KEY POINTS:
In parts of Southeast Asia, where entrepreneurship is nurtured and nourished, bankruptcy holds far less of a stigma than in this country. If not exactly a badge of honour, it is far from a symbol of disgrace. It is widely assumed that, as in any field of endeavour,
bankrupts will have learned many lessons from financial failure and will be more successful in business the next time around. It is also recognised that, in some cases, bankruptcy may owe more to illness or a marriage breakup than ineptness, and a second chance is warranted. All this was recognised, quite reasonably so, when new insolvency law was introduced here.
Under the Insolvency Act 2006, information about a person declared bankrupt is expunged from the Ministry of Economic Development's register after seven years. Previously, that record was permanently available to the public. This change has parallels with clean slate legislation, which wipes the records of people with minor convictions for misdemeanours, such as shoplifting and minor cannabis use, if they have not reoffended for a long time. Both emphasise that people should not continue to be penalised for behaviour or activity that owes much to youth or inexperience and which has now been left well behind them.
A problem with such legislation lies in the setting of boundaries. The clean slate legislation, originally proposed by former Green MP Nandor Tanczos, applies to convictions that do not attract a custodial sentence and requires a person not to have reoffended for 10 years. The new insolvency law stipulates merely that information about people declared bankrupt is to be expunged after seven years.
Unfortunately, that means this will occur even if a person has been bankrupted several times, a state of affairs that would suggest lessons have not been learned. Worse still, it applies even if the bankrupt has been determinedly unco-operative or displayed behaviour and attitude towards investors or creditors that are particularly deplorable.
Take the case of the bankruptcy of Bridgecorp's Rod Petricevic in August, his first, although he was also behind the failure of financier Euro-National in the late 1980s. Three days after Bridgecorp collapsed, he gave his family trust his $120,000 Porsche 911. Nonetheless, under the 2006 law, his record will be wiped in 2015. Likewise, twice-bankrupted Kim Spencer will have his name expunged after seven years, even though the day after he was declared too broke to pay millions of dollars owed creditors, he set off on an overseas holiday.
Clearly, that situation is unsatisfactory. Those who commit crimes repeatedly, such as habitual shoplifters or multiple drink-drivers, will not qualify for clean-slate treatment because the degree of punishment is increased with each offence. There is no such counterbalance for serial bankrupts. There should be. They should remain on the Ministry of Economic Development register. Similarly, there must be a means of ensuring those who behave wretchedly do not have their names automatically expunged.
A logical port of call here is the Official Assignee, the trustee of the bankrupt's affairs. Already, that office must be satisfied with a bankrupt's full co-operation before ordering the start of the three-year period during which that person is banned from managing companies. It would make sense if the same degree of co-operation had to be confirmed by the Official Assignee before information about a bankrupt was wiped.
That would provide equilibrium to what is a desirable development in insolvency law. Failure should not carry a major stigma if a person has acted appropriately. History is full of tycoons whose first enterprises failed. A realistic approach to entrepreneurial activity should acknowledge as much.
