Punishable Insolvency

Punishable insolvencies are a group of economic crimes regulated in article 259 and the following of the Penal Code.

One of the criminal conducts considered as punishable insolvency, regulated in article 259 and punishable by imprisonment for a term of one to four years and a fine of eight to twenty-four months, is being in a situation of actual or imminent insolvency and committing any of the following acts:

  • Concealing, damaging or destroying property or assets that are included, or would have been included, in the insolvency estate at the time of the opening of the insolvency proceedings.
  • Making acts of disposition by handing over or transferring money or other assets, or by taking on debts, that are not proportionate to the debtor’s assets and income, and which have no economic or business justification.
  • Performing sales or services at a price lower than their acquisition or production cost, and which in the circumstances of the case lack economic justification.
  • Simulate third-party claims or proceed to the recognition of fictitious claims.
  • Engaging in speculative business, where there is no economic justification for doing so and where it is, in the circumstances of the case and in view of the economic activity carried out, contrary to the duty of care in the management of economic affairs.
  • Failing to comply with the legal duty to keep proper accounts, destroying or altering accounting records, when this makes it significantly difficult or impossible to understand its assets and liabilities or financial situation.
  • Concealing, destroying or altering the documentation that the employer is obliged to keep before the expiry of the period to which this legal duty extends, when this makes it difficult or impossible to examine or assess the debtor’s real economic situation.
  • Drawing up the annual accounts or accounting books in a manner contrary to the regulations governing commercial accounting, in such a way as to make it difficult or impossible to examine or assess the debtor’s real economic situation, or failing to comply with the duty to draw up the balance sheet or inventory within the deadline.

Engaging in any other active or omissive conduct which constitutes a serious breach of the duty of care in the management of financial affairs and which is attributable to a diminution of the debtor’s assets or by means of which the debtor’s actual financial position or business activity is concealed.

In addition to all this, the same article also punishes those who bring about their own insolvency. It is a crime of which one has to be very conscious, because it is possible to commit the crime through recklessness.

When the punishable insolvency conduct causes or may cause financial damage to a generality of persons or may place them in a serious financial situation, causes financial damage exceeding 600,000 euros or when at least half of the frustrated credit has the Social Security or the Public Treasury as a creditor, the penalties of two to six years and a fine of eight to twenty-four months shall be applied, according to the article 259bis of the Penal Code.

Article 260 targets punishable insolvency that consists of favouring a creditor by making an act of disposal of assets or creating obligations in order to pay a claim that is not due or to provide a guarantee to which the creditor is not entitled, when this is a transaction that has no economic or business justification.

Finally, it is also necessary to be aware that legal entities can commit the crime of punishable insolvency. Article 261bis punishes them with a penalty of six months to five years.