In brief
The New Criminal Code became the first piece of legislation passed into Law in 2023 and was promulgated on 2 January as Law No. 1 of 2023.
Part one of our client alert series outlined the key features of the New Criminal Code (access here) and part two of our client alert series outlined the key features of digital information, bribery & corruption and money laundering-related crimes in the New Criminal Code (access here). In this part three of the series, we take a look at how the New Criminal Code reintroduces crimes related to fraudulent acts against creditors.
In the absence of any criminal provisions under Law No. 37 of 2004 on Bankruptcy and Debt Suspension of Payment (“Bankruptcy Law“), any criminal sanctions for fraudulent-related acts against creditors are those originally set out in the old criminal code. The New Criminal Code reinvents the provisions in the old criminal code and reintroduces them as a new section in the fraudulent-related acts against creditors.
Notable Provisions
1. Contingency upon bankruptcy. The New Criminal Code covers a wide range of punishable fraudulent acts against creditors, ranging from fraudulent debts to fraudulent disposal of assets. However, some prohibited acts are only triggered when the debtor is declared bankrupt. This means that some acts are not ‘fraudulent’ per se but only become a crime when a court declares the debtor bankrupt. It is interesting to note that the bankruptcy status is treated as a significant qualifier, but there is no express mention of the court-supervised restructuring (PKPU) status in this section.
2. Stay of debt collection upon bankruptcy petition. Traditionally, under the Bankruptcy Law, any recovery action, including enforcement, is stayed only when the debtor is declared bankrupt by a court. The New Criminal Code changes this approach. The New Criminal Code introduces a criminal sanction for anyone (which is broadly defined to include corporations) that receives payments (irrespective of whether the debt was due or not) from a debtor if the debtor (as opposed to the creditor) is aware that a bankruptcy petition has been lodged against it. It is interesting to note that the creditor’s knowledge that the debtor is subject to a bankruptcy petition is not an element of this criminal offense. Arguably the creditor can be implicated if the debtor makes the payment to the creditor when the debtor knows a bankruptcy petition has been registered against it in a court.
3. Management and Commissioner’s liability. By modernizing the language of the old criminal code, the New Criminal Code now affirms the express liability of the management or commissioners of a bankrupt company (typically for their involvement in the fraudulent acts mentioned in point 1). However, it is notable that the New Criminal Code expands the management and commissioners’ liability. They can be held liable not only for the limited scenario of bankruptcy as referred to in point 1, but also in a situation where the company cannot fulfill any of its obligations as a result of the relevant member of management or commissioner authorizing or assisting in an action that is contrary to the articles of association.
4. Fraudulent Settlement. The New Criminal Code retains sanctions for fraudulently approving a “settlement offer in a court hearing.” A settlement is considered fraudulent when a creditor approves a settlement in exchange for a separate arrangement with a debtor (or vice versa) or a third party and asks for a “special benefit.” The provision does not provide further clarity on whether it is prohibited to make a side arrangement outside of a court-sanctioned plan/settlement, e.g., a creditor enters into a separate arrangement with a sponsor or a parent company of the main debtor without reflecting the relevant arrangement in a court-sanctioned plan/settlement with the main debtor.
