A direct intent to defraud creditors is no longer required for the aforementioned offenses to take place.
The law on Reorganization and Liquidation of Companies and Individuals has been in force for a decade, introducing relevant changes to the national insolvency legislation.
This has implied that many companies and individuals must follow some of its procedures, either voluntarily or forced at the request of a creditor.
In addition to the above, it is undeniable that, in the event of economic difficulties, it is attractive to submit to the procedures of this regulation.
This, either because of the possibility of renegotiating debts; restructuring assets and liabilities; liquidating the company’s assets (usually few) and extinguishing all the obligations that cannot be solved. The reasons may vary.
However, in spite of how attractive these procedures may be, it must be taken into consideration that they entail potential risks, and therefore, prior to their initiation, a careful analysis of the acts and contracts performed by the company prior to the beginning of the insolvency proceeding must be carried out, in order to avoid incurring in the so-called “insolvency offenses”.
Regarding the latter, and from an eminently criminal approach, special consideration must be given to the new Law on Economic Crimes that came into force on September 1.
This law introduced important changes in the Criminal Code, aggravating and creating new criminal offenses that aim to punish with greater severity those companies -or individuals- that hide, dilapidate or diminish their assets prior to the beginning of an insolvency proceeding.
A first notorious change in the new legislation is that a direct fraudulent intent against creditors is no longer required for the offenses dealt with in Article 463 of the Criminal Code to take place.
Indeed, prior to the entry into force of the law, the criminal legislator required the debtor to carry out the various behaviors typified to reduce its liabilities “without any other economic or legal justification than that of harming its creditors”.
This, however, changed with the new legislation, changing this requirement for one more approachable in terms of evidence, such as the debtor executing the actions to reduce its assets, only “knowing of the bad state of its business”, emphasizing the criminal reproach in the imprudence of the debtor in the administration of its assets.
Previously, the Criminal Code seemed to be more concerned with the debtor’s behavior once the bankruptcy proceeding had been initiated than with what had occurred previously.
In short, the new legislation focuses on what has been known since long ago as “fraudulent or fraudulent bankruptcy”, punishing with greater force those acts that led the debtor to place itself in a delicate or deplorable financial situation, creating criminal offenses with standards that are more easily proven before a criminal court than those previously established.
Thus, any company or person who is interested in being subject to bankruptcy proceedings or who considers it likely that a creditor will forcefully request its liquidation, must analyze with special care the acts executed within a period of two years prior to the liquidation resolution.
This is due to the fact that the acts that fall into the category of bankruptcy offenses must be evaluated without the need of a direct fraudulent intent towards the creditors, but only the knowledge of the bad state of its business being sufficient.
Thus, preventive legal-technical advice becomes essential, and must be considered at all times by the debtor in the event of analyzing the judicialization of his insolvency situation.
For more information on these issues, please contact our Civil Litigation and Arbitration – Criminal teams:
Francisco Fuentes | Director, Civil Litigation and Arbitration Group | ffuentes@az.cl
Loreto Hotos | Criminal Group Director| lhoyos@az.cl
Gabriel Pedraza | Associate | gpedraza@az.cl
Daniela Castillo | Associate | dcastillo@az.cl
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