What is Fraudulent Bankruptcy?
Fraudulent bankruptcy is a crime committed when a debtor deliberately reduces his assets, smuggles goods or artificially loses his solvency by managing his commercial activities in bad faith in order to harm his creditors. This crime, which is regulated under Article 161 of the Turkish Penal Code (TPC), is of great importance for the protection of commercial ethics and economic order.
Fraudulent bankruptcy is usually carried out by company owners, directors or individual debtors. Fraudulent bankruptcy includes transferring assets to third parties, forging documents or intentionally causing losses to the company in order to avoid paying debts.
Legal Basis of Fraudulent Bankruptcy
The offense of fraudulent bankruptcy is defined in the Turkish Penal Code Article 161 is regulated. Accordingly, persons who hide, devalue or misuse their assets in order to avoid paying their debts are deemed to have committed fraudulent bankruptcy and are subject to criminal sanctions.
Furthermore, under the Enforcement and Bankruptcy Law, attempts by debtors and businesses in the process of bankruptcy to smuggle assets are investigated and subject to civil sanctions. Such offenses may be the subject of not only criminal but also civil actions for damages.
Penalties for Fraudulent Bankruptcy
Persons who commit fraudulent bankruptcy offense According to Article 161 of the Turkish Penal Code the following penalties are applied:
- 3 to 8 years imprisonment
- Banned from commercial activity
- Additional sanctions for financial and commercial offenses
Penalties may be aggravated depending on the extent of the fraudulent bankruptcy. If many people have suffered as a result of the bankruptcy or if the fraudulent transactions have caused large-scale economic damage, the penalty may be imposed at the upper limit.
Elements of Fraudulent Bankruptcy
In order to determine whether a bankruptcy is fraudulent, the following elements must be present:
- The debtor is in bad faith: The debtor must have acted deliberately to avoid paying its debts.
- Deliberately reducing assets: When a company or individual deliberately acts to worsen the economic situation of a company or individual, such as by withholding assets, failing to sell, or increasing debts.
- Damage to creditors: The key element of fraudulent bankruptcy is to victimize creditors and cause them to be unable to collect their debts.
- The occurrence of material damage: The offense of fraudulent bankruptcy applies when there is a material damage to creditors.
Investigation and Litigation Process in Fraudulent Bankruptcy
If a fraudulent bankruptcy offense is detected, the investigation and litigation process proceeds as follows:
- Complaint and Application: Creditors or bankruptcy estate officials may file a criminal complaint with the public prosecutor’s office when they detect fraudulent transactions.
- Prosecution Investigation: The prosecutor’s office examines the commercial records and investigates whether the debtor has evaded property in bad faith.
- Court Process: In the light of the evidence, a criminal proceeding is initiated. The court evaluates whether there is fraudulent bankruptcy by examining expert reports and financial records.
- Judgment and Criminal Sanctions: If the court finds that the debtor has committed fraudulent bankruptcy, the person or persons concerned may be sentenced to imprisonment.
Statute of Limitations for Fraudulent Bankruptcy
There is a specific statute of limitations for fraudulent bankruptcy offenses. According to the Turkish Penal Code, the statute of limitations for fraudulent bankruptcy offenses is set at 10 years. If the offense is not detected or a lawsuit is not filed within this period, no legal action can be taken against the debtor.
However, if the debtor has misled the victims by concealing the fraudulent transactions, the statute of limitations starts to run from the date of discovery.
The Effect of Fraudulent Bankruptcy on Creditors
Creditors are often the biggest victims of fraudulent bankruptcy. Creditors, who have to deal with lengthy legal proceedings to collect their debts, often suffer serious financial losses. Therefore, it is important for creditors to act quickly and closely follow the legal proceedings in order to protect their rights.
To prevent victimization of creditors:
- Closely monitor debtors’ attempts to smuggle assets,
- Apply to the court for injunctions,
- In case of suspicion of fraudulent bankruptcy, they should immediately file a criminal complaint with the prosecutor’s office.
Precautions Against Fraudulent Bankruptcy
The following measures can be taken to prevent fraudulent bankruptcy offenses:
- Regularly auditing the financial statements of companies
- To follow up suspicious debtor transactions
- Creditors to know their legal rights and to apply for legal remedies when necessary
- Working with trusted companies in commercial partnerships
Having the support of a lawyer in the follow-up of legal processes is of great importance in preventing fraudulent bankruptcy crimes and eliminating victimization.
The crime of fraudulent bankruptcy occurs when debtors deliberately smuggle goods, abuse commercial transactions or deliberately worsen their economic situation in order to harm their creditors. This crime, which is clearly regulated in the Turkish Penal Code, is punishable by imprisonment from 3 to 8 years.
It is of utmost importance for creditors facing such offenses to take legal action and identify fraudulent transactions without wasting time. If you believe that a debtor has committed fraudulent bankruptcy, it is recommended that you seek legal advice to protect your rights.
