Behavioural insights into the impact that the public record of bankruptcy has on business activity

Nicola Howell from the Queensland University of Technology has explored whether public bankruptcy records impact business activity. A common objective for many bankruptcy systems in developed countries is to provide a fresh start for the debtor. This goal is seen as particularly important for entrepreneurs and those involved in small businesses as governments want to encourage re-entry into the market as quickly as possible after a bankruptcy. This is the case in Australia, where the proposal to reduce bankruptcy to 12 months was designed ‘to foster entrepreneurial behaviour and to reduce the stigma associated with bankruptcy’ – a proposal that is still under active consideration.

In Australia, there is a permanent public record of personal insolvency events, including bankruptcy, designed to protect creditors and the community. However, this public record may act as a counter to other initiatives in bankruptcy law reform that are designed to facilitate business activity. Potential business partners, providers of finance and investors may be reluctant to support a new business operated by a person who is or has been bankrupt. The availability of public records may also make it harder for entrepreneurs and business owners to re-start after bankruptcy.

The full article is available in the Insolvency Law Journal (#125). For more information about the study and its findings, contact Nicola Howell at the Queensland University of Technology via email at nicola.howell [at] qut.edu.au.