Fraudulent Bankruptcy

Fraudulent bankruptcy covers offences that differ in structure, object of the conduct, subjective element and relationship with the company's financial collapse. A charge may concern the removal or dispersal of company resources, the impairment of accounting records, preferential payments, or conduct of corporate officers causally linked to causing or aggravating insolvency.

For this reason, the criminal law analysis cannot start from the mere existence of judicial liquidation or from the negative outcome of the business. It is necessary to identify precisely the offence charged, the role actually performed by the individual, the structure of the transaction, the financial and asset context and, where the provision requires it, the causal link with the insolvency.

The main provisions are now contained in Articles 322 and 329 of the Business Crisis and Insolvency Code. Article 322 governs offences attributable to the entrepreneur subject to judicial liquidation; Article 329 governs acts committed by directors, general managers, statutory auditors and liquidators of companies subject to the procedure. The system preserves substantive continuity with the previous Articles 216 and 223 of the Bankruptcy Law, within the new systematic and terminological framework of the Code.

For patrimonial and documentary fraudulent bankruptcy Article 322 provides imprisonment from three to ten years; for preferential bankruptcy the penalty is imprisonment from one to five years. The rules also provide ancillary penalties lasting up to ten years, including disqualification from running a commercial business and incapacity to hold managerial office in any undertaking.

Which rules apply

The entry into force of the Crisis Code did not immediately end the application of the criminal provisions of the Bankruptcy Law. In proceedings connected with procedures still governed by the previous rules, Articles 216 and 223 of the Bankruptcy Law may continue to apply.

The applicable provision depends on the regime of the insolvency procedure under the transitional rule of Article 390 of the Code, subject to the assessment required by Article 2 of the Criminal Code where substantive changes exist. Intertemporal rules must therefore be verified case by case, without assuming that Articles 322 and 329 are necessarily the exclusive reference for every pending proceeding.

The opening of judicial liquidation must also be kept distinct from insolvency and from the question of what caused it. In patrimonial offences by diversion it is not necessary to prove that the single transaction produced insolvency, whereas in the specific improper bankruptcy cases under Article 329(2) the causal link with insolvency is part of what must be established.

The main offences

Patrimonial fraudulent bankruptcy

Patrimonial fraudulent bankruptcy concerns conduct affecting the creditors' asset guarantee through diversion, concealment, dissimulation, destruction or dissipation of company assets, as well as the further conduct set out in the provision.

According to the prevailing approach, in pre-insolvency patrimonial bankruptcy the concrete harmfulness of the conduct must be assessed ex ante, considering the features of the transaction, the company's asset and financial situation and the economic rationality of the act. It is not necessary that the single diversion causally produced the insolvency.

The central issue is therefore not the failure of the business initiative, but the qualification of the transaction in the light of where resources went, the consideration received, the company's interest and the conditions existing when the decision was taken.

Documentary fraudulent bankruptcy

Documentary fraudulent bankruptcy protects the possibility of reconstructing assets and business transactions through accounting records. The provision distinguishes a first offence, characterised by the removal, destruction or falsification of books or other accounting records with the specific purpose of obtaining unjust profit or harming creditors, and a second offence concerning the keeping of records in such a way as to make reconstruction of assets or business transactions impossible, supported by general intent.

Failure to keep records, failure to hand them over, reconstruction through external sources, digital accounting and the boundary with simple bankruptcy each require separate assessment and cannot be resolved through automatic inferences.

Preferential bankruptcy

Preferential bankruptcy concerns payments made or preferential titles simulated with the specific purpose of favouring one creditor to the detriment of others. A payment made during the crisis does not automatically constitute the offence: the structure and function of the transaction, the creditors' position, the subjective element and any specific exemptions under the Crisis Code must be assessed.

Improper bankruptcy and causing insolvency

For corporate officers Article 329 requires a fundamental distinction. Paragraph 1 extends the offences under Article 322 to directors, general managers, statutory auditors and liquidators. Paragraph 2 governs autonomous cases in which insolvency is an element of the offence: on the one hand causing, or contributing to causing, insolvency through certain corporate crimes; on the other, causing insolvency intentionally or as a result of fraudulent transactions.

In these cases it must be established whether the conduct produced or aggravated insolvency through a causally appreciable contribution. The assessment therefore requires distinguishing the pre-existing economic and financial situation from the consequences specifically attributable to the conduct charged.

