5. Conclusions
Bringing all of the above discussion together, the objectives for insolvency law are to:
- Create the right environment for business growth and entrepreneurship. The law needs to give confidence both to lenders to provide capital to business and to entrepreneurs to be innovative and take responsible business risks.
- Provide a predictable and simple regime for financial failure that can be administered quickly and efficiently and imposes the minimum necessary compliance and regulatory costs on its users and balances uncertainty and inflexibility.
- Distribute the proceeds to creditors in accordance with their relative pre-insolvency entitlements, unless it can be shown that the public interest in providing greater protection to one or more creditors (statutory preferences) outweighs the economic and social costs of any such entitlements.
- Maximise the returns to creditors by providing flexible and effective methods of insolvency administration and enforcement which encourage early intervention when financial distress becomes apparent.
- Enable individuals in bankruptcy to again participate fully in the economic life of the community by discharging them from their remaining debts in appropriate circumstances.
These objectives are diverse, and there are tensions between some of them. For example, there are trade-offs between the interests of creditors and debtors. Rehabilitation from bankruptcy suggests that the debtor should be able to retain enough assets to make a fresh start to their financial life. However, the more the debtor may keep, the more creditor risk is increased.
Furthermore, it is not always easy to judge what approach is best in relation to specific cases of insolvency. For example, it can be difficult to distinguish between responsible and irresponsible decision-making. It may also be difficult to determine whether a first time criminal offender will be open to rehabilitation.
These uncertainties create challenges for the design of insolvency law.
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