Asset stripping and criminal insolvency lawyer in Madrid

Short answer. Asset stripping under Article 257 of the Criminal Code is punished with imprisonment of one to four years and a fine of twelve to twenty-four months for anyone who removes their assets to the detriment of their creditors or hinders an attachment or enforcement; the penalty rises to imprisonment of one to six years when the debt is a public-law debt or derives from a tax or social security offence. We defend and prosecute in these proceedings before the Tribunal de Instancia and the Provincial Court of Madrid, and coordinate the strategy with insolvency proceedings where they exist.

Asset stripping is by far the most frequent query with which Madrid residents reach this site, and from both sides: the debtor who has received a criminal complaint for having sold, donated or mortgaged an asset while a debt was being claimed, and the creditor who has watched the debtor’s estate evaporate as soon as the civil judgment was handed down or enforcement began. The Criminal Code calls the subject “frustration of enforcement” and “punishable insolvencies”, and in Madrid it is litigated with particular intensity because of the concentration of companies, mortgage enforcements and insolvency proceedings before the Commercial Courts of the capital.

What Article 257 punishes: asset stripping proper

Article 257.1 of the Criminal Code imposes imprisonment of one to four years and a fine of twelve to twenty-four months on anyone who removes their assets to the detriment of their creditors and on anyone who, with the same purpose, carries out any act of disposal or creates obligations that delay, hinder or prevent the effectiveness of an attachment or of enforcement proceedings, judicial, extrajudicial or administrative, already begun or foreseeably to be begun. Paragraph 2 extends the same penalty to anyone who disposes of assets, incurs obligations that reduce their estate or conceals elements against which enforcement could be levied, in order to evade payment of civil liabilities arising from an offence.

Three points in the provision itself are decisive in Madrid practice. First, paragraph 3: the offence is committed whatever the nature or origin of the debt, including the economic rights of workers, and regardless of whether the creditor is a private individual or a public or private legal person; but if the debt is a public-law debt owed to a public creditor, or derives from an offence against the public revenue or social security, the penalty is imprisonment of one to six years, which opens the door to the Provincial Court and to pre-trial detention. Second, paragraph 4: the penalties are imposed in their upper half when the aggravating circumstances of Article 250.1.5 and 6 apply, that is, when the value exceeds 50,000 euros or a large number of people are affected, or when personal relationships or business credibility are abused. Third, paragraph 5: the offence is prosecuted even if insolvency proceedings are opened after it is committed, so that a declaration of insolvency does not cure a prior stripping of assets.

The neighbouring offences: Articles 258, 258 bis and 259

Article 258 punishes with imprisonment of three months to one year or a fine of six to eighteen months anyone who, in judicial or administrative enforcement proceedings, submits an incomplete or false list of assets and thereby delays, hinders or prevents the satisfaction of the creditor, or fails to provide it when required; the list is deemed incomplete when the debtor uses or enjoys assets of third parties without justifying the title. The provision itself offers a way out: the offence is not prosecutable if the author, before the falsity is discovered, appears and submits a truthful and complete declaration. Article 258 bis punishes with imprisonment of three to six months or a fine the unauthorised use of attached assets placed in deposit.

Article 259 governs punishable insolvency in the strict sense: imprisonment of one to four years and a fine of eight to twenty-four months for anyone who, in a situation of current or imminent insolvency, conceals, damages or destroys assets of the estate; carries out disposals or assumes debts that are disproportionate and without economic justification; sells below cost without justification; simulates third-party credits or acknowledges fictitious credits; engages in speculative business contrary to the duty of diligence; fails to keep accounts, keeps double accounts or commits relevant irregularities, or destroys the books; conceals, destroys or alters the documentation that must be kept; draws up the annual accounts contrary to accounting rules; or commits any other serious breach of the duty of diligence in economic management. It is the offence that appears in practically all insolvency proceedings with a finding of culpable insolvency that end up in the criminal courts.

How it is proven and how it is defended in the Madrid courts

Asset stripping is an offence of intent: it requires the act of disposal to be carried out with the purpose of harming the creditor or frustrating enforcement, and that purpose is proven by circumstantial evidence. The indications most frequently invoked by the prosecution are the chronology, when the sale or donation closely follows the claim, the judgment or the demand for payment; the recipient, when the asset passes to a relative, to a company of the debtor or to a front man; the price, when it is non-existent, symbolic or not shown to have been paid; and the result, when after the act the debtor is left without known assets to answer with. The defence is built by dismantling those indications one by one: proving the reality of the price and its banking trail, the existence of other sufficient assets, the lawful cause of the transaction, the fact that the decision predated the claim, or the solvency maintained after the act.

