Tougher criminal liability for bankruptcy-related crimes



Federal Law No. 241-FZ of July 1, 2021 has introduced a number of changes to criminal prosecution under Articles 195 (“Unlawful Actions in Bankruptcy”) and 196 )“Deliberate Bankruptcy”) of Russia’s Criminal Code. Only one or two dozen people a year are currently prosecuted under these articles.

On the one hand, the changes are intended to harshen punishment and expand practice in application of these articles. To this aim, a number of qualifying elements with harsher types and amounts of punishment have been devised. Harsher penalties have also been adopted for cases where a debtor’s controlling person or director have committed unlawful actions in a bankruptcy and/or for deliberate bankruptcy.

Article 196 of the Criminal Code has also been reworded apply to a broaden group of actors. Now, not only the company’s director, or participant can be prosecuted for actions or failure to act that knowingly resulted in the legal entity’s being unable to fully satisfy claims of creditors or competent authorities, but any other person can also potentially be prosecuted.

At the same time, a special case of liability reduction has been provided for these two crimes. This was likely done to balance out the provisions on harsher punishment. A person who has committed one of these crimes for the first time may be discharged from criminal liability if they:

  • actively contribute to exposing or investigating the crime,
  • voluntarily inform on individuals who benefitted from the debtor’s illegal or bad faith conduct, and/or
  • disclose information about such individuals’ assets (income) to the extent that makes it possible for substantial damages to be recovered.

So, these amendments, which both make liability tougher and specify new grounds for reduction of that liability, are generally designed to reduce the number of abusive cases in bankruptcy and help enhance creditor recoveries.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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