactions and other excessively costly means of obtaining money,
2. reporting fictitious expenses or losses or being unable to account for the existence or use of (part of) the assets,
3. favoring or paying one creditor to the detriment of the collective body of creditors,
4. failing to file for bankruptcy within the statutory period of one month (with a complete and correct declaration).

Misappropriating or concealing part of the assets (Article 489ter, 1° Criminal Code) 

A company’s director may also incur criminal liability for both the misappropriation and concealment of assets. Both acts result in goods or funds being withdrawn from the company to the detriment of creditors who may have a claim to them. 

Misappropriation essentially means that the director disposes of assets owned by the company. For example, he may sell, give away or destroy work equipment that forms part of the company’s assets. An example of concealment of assets is hiding goods with family members for later use. 

In order to prosecute a director for these acts, it must be demonstrated that he acted with fraudulent intent or with the intent to cause harm. In other words, when carrying out these acts, he must have intended to prejudice the body of creditors as a whole. 

The legislator provides for severe penalties for this offence, namely imprisonment from one month to three years and a fine of 800 euros to 4 million euros.

Causing accounting records to disappear (Article 489ter, 2° Criminal Code)

Destroying all or part of the accounts or supporting documents related to the accounts is punishable. The law therefore targets not only the legally prescribed books, but in fact all documents that contribute to a financial overview of the company. Here too, it must be shown that the director acted with the intent to cause harm or the intent to defraud. 

The penalties the director risks if prosecuted for this offence are imprisonment from one month to three years and a fine of 800 euros to 4 million euros. 

Fraudulently arranging his insolvency (Article 490bis Criminal Code)

Fraudulently manipulating the company’s assets so that the financial obligations incumbent on the company cannot be met is also a criminal offence. A company’s asset position may not be structured in such a way that the assets it owns are withdrawn from the forced enforcement measures of its creditors.

This offence may result in imprisonment from one month to two years and/or a fine ranging from 800 euros to 4 million euros. 

Offences relating to judicial reorganisation (Articles 490ter and 490quater Criminal Code)

Lastly, with effect from 1 May 2018, the legislator introduced additional criminal offences specifically aimed at judicial reorganisation. 

There are four specific acts that are criminalised: 

1. the intentional concealment, exaggeration or minimisation of part of the assets or liabilities, 
2. intentionally allowing fictitious creditors or creditors whose claims are overstated to participate in the deliberations,
3. the intentional omission of creditors from the list of creditors,
4. making incorrect or incomplete statements about the state of affairs or the prospects for reorganisation.

Conclusion 

In recent years, the legislator has considerably expanded the criminal law risks within a company. The consequences associated with committing such criminal acts should not be underestimated. It is important that you, as a director, are aware of the criminal law risks linked to the management of the business. Especially when a company is experiencing financial difficulties, it is crucial to know which conduct may be considered criminal. 

****

Heeft u nog vragen over deze materie of wenst u bijkomende informatie over de strafrechtelijke aansprakelijkheid die op bestuurders rust? De cel strafrecht van Reyns Advocaten heeft een ruime expertise in deze materie en verleent u graag verder advies of bijstand hieromtrent. Aarzel niet om contact met ons op te nemen.