An issue that arises with particular frequency in Madrid is the relationship with the civil proceedings and the insolvency. The rescission action of Article 1291 of the Civil Code, the insolvency claw-back action and the culpability classification of the insolvency run before the civil and commercial courts of the capital in parallel with the criminal complaint. What is argued and proven in one forum conditions the other, and coordination between the two defences is the first strategic decision in the case.

When you are the creditor

For the Madrid creditor who has obtained a judgment and discovers that the debtor has emptied their estate, a criminal complaint for asset stripping has two advantages over the civil route: the judicial investigation gives access to banking, registry and corporate information that the creditor cannot obtain alone, and a criminal conviction carries civil liability, which may include the nullity of the acts of disposal and the return of the assets. Joining the proceedings as a private prosecutor under Articles 109 and 110 of the Criminal Procedure Act allows precautionary measures over the assets located to be requested from the outset. The limitation period is five years for the basic offence and ten where the maximum penalty exceeds five years, counted from consummation, which case law places at the moment of the act of disposal.

The company as a liable party

The criminal liability of legal persons extends to punishable insolvencies, so that a company used as a vehicle for asset stripping may be investigated and convicted with the penalties of Article 33.7 of the Criminal Code, including a fine, suspension of activities and disqualification from contracting with the public sector. We defend the company independently of its directors where their interests diverge, and we establish the compliance programme as a ground of exemption or mitigation under Article 31 bis.

Legal basis

Article 257 of the Criminal Code: asset stripping and acts hindering enforcement, imprisonment of one to four years and a fine; one to six years where the debt is a public-law debt or derives from a tax or social security offence; aggravation under Article 250.1.5 and 6; prosecution even if insolvency proceedings are opened. Article 258: incomplete or false list of assets in enforcement, imprisonment of three months to one year or a fine; exemption for a subsequent truthful declaration. Article 258 bis: unauthorised use of attached assets in deposit. Article 259: punishable insolvency, imprisonment of one to four years and a fine of eight to twenty-four months. Source: consolidated text of the Criminal Code, Official State Gazette, wording of Organic Law 1/2015 in force since 1 July 2015.

Frequently asked questions

What is the penalty for asset stripping?

Imprisonment of one to four years and a fine of twelve to twenty-four months (Article 257.1 of the Criminal Code). If the debt evaded is a public-law debt owed to a public creditor, or derives from a tax or social security offence, imprisonment of one to six years. The penalties are imposed in their upper half when the value exceeds 50,000 euros, a large number of people are affected or personal relationships or business credibility are abused.

Is it an offence to sell an asset once a debt has been claimed from me?

It may be, if the sale is made in order to harm the creditor or frustrate enforcement and leaves the debtor without assets to answer with. It is not if the price is real and traceable, if sufficient assets remain or if the transaction has a lawful cause predating the claim. That purpose is proven by circumstantial evidence: chronology, recipient, price and result.

Does a declaration of insolvency prevent prosecution for asset stripping?

No. Article 257.5 of the Criminal Code provides that the offence is prosecuted even if insolvency proceedings are opened after it is committed. Conduct in a situation of current or imminent insolvency may also constitute punishable insolvency under Article 259.

Can I avoid the offence of Article 258 if I submitted an incomplete list of assets?

Yes. Article 258.3 provides that the offence is not prosecutable if the author, before the authority discovers the false or incomplete nature of the declaration, appears and submits a truthful and complete declaration of assets.

When does asset stripping become time-barred?

After five years for the basic offence, whose maximum penalty is four years, and after ten years where the maximum penalty exceeds five years, as in the public-law debt variant (Article 131 of the Criminal Code). Time runs from the act of disposal.

Related guides

• Asset stripping and insolvency offences in Spain
• Article 257 of the Criminal Code
• Economic and corporate crime lawyer
• Criminal defence lawyer in Madrid
• Contact the firm

This article is informative in nature and does not constitute legal advice. For a specific case, consult a lawyer.