Criminal insolvency in Spain

07 September 2007

José Luis de Castro, Emma Morales

Spanish insolvency law has been modified recently by Act 22/2003. This is the culmination of a long process aimed at including in Spanish Law an insolvency law that will rectify the failures of previous legislation and create a law that fits in with social, economic and legal reality. In order to incorporate the criminal sanctions available against insolvent companies, this Act has also modified various articles of the Penal Code.

Articles 257-261 of the Spanish Penal Code regulate the criminal measures in connection with insolvency proceedings. The Articles relate to crimes against the debtor’s company and against the “social and economic order”.

The common element of all of these provisions is that the rights which are being protected are the rights of creditors to recover their debts owed by the debtor company.

The offences listed in the Penal Code are:

1. Making a company insolvent or to falsely claim that a company is insolvent

The Courts have held that a debtor is guilty of these crimes if he transfers property, or conceals goods, which should be paid to his creditors.

The offence may be committed even where the debtor does not claim the whole company is insolvent, and may be committed by any of the directors, the administrators or any other individual.

The offence may also be committed by debtors who, in an attempt to damage their creditors, dispose of their goods in order to postpone insolvency or in order to make it more difficult for the authorities to seize company property.

2. Continuing trading whilst insolvent

A debtor who has already been declared insolvent by a Court, and who, without the authorisation of the judge or the bankruptcy administrators, disposes of goods to pay some creditors whilst putting off payment to the rest of the creditors, commits this crime.

3. Making a company insolvent

This crime is committed when the debtor makes a company insolvent or exacerbates the likelihood of insolvency.

4. Falsely claiming insolvency

This crime is committed when the debtor submits false data and information about the company’s accounts to the Court in order to be declared insolvent.

All of the offences listed above carry serious criminal sanctions. If convicted, a defendant may be sentenced to 6 years in prison and / or pay fines ranging from 12 to 24 months of the defendant’s salary.