Patrimonial Fraudulent Bankruptcy

Patrimonial fraudulent bankruptcy concerns conduct affecting the creditors' asset guarantee: diversion, concealment, dissimulation, destruction and dissipation of company assets, together with the further conduct set out in Article 322 of the Crisis Code. What must be assessed is not the company's negative outcome, but the actual destination of resources and the economic function of the transaction charged.

The penalty is imprisonment from three to ten years, with ancillary penalties lasting up to ten years. For companies, Article 329(1) extends the offence to directors, general managers, statutory auditors and liquidators.

The typical conduct

• diversion: allocating assets or resources to purposes unrelated to the company's interest
• concealment and dissimulation: removing assets from the creditors' guarantee through legal or material appearances
• dissipation: using resources in transactions lacking economic rationality
• destruction and reduction of assets, including through dispositions without adequate consideration
• declaring or acknowledging non-existent liabilities

Concrete danger and ex ante assessment

In pre-insolvency patrimonial bankruptcy, case law requires an assessment of the concrete harmfulness of the conduct with respect to the creditors' asset guarantee. That assessment must be made ex ante, by reference to the moment the act was performed, considering the size of the assets, the level of debt, the foreseeable financial evolution and the proportion between the transaction and the company's size.

Proof that the single transaction caused insolvency is not required: the causal link with insolvency is relevant in the different cases under Article 329(2).

Subjective element and the boundary with business risk

The offence requires intent, which cannot be inferred from the economic failure of the transaction alone, nor from the subsequent opening of judicial liquidation. What must be established is awareness of the impoverishment and of its impact on the creditors' guarantee, reconstructed on the basis of the information available when the decision was taken.

Elements useful in distinguishing business risk from diversion:

• existence and adequacy of the consideration
• traceability of financial flows
• documentation contemporaneous with the decision
• consistency with the corporate purpose and a reasonable business rationale
• absence of personal advantages for directors, shareholders or related parties
• compliance with internal decision-making and reporting procedures

Intra-group transactions and compensatory benefits

In corporate groups, transfers of resources, intra-group financing, guarantees given in the interest of other companies and cash pooling arrangements may entail an immediate asset sacrifice for the company performing them. In such cases any compensatory benefit must be specific, concrete, attributable to the impoverished company and assessable ex ante: a generic reference to the group's interest or to a hypothetical benefit is not enough.

The burden of specifically pleading favourable circumstances does not reverse the burden of proving criminal liability, which remains on the prosecution.

Transactions requiring particular attention

• sales of assets or business units at values not aligned with the market
• withdrawals, advances and remuneration not resolved upon or not documented
• financing and guarantees in favour of related companies in difficulty
• related-party transactions without adequate preliminary analysis
• demergers, contributions and reorganisations carried out close to the crisis
• use of company resources for personal or family purposes

Precautionary issues and measures on assets

Patrimonial charges are frequently accompanied by seizures, document and IT acquisitions and, where applicable, personal measures. The defence must check the requirements for the measure, proportionality, the delimitation of the restrained assets and proof of the derivation link between asset and offence required for direct confiscation. The relationship between measures on assets and assets included in judicial liquidation is governed by Articles 317-320 of the Code.

Defence method

1. precise identification of the transactions charged and the relevant period
2. reconstruction of financial flows and the destination of resources
3. analysis of the asset and financial situation at the time of the act
4. verification of the consideration and of any compensatory benefit
5. reconstruction of the role actually exercised by each individual
6. coordination with economic and accounting expertise
7. management of personal and asset-related precautionary issues

Frequently asked questions

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