When a business decision becomes criminally relevant

One of the most delicate issues is distinguishing a risky or economically unfavourable business decision from diversionary conduct. The failure of the transaction is not sufficient. The assessment must be based on the conditions known or knowable when the decision was taken, considering:

• the actual destination of the resources
• the existence and substance of the consideration
• the company's interest
• the economic and financial situation
• relations with related parties
• traceability of the transaction
• any advantage for directors, shareholders or third parties
• consistency of the act with a reasonable business rationale

The distinction between a risky decision, mismanagement and diversion must therefore be built on the concrete economic structure of the transaction and not on the company's subsequent outcome.

Companies, groups and personal liability

Liability for bankruptcy cannot be inferred automatically from the office formally held. For de iure and de facto directors, general managers, liquidators, statutory auditors and any outside participants, it is necessary to reconstruct the functions actually exercised, knowledge of the transactions and the contribution personally made to the conduct.

Intra-group transactions and compensatory benefits

A company's membership of a group does not automatically neutralise a possible diversion. Where a transfer entails an immediate asset sacrifice for a company, any compensatory benefit must be specific, concrete, attributable to the impoverished company and assessable from an ex ante perspective.

It is not enough to invoke the group's interest in general terms or a merely hypothetical benefit. At the same time, the burden of specifically pleading favourable circumstances cannot be turned into a shift of the ultimate burden of proving criminal liability.

Insolvency as an object of proof

Not all bankruptcy offences assign the same role to insolvency. In patrimonial bankruptcy by diversion, the single conduct need not have caused insolvency. In the offences under Article 329(2), insolvency is instead an element of the offence and must be causally linked to the conduct charged, including where the aggravation of an already compromised situation is alleged.

The technical reconstruction may therefore require distinguishing:

• the pre-existing economic and financial situation
• when insolvency arose
• autonomous or concurrent causes
• the quantitative and temporal impact of the transaction charged
• any aggravation causally attributable to the conduct

In complex proceedings this assessment frequently requires coordination between criminal law analysis and economic and accounting expertise.

When a charge may arise

Criminal risk does not necessarily emerge only after judicial liquidation is opened. The first critical issues may appear during internal reviews, handovers between corporate bodies, document requests, dealings with the insolvency officers, seizures by the judicial police, searches, or in the later stages of preliminary investigations.

At this stage the timely preservation of documentation contemporaneous with management decisions is particularly important: accounts, contracts, corporate minutes, correspondence, banking records, financial plans, IT systems and data concerning the transactions charged. The ability to reconstruct what was known and reasonably foreseeable when a decision was taken can directly affect the subsequent criminal law qualification of the conduct.

Investigations and precautionary measures

In bankruptcy proceedings the investigative phase can immediately affect the suspect's personal position, the availability of assets and the company's operations. Any personal precautionary measure must be assessed against the requirements of the precautionary rules and the concrete, current nature of the alleged needs: the abstract seriousness of the charge or the size of the insolvency cannot replace the assessment required in the individual case.

A significant part of investigations often concerns the acquisition of accounts, IT devices, corporate and banking documents, servers and forensic copies. The defence must check the relevance of the material acquired, the delimitation of its object, the integrity of the data and the actual usability of the documentation.

Seizure and confiscation

For bankruptcy offences considered on their own, no general confiscation of equivalent value is provided. Direct confiscation may apply under the general rules, provided the derivation link between the asset and the offence is proven: the mere availability of sums of money does not automatically qualify the restraint as direct confiscation.

A different basis for confiscation may derive from concurrent charges for other offences, such as tax crimes, money laundering or self-laundering, within the limits and conditions of the relevant rules. The relationship between measures on assets and judicial liquidation is also governed by Articles 317-320 of the Code, which regulate, among other things, the interaction between seizures, assets included in the procedure and the trustee's standing to challenge them.

How the defence is built

The first requirement is to identify precisely what conduct is actually charged. The reconstruction should proceed on at least these levels:

1. the conduct and the relevant period
2. the person who took or executed the decision
3. documentation and economic and financial flows
4. any consideration or destination of the resources
5. the company's situation at the time of the transaction
6. the role of insolvency in the specific offence
7. the subjective element
8. any personal and asset-related precautionary issues

Accounting and corporate documentation must be translated into a criminally meaningful reconstruction, able to critically test both the legal qualification of the conduct and the technical path followed by the prosecution. Intervention may be necessary from internal reviews or the first document acquisitions, without necessarily waiting for judicial liquidation or the trial stage.

Deep dives on bankruptcy

Frequently asked questions

Criminal assessment of the case in a business crisis

Correctly qualifying a bankruptcy charge requires coordinating the nature of the transaction, accounting and corporate documentation, the role actually played by those involved, the dynamics of insolvency and possible precautionary consequences. Timely analysis of the acts and of economic and financial flows makes it possible to distinguish a business decision, even a risky or unfavourable one, from criminally relevant conduct, and to critically test the reconstruction underlying the prosecution's case.