Punishable insolvency, regulated in Articles 259 to 261 bis of the Criminal Code, sanctions those who, in a state of actual or imminent insolvency, engage in fraudulent acts such as hiding or destroying assets or manipulating accounting records, with the aim of harming creditors and the credit system. This is an intentional offense protecting creditors’ rights to recover their claims and entails penalties of imprisonment and fines, adjusted according to the severity and circumstances of the case.

What is punishable insolvency?

Punishable insolvency is an economic crime defined in Articles 259 to 261 bis of the Criminal Code. It occurs when a debtor, in a current or imminent insolvency situation, commits fraudulent acts intended to harm creditors by concealing or damaging assets or simulating a false economic situation to avoid legitimate debt payments. This offense primarily protects creditors' rights to enforce their claims against the debtor’s estate under Article 1911 of the Civil Code, as well as the proper functioning of the credit system in general.

Conducts constituting punishable insolvency

For the offense to be established, the debtor must engage in actions or omissions that harm the insolvency estate or present a false image of solvency. Relevant typical behaviors include:

• Concealment, damage, or destruction of assets included in the insolvency estate.
• Disposition of assets without economic or business justification, such as money transfers or disproportionate assumption of debts.
• Sale or provision of services below actual cost without valid economic reasons.
• Simulation or acknowledgment of fictitious claims.
• Participation in speculative business without economic justification.
• Failure to maintain proper accounting, double accounting, or alteration and destruction of books and accounting documents.

These acts are serious breaches of the duty of diligence in economic management and may result in imprisonment and substantial fines.

Responsible parties: natural and legal persons

Not only natural persons (entrepreneurs, administrators) can be held liable for punishable insolvency but also legal entities. Since the 2015 reform of the Criminal Code, companies may be fined depending on the severity of the offense committed by their representatives.

Penalties and aggravating circumstances

Sanctions for the basic offense of punishable insolvency range as follows:

• Imprisonment: 1 to 4 years
• Fine: 8 to 24 months

In cases of negligence, penalties are mitigated, but where aggravating factors such as patrimonial damage exceeding €600,000 or affecting a generality of persons exist, penalties may increase to:

• Imprisonment: 2 to 6 years
• Fine: 8 to 24 months

Concealment of assets in insolvency proceedings

Concealment of assets (“alzamiento de bienes”) in insolvency proceedings is an unlawful conduct whereby the debtor hides, transfers, or fraudulently disposes of assets intending to prevent their use to satisfy creditors. This intentional action seeks to frustrate insolvency procedures and is criminalized under the Criminal Code, with severe legal consequences for offenders.

What to do if accused of punishable insolvency?

If you or your company face an accusation of punishable insolvency, it is crucial to have a legal team that:

• Thoroughly analyzes the alleged conduct.
• Defends your rights against criminal charges.
• Coordinates procedural strategy to minimize criminal and economic risks.
• Intervenes in insolvency proceedings to protect your interests.

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