The creditor as an injured party in criminal proceedings | In Principle

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The creditor as an injured party in criminal proceedings

It often happens that a creditor in a civil relationship is also harmed by the debtor’s action that may qualify as a crime. In such cases, in addition to pursuing claims through civil proceedings, the creditor can also take action against the debtor in criminal proceedings.

When is a creditor an injured party?

Under Polish law, a creditor becomes an injured party by operation of law if certain conditions are met for this procedural status (it is not necessary to obtain confirmation of such status from the prosecutor’s office). These conditions include a direct violation or threat to the creditor’s legal rights (e.g., property rights, property interests or reputation) by a criminal offence.

Such a direct violation or threat to the creditor’s legal rights may occur, for example, when the debtor:

  1. Enters into an agreement with a creditor with no intention of performing (e.g. not intending to pay for goods delivered)
  2. Fails to return property entrusted by the creditor, or disposes of it contrary to the agreement as if it were the debtor’s property
  3. In a state of imminent insolvency or bankruptcy, takes action to prevent satisfaction of the creditor out of the debtor’s assets
  4. In a state of imminent insolvency or bankruptcy, creates a new business entity and transfers to the new entity assets of the debtor from which the creditor could obtain satisfaction
  5. Acts to limit or prevent satisfaction of the creditor, despite a judgment in favour of the creditor in a dispute with the debtor.

Naturally, these types of situations raise doubts about the debtor’s integrity and raise questions about the means by which the creditor can seek to recover its claims. One avenue is to take action through criminal proceedings.

What can a creditor do in criminal proceedings?

Most often in practice, the prosecutor’s office learns about the debtor’s dishonest behaviour which may potentially carry criminal consequences at the initiative of the creditor. For this purpose, the creditor should notify the prosecutor’s office of the suspected crime. While this can be done orally, due to the nature of cases in which the injured parties are creditors it is usually advisable to do so in the form of a written notice.

In the notice, the creditor should describe in as much detail as possible the circumstances under which the creditor was wronged and present the evidence available or known to the creditor to support the claim. The creditor can also request that evidence be sought when the creditor does not have the evidence in its possession but knows who has the evidence (in the hands of individuals, legal entities or institutions).

For certain offences committed to the detriment of creditors, initiation of proceedings requires filing of an application for the prosecution of the perpetrator. Such a request may be made in the notice of a suspected crime.

The notice and application may cover not only the debtor, but also persons:

  • With whom the debtor is complicit (co-perpetrators)
  • Who guided the debtor’s dishonest behaviour (directing perpetrators)
  • Who recommended them to the debtor (indirect perpetrators)
  • Who urged the debtor to commit the offence (instigators), or
  • Who assisted the debtor (aiders and abettors).

In the case of certain offences (such as those based on acts described in points 3–5 above), it is irrelevant for filing of the notice and potential criminal liability that the debtor is a corporate entity (e.g., a company or foundation). In such cases, a person who, on the basis of a legal provision, decision of a competent authority, a contract or actual performance, deals with the property affairs of such an entity is liable as a debtor. However, in other cases, the lack of subjective identity between the perpetrator and the debtor, while it will not give rise to criminal liability on the debtor’s part, may nevertheless result in imposition on the debtor of a duty to repay the benefit gained by the debtor from the perpetrator’s crime.

Significantly, in the course of criminal proceedings, security may be established against the property of the foregoing persons, so that even before the case is initiated, funds which the wronged creditor was deprived of as a result of actions of the debtor or persons acting jointly with the debtor can be frozen. This gives the creditor a chance to recover the funds by preventing, or at least hindering, the debtor from passing the funds on to other entities.

In any case, the creditor may actively participate in the proceedings initiated by law enforcement authorities. Among other things, the creditor is entitled to:

  • Submit evidentiary motions
  • Participate in the proceedings (in particular, in examining witnesses and the suspect)
  • Challenge an adverse trial decision
  • Request the authorities to impose security against the property of specific persons or entities.

A particularly important creditor’s right is the ability to apply for compensation for harm caused by the crime or for harm suffered. A creditor may file such a motion up until conclusion of the judicial process at the main hearing (somewhat simplifying, this means until conclusion of the evidentiary proceedings before the court of first instance). Imposing an obligation to compensate for damage or injury suffered depends on demonstration of the damage or injury, and occurs if the defendant is convicted of an act causing damage or harm, as well as in the case of conditional discontinuance of the proceedings against the defendant in respect of such an act.

To a significant degree, creditors can decide on the extent of their involvement in the criminal process (beyond the need to comply with procedural obligations, such as testifying before the authorities responsible for the proceedings and possibly providing them with additional documents requested by them). Thus, the creditor can decide to be a passive observer of the process or an active participant in the various procedural steps.

Is it worth getting involved in criminal proceedings?

The answer to the question of whether it is worthwhile for a creditor to engage in criminal proceedings against the debtor depends on two key factors.

First, whether in fact there is a suspicion of commission of a prohibited act by the debtor. This requires an initial verification by the creditor if, based on the information and evidence available to the creditor, it appears that the criteria for the offence have been met, including whether they indicate that the debtor’s conduct was culpable (e.g. was intentional or criminally negligent). Also, the creditor should analyse whether the damage or harm is related to the unlawful act, i.e. whether it is a consequence of the act, is actually caused by it.

Second, it depends on the creditor’s motivation and goals. Filing a notice of suspected crime and engaging in the criminal process can be:

  • A way of obtaining redress for the damage caused by the debtor in the offence
  • Dictated by the wish to investigate suspected criminal acts to the detriment of the creditor, when verification exceeds the creditor’s capabilities but is within the reach of law enforcement authorities (in particular, this applies to the possibility for the authorities to obtain legally protected documents, e.g. items covered by trade secrets or banking secrecy—then the evidence obtained in the criminal trial may be raised in other potential proceedings against the debtor, such as civil suits seeking payment)
  • An expression of fulfilment of a social obligation (which in some cases, not usually related to creditors, can also be a legal obligation) and manifestation of a refusal to condone actions harmful to the creditor or to tolerate unfair business practices
  • A way to proverbially kill two birds with one stone—to punish the dishonest debtor while also obtaining compensation for the damage caused by the debtor’s actions.

Thus, if a creditor suspects a debtor of fraudulent behaviour, it is worth keeping in mind the options provided by criminal law and considering them as part of the analysis of measures to counteract the negative effects of such actions. Also, such a situation may provide an opportunity for implementation or upgrading of procedures for screening counterparties, to reduce the risk of such events occurring in the future.

Jakub Znamierowski, adwokat, Business Crime practice, Wardyński & Partners