Spanish wireless networks provider Gowex filed for bankruptcy on Monday, a week after an accounting fraud at the firm was revealed, while the High Court said its founder could face a jail sentence of more than 10 years.
Law firm Velez & Urbina said Gowex had decided to file for bankruptcy because it was in a state of "imminent insolvency" and faced a "financial standstill" after a high number of contracts were ended and new projects were cancelled.
Former Chief Executive and Chairman Jenaro Garcia Martin said on July 6 that he had misrepresented the financial accounts for at least the last four years. Last week he was charged with false accounting, distortion of economic and financial information, and insider trading.
Following his testimony before the High Court on Monday, Garcia Martin had his passport seized and was banned from leaving Spain.
He was also ordered to report to a court every week and was given 15 days to pay a 600,000-euro ($818,400) bail or face jail.
High Court examining judge Santiago Pedraz said the ruling was justified because Garcia Martin might attempt to flee as he faced a jail sentence of more than 10 years.
Pedraz also said Garcia Martin had at least 3 million euros in a Luxembourg-based bank account.
Gowex started insolvency proceedings last week and had a maximum of four months to reach a deal with creditors or enter into administration, a formal bankruptcy process in which a judge takes over the company and appoints who should run it, often leading to it being wound up or radically restructured.
A judge now has to rule on whether Gowex was correct to file for bankruptcy.
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