Fraudulent conveyance of assets and punishable insolvency: two offences of economic crisis

When a person or a company finds itself in a situation of insolvency and carries out acts that harm its creditors, it may be committing one of the offences that the Criminal Code groups together as insolvency offences. Two figures concentrate the majority of accusations: fraudulent conveyance of assets (alzamiento de bienes) and punishable insolvency. Both relate to situations of economic crisis and share the harm to creditors, but they are legally distinct.

Fraudulent conveyance of assets is defined in Article 257 of the Criminal Code and is the classic offence that punishes the debtor who, to evade payment of their debts, conceals, transfers or disposes of their assets by placing them beyond the reach of their creditors. It requires the existence of an enforceable payment obligation, the carrying out of acts of disposition of assets, the result of insolvency or concealment of assets, and the intention to harm creditors. It does not require the debtor to be formally in a state of insolvency: it may occur even when they still have resources, if they decide to conceal or transfer their assets. Its penalties are one to four years’ imprisonment and a fine, aggravated when the harmed creditor is the Public Treasury or Social Security.

Punishable insolvency, regulated in Articles 259 to 261, is a family of offences related to the fraudulent or negligent management of a situation of insolvency. Unlike fraudulent conveyance, it presupposes a real or imminent situation of insolvency. Article 259 defines wilful punishable insolvency, which punishes conduct such as concealing assets or accounting documents, making non-due payments that favour some creditors over others or simulating fictitious debts; its penalties are two to six years’ imprisonment, aggravated up to eight when the harm exceeds 600,000 euros. The same article punishes punishable insolvency by gross negligence, when an administrator manages the company so negligently that they cause or aggravate the insolvency. And Article 260 punishes the presentation of false data within insolvency proceedings.

The fundamental differences are four. The timing: fraudulent conveyance may occur before any formal insolvency; punishable insolvency presupposes a real or imminent economic crisis. The active subject: fraudulent conveyance is committed by any debtor; punishable insolvency is typically linked to corporate management. The relationship with formal insolvency: fraudulent conveyance does not require insolvency proceedings; punishable insolvency has a closer connection with insolvency proceedings. And the intensity of intent: fraudulent conveyance requires direct intent, whereas punishable insolvency admits, in some forms, commission by gross negligence.

Both figures may concur: the businessperson who transfers assets to relatives and then presents false accounting documents in the insolvency proceedings may be accused of both.

The defence strategies are different. For fraudulent conveyance, to demonstrate that the debt did not exist at the time of the acts, that the debtor remained solvent, that the transfers had a legitimate justification or that there was no intention to defraud. For punishable insolvency, to demonstrate that the conduct was justified by the ordinary management of a company in crisis or that the harm was due to external factors.

In both cases, the assistance of accounting and financial experts who analyse the real economic situation at each moment may be decisive for the defence, because the figures and financial flows are the raw material of these proceedings and only a rigorous technical analysis can rebut the conclusions of the prosecution’s experts.