Legal measures for amicable resolution of a criminal case initiated by a creditor to enforce a receivable against assets depleted by the unlawful acts of the debtor
Constructive negotiations leading to a settlement are without doubt the optimal method for resolving legal conflicts. This is true even when a creditor has unsuccessfully tried to enforce its claims against a debtor and suspects that the debtor is unlawfully avoiding its obligations (e.g. by concealing or transferring its assets). Reaching an agreement, and the related restoration of at least some mutual trust, with mutual concessions increasing the chance that each side of the conflict will have a sense that its economic interests are being adequately protected—all of this tends to promote a more or less favourable end to the conflict. This is why criminal law, although it provides instruments for enforcing claims against debtors whose assets have been unlawfully depleted, generally does not provide the best background for conducting negotiations and concluding a settlement. As commentators have wisely pointed out, for the debtor the very fact of becoming the target of a criminal prosecution (for offences against creditors pursuant to Penal Code Art. 300–302) is so drastic that the debtor may not be inclined to reach any settlement with injured creditors. A dishonest debtor facing criminal consequences may seek to make up for them somehow through the fruits of his crime. A debtor in that position may begin to blame his creditors for the problems he is suffering because a criminal case has been filed against him.
This is why we consistently take the view that criminal instruments for pursuing receivables should be used as a last resort, when there are no prospects for effective use of other legal means of collection.
But this certainly does not mean that the criminal law does not provide legal means to seek an amicable resolution of a criminal proceeding commenced by a creditor to satisfy its claims against a debtor who has unlawfully depleted his assets. Under criminal law there is also a possibility of conducting negotiations and reaching an effective conclusion to the proceedings in a manner offering some advantages to the debtor/perpetrator.
The first such measure is the procedure under which certain economic offences are prosecuted pursuant to application (e.g. Penal Code Art. 300 §1 in connection with §4). In certain types of offences, law enforcement authorities may not take any action against the debtor unless the injured creditor files the relevant application. Under Criminal Procedure Code Art. 12 §3, an application may be withdrawn in preparatory proceedings upon consent of the prosecutor, and in judicial proceedings upon consent of the court up until the trial begins at the first main hearing (subsequent application is not permitted). Therefore, if during this time the debtor pays what is owed to a degree satisfactory to the creditor, the creditor may withdraw the application to prosecute the debtor before the trial begins (i.e. before the accusatory instrument is read out before the criminal court). This would be the quickest route to dismissal of the proceedings without any criminal sanctions being imposed on the perpetrator. It should be borne in mind that in cases involving allegations under Penal Code Art. 300–302, it is highly unlikely that the prosecutor or the court would not consent to a timely request to withdraw the application to prosecute the offence.
Another legal instrument justifying negotiation and conclusion of a settlement between the debtor and the creditor is a clause enabling extraordinary mitigation or waiver of a penalty against perpetrators of certain property offences (Penal Code Art. 295 §1) or economic offences (Art. 307 §1). In either case, a condition for extraordinary mitigation or waiver of the penalty is full restitution for the loss suffered by the injured party as a result of commission of the offence. The penalty may be mitigated or waived only when the restitution is made voluntarily, through an exercise of free choice (and not by compulsion arising out of a ruling by the court or other competent authority). The use of this instrument does not depend on whether the restitution occurred before or after the criminal proceeding was commenced. Therefore, the conditions provided in Penal Code Art. 295 §1 or Art. 307 §1 may be fulfilled during the course of the proceeding, before a legal final resolution has been reached. In other words, just because the perpetrator decided to make restitution because he was worried that he might be convicted of an offence does not mean that the perpetrator cannot take advantage of this opportunity.
The Supreme Court of Poland has taken the view (e.g. in the judgment of 12 December 2003, Case No. WA 58/03, Lex No. 185681) that the perpetrator’s voluntary restitution for the loss in its entirety as referred to in Penal Code Art. 295 §1, as well as disclosure of material circumstances surrounding the offence which were not known to the authorities before the criminal proceeding was commenced, are essential grounds for mitigation of waiver of the penalty, and if the court finds that these conditions have been fulfilled the court is required to mitigate or waive the penalty, even though mitigation or waiver is stated to be optional.
This position has been criticised by commentators because under a literal reading of Art. 295 §1 (and Art. 307 §1) it is only permissible for the court to grant such relief, not mandatory. Nonetheless, in practice it is highly likely that a perpetrator who makes restitution during the course of the criminal proceeding will be able to count on leniency from the court under these provisions. The benefit for the perpetrator may be truly significant. This is particularly evident in light of Penal Code Art. 61 §2, which provides that when the court waives imposition of a penalty, it may also waive imposition of other sanctions unless they are mandatory. The sanctions that may be waived include such items as a prohibition on holding a certain position, practising a certain profession or conducting a certain type of economic activity, or publication of the judgment. If a person threatened with criminal responsibility for a commercial offence (e.g. under Penal Code Art. 300–302) operates a business or works as a manager, imposition of such sanctions could ruin the person’s professional career. (Penal Code Art. 308 provides that a person who handles the financial matters of another individual, legal person, group of persons or entity without legal personality is responsible as the debtor for commercial offences under Chapter 36 of the Penal Code.)
In summary, the possibility of entering into negotiations and reaching a settlement should also be considered when criminal charges are at issue. While criminal charges should always be treated as a last resort, the creditor should not fail to pursue them only because of a fear that once criminal proceedings are begun it will be too late for negotiations and settlement of the conflict. When the injured creditor turns the matter over to the prosecutor, the creditor continues to have an influence over the course of the criminal proceedings and has instruments at its disposal which may be beneficial for the debtor/perpetrator as well.
Janusz Tomczak, Business Crime and Difficult Receivables Recovery practices, and Adam Studziński, Difficult Receivables Recovery Practice, Wardyński & Partners