You think an executive of the company that owes you money in a bankruptcy may have committed a crime! Should you, as a creditor, push for criminal prosecution during bankruptcy proceedings?
As a creditor, your first priority is to recover as much of the money or property you are owed. Civil litigation to pursue suspected criminal behavior is usually not permitted during bankruptcy. But the bankruptcy court can grant permission in certain cases. For example, 11 U.S.C. §362(b)(4) provides an exception for police actions. Thus, you can have a criminal case running alongside a bankruptcy if the prosecutor wishes to pursue it.
Your first impulse may be to seek punishment. They should “pay” for their bad behavior! But before you go too far down that path, consider the Pros and Cons.
The Pros: Prosecutor Does the Heavy Lifting
There are advantages to simultaneous criminal action. First, the prosecutor will likely be taking discovery and gathering evidence that may be helpful in your own quest to get what you are owed. In other words, the prosecutor is your hunting dog. He or she can sniff out clues that you can use later for your own claim. This can include interviewing key witnesses and identifying where assets may have been stashed.
Second, the standard of proof that a criminal prosecutor needs to meet is “Beyond a Reasonable Doubt. This is much higher than what you will need. For civil claims, including those in bankruptcy court, the standard of proof is “Preponderance of Evidence.” This means you need to be about 51% right. By comparison, to be Beyond a Reasonable Doubt means there less than a 1% chance of being wrong.
The difference between these standards is big. It is much easier to prove something when you only have to be “mostly” right. This means any evidence found by a prosecutor and used at a criminal trial, will almost certainly be okay in a bankruptcy case.
There can be an upside to having the criminal action occur first or at the same time. Hopefully, the prosecutor can dig up great evidence for you on someone else’s dime. Otherwise, you would have to pay your own attorney to do the work.
The Cons: Time and Money
On the other hand, the outcome of a criminal action may result in fines or forced reduction in assets. This can reduce the amount available to pay creditors.
Also, a criminal case may slow down your case. The bankruptcy judge may decide to delay parts of the bankruptcy case until criminal proceedings are completed, adding months or years to your case.
The net impact of the criminal proceeding is that there may be less assets left for creditors to divide and long delays before any chance of recovery is even possible.
Before pursuing criminal prosecution during bankruptcy proceedings be sure to think through the pros and cons.