Simple bankruptcy and fraudulent bankruptcy: criminal liability in insolvency for directors and shareholders
1. Why bankruptcy matters for a company’s directors and shareholders
When a company enters insolvency, this does not automatically mean “criminal offence” or “fraud”.
The procedure regulated by Law no. 85/2014 is designed to cover the debtor’s liabilities and, where possible, to offer a chance for reorganisation.
However, the way in which directors and shareholders manage the period leading up to insolvency and the period of the proceedings can trigger criminal liability, especially in the form of:
2. Legal framework: the Criminal Code and Law 85/2014
2.1. The obligation to request the opening of insolvency proceedings
Law no. 85/2014
provides that a debtor in a state of insolvency is obliged to request the opening of proceedings within a short
period (in practice, 30 days from the occurrence of the state of insolvency, under Art. 66). Failure to file
the petition in time can constitute a material element of simple bankruptcy if the delay
exceeds by 6 months the time‑limit laid down by law (see Art. 240 Criminal Code).
2.2. Art. 240 Criminal Code – Simple bankruptcy
In its current form, Art. 240 Criminal Code
sanctions the debtor or the legal representative who fails to file, or files late, the petition for opening
insolvency proceedings, where the delay exceeds by more than 6 months the deadline provided by Law 85/2014.
The penalty is relatively low (imprisonment from 3 months to 1 year or a fine), and criminal proceedings are
usually initiated upon the prior complaint of the injured party (a creditor, a shareholder, or possibly the
insolvency practitioner).
2.3. Art. 241 Criminal Code – Fraudulent bankruptcy
Art. 241 Criminal Code
criminalises the conduct of a person who, “in fraud of creditors”, falsifies, misappropriates or destroys the
debtor’s records, hides part of the assets, presents non‑existent liabilities or disposes of assets in the
event of insolvency.
The penalty is much more severe: imprisonment from 6 months to 5 years. Here as well, criminal proceedings
are initiated upon the prior complaint of the injured party (typically a creditor or the insolvency practitioner).
3. Simple bankruptcy vs fraudulent bankruptcy: key differences
| Criterion | Simple bankruptcy (Art. 240) | Fraudulent bankruptcy (Art. 241) |
|---|---|---|
| Nature of the act | Failure to file, or late filing of, the insolvency petition | Positive actions to defraud creditors (hiding assets, falsified records, etc.) |
| Mental element | Usually intent or at least acceptance of the consequences; no specific fraudulent purpose is necessarily required | Intent qualified by purpose – the act is committed “in fraud of creditors” |
| Severity | Relatively less serious offence, lower sanction | Serious offence, associated with deliberate fraud |
| Typical example | The director does not file the insolvency petition for more than 6 months after insolvency (inability to pay) sets in | The director removes assets from the company, transfers them to a “friendly” company and leaves the debtor in bankruptcy without assets |
4. Practical examples
4.1. Simple bankruptcy – delaying the insolvency petition
Company X has debts to several suppliers and to the state budget, can no longer meet its payment deadlines,
and its accounts are garnished. The director constantly postpones filing for insolvency, hoping for a “financial
miracle”, but for more than 6 months fails to turn the situation around and does not file the petition, even
though the conditions in Law 85/2014 are clearly met.
A dissatisfied creditor files a complaint, and the director may be investigated for simple bankruptcy,
on the grounds that they exceeded by more than 6 months the statutory deadline for requesting insolvency.
4.2. Fraudulent bankruptcy – “emptying” the company before bankruptcy
Company Y owns a valuable building and machinery that is almost completely paid off. The director, aware that
the company can no longer be saved, decides to “protect” the assets and transfers them to another company
controlled by the same shareholders, via sale contracts at symbolic prices.
When creditors open insolvency proceedings, they discover that there are no longer sufficient assets. The
director may be charged with fraudulent bankruptcy, for having disposed of the assets in
fraud of the creditors.
5. Who can be criminally liable for bankruptcy offences
The typical subjects of bankruptcy offences are:
- the company’s directors (de jure or de facto);
- legal representatives (managers with broad powers);
- shareholders who, in practice, run the company or dispose of its assets.
In addition, the legal entity (the company) can also be criminally liable, under
Art. 135 Criminal Code,
if the acts are committed in its interest or on its behalf, without excluding the liability of natural persons.
6. Elements from case-law
Court practice has repeatedly emphasised that:
- not every defective management amounts to fraudulent bankruptcy – an element of fraud is required;
- for simple bankruptcy, courts analyse the moment when insolvency appeared and the moment when the debtor requested (or did not request) the opening of proceedings;
- for fraudulent bankruptcy, courts closely examine asset transactions from the period prior to insolvency (in relation to “suspect” periods under Law 85/2014).
7. How directors and shareholders can reduce the risk of criminal bankruptcy
- continuous monitoring of liquidity and solvency indicators;
- consulting an insolvency practitioner and/or lawyer when serious payment difficulties arise;
- documenting management decisions (restructuring plans, reasons for certain payments or non‑payments);
- avoiding asset transfers between affiliated companies without genuine economic justification;
- cooperating with the insolvency practitioner, providing requested documents and information.
8. Frequently Asked Questions (FAQ)
- If I did not know the company was insolvent, can I still be liable for simple bankruptcy?
- The court will analyse whether you should have known, as a director, that the company could no
longer pay its debts. A complete lack of monitoring of the financial situation is generally not a strong defence. - Can I be prosecuted only as a shareholder, without being a director?
- Yes, if in reality you managed the company, disposed of its assets, or took part in fraudulent transactions
(for example, taking over assets at a derisory price). - Is every asset transfer before insolvency a criminal offence?
- No, but transfers must have real economic justification, fair prices and must not aim to remove assets from
the estate so that they can no longer be pursued by creditors. - Can tax evasion also be retained in the same case as fraudulent bankruptcy?
- Yes, it is possible that the same acts (for example, fictitious invoices, concealed income) are analysed both
as tax evasion and, later, in the context of insolvency, as fraudulent bankruptcy. - What documents are essential for the defence in a bankruptcy case?
- Financial statements, audit reports, correspondence with creditors, shareholders’ resolutions and documents
relating to asset transactions (contracts, valuations, effective payments) are generally essential.