Frivolous insolvency motions recognized as criminal offense

Czech Republic: A frivolous insolvency motion may not only give rise to the obligation to pay damages – it may also trigger criminal liability

A case heard by the Czech Supreme Court under ref. No. 8 Tdo 1352/2014 concerned a motion for the initiation of insolvency proceedings which was aimed not so much at resolving the debtor’s inability to pay but at attaining unlawful enrichment for the petitioner.

The Supreme Court established that the petitioner had filed their insolvency motion in spite of having been fully aware that their claim raised against the „debtor” lacked any legitimate title, and that the „debtor” was not in fact bankrupt. At the same time, the petitioner knew well that their insolvency motion would have adverse consequences (i.e., in particular, damage to the reputation of the „debtor”, or the exclusion of the „debtor” from the possibility to participate in tenders for public contracts as a bidder), and in fact sought to use these adverse consequences as leverage in order to coerce the „debtor” to satisfy illegitimate claims for payment and to withdraw court action which the „debtor” had filed earlier.

The petitioner was eventually found guilty of the misdemeanor of defamation, in that it had disseminated false information which was apt to cause substantial harm to the reputation which the other party enjoyed among the general population, and of the misdemeanor of extortion, in that the actions of the petitioner were not aimed at resolving a bankruptcy situation but at forcing another person (who is not bankrupt) to engage in, or refrain from, or suffer certain actions.

With a view to the above, it stands to reason to assume that the risk of being the subject to criminal prosecution over a frivolous insolvency motion is substantial enough to act as a deterrent. Practice has shown that the current fine of up to CZK 50,000 envisioned by Sec. 128a of the Insolvency Act has had little value as a deterrent, and the same goes for the recourse to claiming damages in a potential civil-law procedure. By contrast, the risk for specific individuals of becoming exposed to criminal-law penalties may very well play a protective role in this respect.

Source: Supreme Court ruling of 26 February 2015, case number 8 Tdo 1352/2014-38

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