Lowering the Penalties for Failure: Using the Insolvency Law as a Tool for Spurring Economic Growth; the American Experience, and Possible Uses for South Africa
![handle is hein.journals/jsouafl1996 and id is 325 raw text is: Lowering the penalties for failure: using
the insolvency law as a tool for spurring
economic growth; the American
experience, and possible uses for South
Africa*
MICHAEL R ROCHELLE**
1 The social use of bankruptcy
Improving the citizens' economic lot is a central priority for most national
governments. Insolvency laws can have a significant role to play in this work.
Were the penalties for financial failure lowered from their current levels in South
Africa, citizens and companies would take more economic risks to succeed.
More businesses would start, more jobs would be created, and society as a whole
would benefit. Those who fail would not become modem lepers, but instead
would receive another chance to be productive for themselves and society. This
model has worked well for the United States in this century; in South Africa,
rapid economic expansion can be assisted by adopting the American approach.
Society should not reward the cautious man who buries his talent and takes no
chances; it most emphatically should do everything in its power to assist the man
who creates jobs - the man who strives to turn his one talent into ten - even if
he fails in the attempt.
Before the twentieth century, no nation had a bankruptcy law aimed at any but
the commercial class. There was no need for a law of greater breadth: people
functioned only in local economies, and such little credit as was available was
extended on a largely personal basis. In such an environment, none but the worst
sort of person even considered bankruptcy to relieve financial embarrassment.
The United States had no need for a bankruptcy statute as long as the frontier
was open and westward expansion possible. The discharge from debt obtained
was informal but functional: the failed businessman or farmer simply left town
and headed west. Once the frontier closed in the 1890's, eliminating the safety
valve of free land and a fresh start, the need for a functional and permanent
bankruptcy statute became clear.
As first conceived, America's Bankruptcy Act of 1898 followed the
Anglo-European liquidation model; by the 1920s, however, practitioners began
to find that more businesses could be saved if aspects of out-of-court workouts
were grafted onto the federal bankruptcy statute. The two primary changes were
* This article is based upon a presentation made at the insolvency seminar held in the law faculty
of Rand Afrikaans University in August, 1995. The author gratefully acknowledges the
encouragement, hospitality and kind efforts of Professor F R Malan, Director of the Research
Institute for Banking Law at RAU. The opinions expressed in this article are the author's alone.
** Member, Board of Scholars, Banking and Financial Law Unit, Centre for Commercial Law
Studies, University of London; Associate Fellow, London Institute of International Banking,
Finance, and Development Law; Member of the Federal Bankruptcy Bar; Adjunct Faculty,
Southern Methodist University School of Law (Dallas, Texas).
315
TSAR 1996.2
[ISSN 0257-7747]](ViewImageLocal?handle=hein.journals/jsouafl1996&div=41&collection=&method=preview&ext=.png&size=3)
What Is HeinOnline?
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most