Prison for a debtor who creates new companies to evade their debts

 

 

A recent ruling by the Asturias High Court has confirmed the seriousness of using fictitious companies to hide debts. A construction sector entrepreneur has been sentenced to two years in prison for asset stripping, by creating and abandoning companies with the aim of leaving unpaid obligations to suppliers.

The convicted entrepreneur's modus operandi

The ruling describes a repetitive pattern of fraud:

• Establishment of companies in the construction sector.

• Accumulation of debts with suppliers and subcontractors (in this case, over €13,000 to two companies).

• Asset stripping of the company, leaving it inactive and without assets.

• Establishment of new debt-free companies to continue the same activity and avoid paying previous debts.

When creditors turned to the courts, they found formally insolvent companies, with no possibility of recovering the owed amounts.

What is asset stripping?

Asset stripping, regulated in article 257 of the Penal Code, occurs when a debtor hides or disposes of their assets to prevent creditors from collecting.
It is not about an entrepreneur facing economic difficulties, but about someone acting with a clear intention to defraud.

Justice does not require direct evidence of that intention: solid circumstantial evidence is sufficient. In this case, the repeated pattern of creating, indebting, and abandoning companies was considered conclusive evidence of fraud.

How to protect yourself if you are a creditor

• Check the administrators' history in the Mercantile Registry before signing important contracts.

• Be wary of sudden changes in the company name when the activity, personnel, or location remain the same.

• Request advance payments, work certifications, or guarantees in operations of a certain volume.

• Act promptly with unpaid invoices: the larger the debt grows, the higher the risk of non-recoverability.

What to do if you are a debtor

Having economic difficulties is not a crime, but hiding assets to avoid payment is.
The temptation to create a new company and abandon the previous one may seem like a solution, but it carries criminal consequences: imprisonment and fines.

In situations of insolvency, the legal route is to resort to creditors' meeting, a procedure that protects creditors' rights and allows, in some cases, to restructure business activities.

 

At Valero Tax Legal, we advise companies and professionals on the prevention and management of conflicts arising from non-payments, offering legal and strategic solutions to protect their interests.