Productivity Report Bankruptcy Recommendation

In September 2015 the Productivity Commission released a report into Business Set-Up, Transfer and Closure. In the report they recommend bankruptcy be reduced from 3 years to 12 months with a 3 year payment period in order to encourage entrepreneurship. The express aim of the proposal is to allow bankrupt entrepreneurs access after 12 months to finance and overseas travel.  However nowhere in the Bankruptcy Act is there a blanket prohibition on the debtor being supplied with either finance or travel.

A review of the Bankruptcy law in Bloomberg’s World’s Most Innovative Countries will quickly identify that there is little relationship between bankruptcy periods and entrepreneurial activity. The USA has a 10 year Bankruptcy period, China doesn’t have formal Bankruptcy Legislation, Germany has a 10 year bankruptcy period. Japan has an 18 month bankruptcy period but it appears on a person’s credit history for 5 years, Canada has an 18-36 month bankruptcy period but it would appear for 6 years on credit files.

Bankruptcy data may however give you some indication of differing underlying culture of entrepreneurship. In Israel, 55% of Bankruptcies are business-related while in Australia only 17% are.

Attitude toward failure is the greatest factor in creating an entrepreneurial culture. The USA has the best attitude toward failure. With the highest level of respondents in a recent study indicating that failed entrepreneurs should be given a second chance. This combined with an admiration of the successful in the USA creates a culture of entrepreneurship. Australia’s Tall Poppy Syndrome and the Nordic Countries Law of Jante, whereby the successful are derided, significantly undermines entrepreneurial culture.