(a) Are there instances of fraud in relation to a corporate debtor in this economy?

 

• Although it is not distinguishable between hard and soft fraud, the insolvent debtors do always wish to protect the belongings and, therefore, conduct the acts harmful to the creditors. As such, the Bankruptcy Law (covering the bankruptcy and composition) does provide penalties towards several commonly conducted "soft" frauds:
  • ² Fails to give explanations or answers without cause or makes false statement to the creditors' meeting.
  • ² Conceals, destroys or abandons the property or otherwise disposes of the same to the detriment of the creditors.
  • ² Forges debts or accepting debts which are not genuine.
  • ² Destroys, abandons or forges the whole or part of the account books or other accounting documents resulting in false and inaccurate presentation of the status of assets.
• Also, the following are commonly conducted "hard" fraud which is criminally punishable:
  • ² Lavishness, gambling or other speculative acts resulting in evident decrease of properties or undertaking excessive obligations by the time of insolvency.
  • ² Undertaking obligations or purchasing or disposing of goods under disadvantageous conditions for the purpose of delaying the adjudication of insolvency.
  • ² Furnishing security or discharging debts for the special interests of one or several of the creditors while knowing that a cause for bankruptcy has been in existence.
• In case directors are liquidators, before the liquidation is completed, no distribution of assets to shareholders can be made by liquidators. In violation of this obligation, liquidators shall be punished with imprisonment up to one year, detention, and/or a fine no more than 60,000 New Taipei,China dollars. Liquidators making false records in preparing financial statements could be punished with imprisonment up to five years.
• In case of reorganization, directors shall be punished with imprisonment up to one year, detention, and/or a fine no more than 60,000 New Taipei,China dollars if they (i) refuse to deliver the property to the reorganizer, (ii) conceal or destroy statements, documents or account books relating to the business or financial condition of the company, (iii) conceal or destroy the property of the company or dispose of such property in a manner detrimental to creditors, (iv) refuse the examination by examiner or reorganizer without justifiable causes, (v) fabricate debts or acknowledge untrue debts, and (vi) make false statements with respect to their duties .

(b) If so, is it usual that instances of such fraud will be revealed when a corporate debtor is in financial difficulty or becomes insolvent?

 

It depends. Some frauds are easily identified and revealed but some are not. But usually the unlawful acts as specified in the previous paragraph are out broken at the time a company's financial difficulties reveal.

(c) What is the attitude that is normally taken to such fraud in this economy?

 

The court will act in accordance with the law, and if hard evidence can be produced, criminal penalty will be imposed.

(d) Is it the case, for example, that 'soft' fraud may be overlooked (or not pursued) and 'hard' fraud may more likely be pursued in this economy?

If there have been instances of fraud:

(i) does the insolvency law (or other civil law) provide for possible recovery of the proceeds of (or damage caused by) the fraud;

 

Yes.

(ii) does the criminal law provide for possible sanctions;

 

Yes. Please refer to KK(a) above.

(iii) how effective is the application of these laws in practice?

 

It depends on the complexity of the matters.

(e) Would it be common or usual that instances of fraud would:

(i) be largely ignored;

(ii) settled by negotiation; or

(iii) pursued through either civil or criminal law sanctions?

 

Criminal penalty will be triggered in case of fraudulent activities, and civil liability will be also triggered. There should be no negotiation or compromise in terms of criminal penalty. Generally, civil and criminal law sanctions will be pursued.