Persons handling a dishonest debtor’s affairs may be liable to creditors | In Principle

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Persons handling a dishonest debtor’s affairs may be liable to creditors

The Supreme Court of Poland regards protection of the creditor’s financial interests as the main purpose of punishing the debtor (and his supporters, if any) for behaviour preventing or diminishing the satisfaction of creditors. Therefore, persons handling the debtor’s affairs can be jointly and severally liable to the creditor.

Creditors harmed by the offences defined in Art. 300 of the Criminal Code should obtain the broadest possible protection from the courts, consisting, among other things, in adjudication of joint and several liability for damages from all persons who may be held responsible for acts resulting in harm to creditors. This is especially true for persons who were involved in the management of the debtor’s property affairs or who knowingly assisted the direct perpetrator. Only then will it be possible to achieve the objectives underlying Art. 300 of the Criminal Code.

Criminal Code Art. 300 defines offences broadly connected with preventing or diminishing the satisfaction of a creditor.

Criminal Code Art. 300 §1 considers it an offence for a debtor to act in such a manner that, facing the threat of insolvency or bankruptcy, he frustrates or reduces the satisfaction of a creditor by removing, concealing, disposing of, donating, destroying, or actually or apparently encumbering or damaging his assets.

Criminal Code Art. 300 §2 provides for punishment of a debtor who, in order to frustrate the enforcement of a ruling by a court or other state authority, frustrates or reduces the satisfaction of his creditor by removing, concealing, disposing of, donating, destroying, or actually or apparently encumbering or damaging his assets that are the subject of seizure or may be subject to seizure, or by removing the indicia of seizure.

Thus, a broad catalogue of typical dishonest debtor behaviours intended to evade obligations (and not only those whose existence has already been confirmed by a final judgment), and causing injury to the creditor, is considered a prohibited act.

Pursuant to Criminal Code Art. 308, for offences specified in Art. 300, anyone who, under a statutory provision, a decision of a competent authority, a contract or actual performance, manages the assets of another legal or natural person, a group of people or an unincorporated entity shall be liable for the offences defined in Art. 300 like the debtor. To be clear: not only the debtor, but also one who manages the affairs of the debtor, may be liable for the offence provided for in Art. 300 of the Criminal Code.

The Supreme Court of Poland has held (e.g. in the order of 27 April 2001, case no. I KZP 7/01) that dealing with the affairs of another person consists primarily in managing that person’s property and managing his assets. Thus, a person dealing with another person’s property affairs can be considered to be one whose duties and powers together include both taking care to protect the entrusted assets from damage, destruction, loss or deterioration, as well as using these assets in the process of managing them so that the assets or their value is increased. Thus, for example, a member of a company’s management board, a commercial proxy, attorney-in-fact, sales representative or agent, can be considered a person managing someone else’s property affairs. However, this will not include a caretaker, accountant or financial controller.

Pursuant to Art. 300 in conjunction with Art. 18 of the Criminal Code, all forms of accessorial liability consisting in frustrating or reducing the creditor’s satisfaction—co-perpetration, directing perpetration, indirect perpetration, instigation and aiding and abetting—are also punishable.

In its judgment of 28 March 2019 (case no. V KK 119/18), the Supreme Court strongly supported the legal view that the basic aim of the criminalisation of the behaviour specified in Criminal Code Art. 300 §2 is protection of the financial interests of individuals, and the main object of protection in this provision is claims of creditors recognised by court rulings and their protection against dishonest behaviour of debtors aimed at preventing them from satisfying these claims. In the case of this provision, viewed through the prism of the solemnity of judicial decisions, the good of the justice system is an incidental object of protection. From this, it may be deduced that the punishability of the behaviour described in Criminal Code Art. 300 §2 is aimed primarily at general criminal prevention (deterring debtors and their supporters from dishonest behaviour) and creation of conditions for compensation of injury resulting from behaviours causing frustration or failure to fully satisfy creditors’ claims.

In my view, the considerations recognised by the Supreme Court in the aforementioned judgment also apply as relevant to Criminal Code Art. 300 §1. Therefore, the main purpose of adoption of Art. 300 §1 should not be seen as securing as fully as possible the general, abstract purposes of bankruptcy or restructuring proceedings. What needs to be defended first and foremost when applying Art. 300 §1 is the financial interest of the persons harmed as a result of the choice by the debtor (or a person dealing with his affairs or a possible supporter of the direct perpetrator), in the face of a threatened insolvency or bankruptcy, instead of thinking about optimal protection of the creditors’ interests, to take unfair actions aimed at preventing the creditors from obtaining satisfaction from the debtor’s assets.

This understanding of Art. 300 §§1–2 of the Criminal Code leads to the conclusion that if a debtor commits a prohibited act defined in these provisions, the justice system should have in mind the widest possible protection of the interests of creditors harmed by these acts. This will be possible when the courts (civil and criminal) award against the perpetrators of these acts, including persons managing the debtor’s affairs and various supporters of direct perpetrators, adequate compensation for the injury caused by the frustration or failure to fully satisfy creditors. In such cases, it is also important to remember the liability in damages of persons who knowingly benefitted from injury caused to a creditor by any of the acts described in Criminal Code Art. 300.

It should be added that effective protection of the interests of the creditor harmed by a wrong defined in Art. 300 of the Criminal Code may depend on whether the creditor properly used the institution of joint and several liability for damages of persons to whom a joint responsibility for a tort may be attributed (Art. 441 §1 in conjunction with Art. 422 of the Civil Code). And the courts (civil and criminal) should bear in mind that effective satisfaction of claims, and thus implementation of the main objective of Art. 300 §§1–2 of the Criminal Code, may depend on holding all of the perpetrators jointly and severally liable.

Adam Studziński, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners