Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Bankruptcy seems to be the hardest word

The government has not said anything about insolvency law reform for financially struggling individual small business operators among its claimed “the most significant reforms to Australia’s insolvency framework in 30 years”: as to which, see Do the Australian small to medium business insolvency reforms add up? 

A difficulty may be that the government would have to use the word ‘bankruptcy’ which applies when an actual person, as opposed to a company, can’t pay their debts.

The word bankruptcy and its history

It is a word that connotes unpleasant matters beyond indebtedness, as in its alternate meaning of ‘completely lacking in a particular good quality’[1] and its use in phrases such as ‘morally bankrupt’, ‘bankrupt of ideas’, and ‘intellectually bankrupt’, and its connection, in the Australian Constitution, with treason.[2]

Steele’s Spectator summed it up in 1712 – as “that most dreadful of all human conditions,” and given the then continued use of debtors’ prisons, that may have been true.

The spelling of the word went through some changes over the centuries – bankruptism, bankrupture and bankruptship were some – before then settling on our present day ‘bankruptcy’.[3]

Despite bankruptcy law becoming more of a legal discipline in the 19th century, the word itself continued to repel, with lawyers not keen to take on the role as trustees, said to be because of the associated unpleasant social, moral and status concerns.  Having clients in debtors’ prison was also not a good look. Accountants, such as they were at that time, could not afford to be choosy, and they weren’t, and the rest of that is history.

It was when bankruptcy law evolved in the 19th century to be available to non-traders, and “gentlemen” started to go bankrupt, that the word insolvency came into vogue.[4]

“ … it was simply unthinkable for the up-stairs likes … to be mentioned in the same sentence as a word, previously used for lowly tradesman. Presumably it was from this need for a softer alternative to “bankruptcy” that “insolvency”, a term amenable to the ears of the upper classes, came into existence”.

Insolvency has softer vowels and consonants, it includes the word ‘solvency’ and also the positive word ‘solve’.  On the other hand, ‘bankruptcy’ has the harsher a and u vowel sounds, and the hard consonants b, k, r, p, and t, and it includes the words ‘bank’ and ‘rupt[ure]’.

Bankruptcy law reform

Given the history, it is perhaps no wonder that Australian insolvency law reform has evolved over time such that a director of a corporate business that has lost millions can start again the next day, and, if a politician, retain their seat; whereas an individual whose business has lost merely thousands or less remains under costly bankruptcy scrutiny for 3 years, and loses any seat in parliament, and other things besides.

It may also explain why we have the government’s magnificent response to the plight of ‘small business failures’ – the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020, and rules and regulations – which is said to be about helping businesses “restructure and survive”, with “flexibility” or go through an “orderly wind down”, and is in reality focused only on the <40% of companies that comprise small business, and then only on a proportion of those; and why the government has said nothing about the >60% of individual small business owners who may face bankruptcies lasting until 2024.

The answer?

The answer first up may be to replace the word bankruptcy with the word insolvency in the law, or even the softer terms ‘restructuring’, ‘wind-down’, or even ‘turnaround’; leave the word bankruptcy to the Americans; and then pursue some consistent approach to small business insolvency reform.

=========================

[1] www.dictionary.com

[2] Bankruptcy, treason and other crimes, (2001) 1(8) INSLB 138, Murray.

[3] New Directions in Bankrupture? (1996) 5 New Directions in Bankruptcy 12, Murray.  Note the spelling – not bankrupcy, nor insolventcy.

[4] The Historical Development of Insolvency Law, Francis Forbes Society for Australian Legal History, the Hon TF Bathurst, Chief Justice of NSW, 3 September 2014.

Share on facebook
Share on google
Share on twitter
Share on linkedin

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest

Popular

Featured

Stay Up To Date With Murrays Legal Commentary

Subscribe now