Freedom to fail a vital ambition
Reforming our archaic law on bankruptcy would nurture enterprise, writes Willie O'Dea
Last week, I wrote about a lack of credit as one of the barriers to increased economic activity in this country. Another is our outdated and archaic bankruptcy law. Though it is just over 20 years since Ireland passed legislation on bankruptcy, nevertheless, the law, as it stands, seems to be shaped by the Victorian attitude to people who have become unable to pay their debts, neatly summarised by the old music-hall joke, "never run into debt if you can find anything else to run into".
Our approach is to punish somebody for becoming bankrupt. This punishment consists of being compelled to become involved in torturous and excessively expensive legal proceedings and then being locked up in financial quarantine for a period of 12 years. That means that the abilities, aptitude and skills of that person are lost to the economy for a period of at least 12 years and perhaps forever. Risk-takers are the people who stimulate business and provide employment. Without them we would remain mired in recession indefinitely. Freedom to fail in business is essential to encourage entrepreneurship.
Needless to say, our competitors have moved on. In 2007, a European Commission paper examined bankruptcy practice across the EU. Marks were awarded according to certain criteria and, unsurprisingly, we found that we were bottom of the class. The contrast with the modern flexible procedures introduced by our competitors, both in Europe and elsewhere, could not be more stark. In England, for example, it is possible to become bankrupt and to remain in bankruptcy for just one year. In the United States, the approach is even more radical. In the US, permission to fail is built into the business model. As one writer put it recently, "bankruptcy is just very intensive market research and many people fail their way to success".