When can debt repayment be a problem?

The Criminal Code and the Commercial Companies Code contain a catalogue of offences against creditors, the purpose of which is to secure the interests of all creditors equally. Sometimes, however, the realities of business trading force the entrepreneur to pay or secure only some of them, which may expose the entrepreneur to criminal liability. Usually, such action is accompanied by a failure to file a bankruptcy petition. This may then lead to the so-called ‘selective satisfaction of creditors’ (an offence regulated by Article 302 of the Code of Criminal Procedure), as well as the offence of failing to timely file a bankruptcy petition (Article 586 of the Code of Commercial Companies).

At the same time, it should be noted that in the case of the offences in question, creditors have the status of victims, with the consequence that they may not only notify the relevant law enforcement authorities of the possibility of committing an offence, but may also actively participate in the investigation (since, as victims, they have the status of parties).

In the situation in question, the Company, despite its liquidity problems, still perceived the possibility of continuing its operations and, therefore, its management board decided to partially satisfy the claims. Thus, at first glance, the Company’s management board, by its action, realised the elements of the prohibited act of selective satisfaction of creditors (Article 302 of the Code of Criminal Procedure). The notice of possible criminal offence filed by the creditors resulted in an investigation in this case, in which the Client was forced to defend himself. A finding that he had committed a criminal offence could have resulted in the imposition of an obligation to make reparation in full for the damage caused by the criminal action of the members of the management board – the perpetrators of the criminal act. It should be emphasised that the obligation to repair the damage imposed in criminal proceedings would, in the case at hand, be imposed on the management board of the company (its managerial staff), and not on the company itself, although the criminal liability of capital companies themselves is being talked about more and more in Poland.

However, in the course of the pre-trial proceedings conducted before the public prosecutor, it was demonstrated that the action of the Company’s management board was justified under the circumstances and was not aimed at harming creditors. For the purposes of the investigation, the situation of the Client was analysed in terms of the prerequisites provided for by the bankruptcy law, including the moment of occurrence of the state of insolvency, which determines the need to file an application for its declaration. An analysis was also made of the agreements concluded, from which the receivables arose, as well as further agreements on their repayment, which the Company concluded, bearing in mind the risk of an imminent initiation of enforcement. Owing to the agreements concluded – especially with the largest creditors – the maturity of some of the debts was postponed, which influenced a change in the perception of the realisation of the “threatened insolvency” symptom within the meaning of Article 302 of the Code of Criminal Procedure by law enforcement authorities.

The examination of the Company’s situation also made it possible to specify the creditors that were the most important for its further operational activity (and further possibility to provide services), and their satisfaction prevented potential enforcement of claims (as enforcement proceedings could effectively block the functioning of the enterprise). Finally, satisfying the creditors provided an opportunity to maintain cooperation in the future – in the situation of the Company’s survival.

The above-mentioned argumentation allowed for a successful defence on the grounds of criminal law, as it convinced the prosecution that the situation of the Client and its creditors could not be viewed through the prism of the criminal provision of Article 302 of the Criminal Code and, in particular, the fulfilment of the elements of “threatened insolvency” and “inability to satisfy all creditors” could not be spoken of. It was also established that the satisfaction of individual creditors could be justified, especially in the context of the possibility of continuing the business and de facto creating the possibility of satisfying the other creditors as well .

As a result of the audit, support was provided to the client not only in terms of the legal and factual analysis of its situation, but also in terms of gathering evidence with which to support the adopted proceeding strategy, which could prove crucial if the interests of the company and its management had to be defended.

In conclusion, it should be remembered that in a situation where an entity will already be at risk of insolvency within the meaning of Article 302 of the Code, its management may not satisfy creditors at its own discretion (selectively). This regulation is correlated with the provisions of the bankruptcy law, which indicate that the filing of a bankruptcy petition should take place if the entrepreneur loses the ability to perform its obligations and this state of affairs persists for 30 days.

However, the company’s management is not always on the losing end. Sometimes – as in the case described above – the facts of the case allow the law enforcement authorities to be convinced, contrary to the claims of the creditors expressed in the notification of the possibility of committing a crime, that not all the elements of the criminal act of selective satisfaction of creditors have been realised, and the preparatory proceedings conducted should be discontinued, which was the case here.