7 ms·

> Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? There’s a big difference between bankruptcy

> Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? There’s a big difference between bankruptcy and business failure. Plenty of businesses fail without entering bankruptcy, they’re wound down responsibly and their creditors are repaid in full. If a company fails due to bankruptcy, then it means that people who lent money to that business are out of pocket, and end up paying for the failure. The whole point of “limited liability” companies is that the owners and management are shielded from creditors in the event of bankruptcy (hence the “limited liability”). So a five year ban (which is true in most countries) from directing another limited liability company is reasonable, it don’t prevent your from running a business, only from running a limited liability business, because there’s now evidence that in the event of failure you’ll leave your creditors high and dry. Ultimately the privilege of running a limited liability company, where the state promises to protect you from your creditors if things go wrong, is just that, a privilege. If you prove yourself unable use that privilege responsibly, then that privilege is temporary taken away. To be clear, the privilege removed is protection from creditors by the state, if your business fails. You can absolutely start another business, it’s just that the state won’t protect you if you fail.

AbrahamParangi 4y ago
The counterpoint is what's the point of reducing losses on bankruptcy if it makes the entire business climate worse? By trying to protect creditors you just make everyone poorer.
- KyeRussell 4y ago
  This is an ideological take, and an American one at that. Not necessarily a fact.
  - AuthorizedCust 4y ago
    It reflects a system where that shields creditors from fewer risks. Nothing wrong with that per se.
  - Kamq 4y ago
    I mean, fair, but when even the Americans are saying to let the investors lose their shirts, you might want to at least think about it.
    - mpweiher 4y ago
      This isn't about investors, it's about creditors.
      - DANmode 4y ago
        Investors and/or startup loans, depending on structure, are generally right at the top of the list of creditors.
        anonymouskimmer 4y ago
        https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid... > Shareholders are often last in line to receive proceeds with preferred stock shareholders getting better treatment than common stock shareholders. Loans aren't shares; not even early loans. Else they'd get much better returns from the successful businesses.
      - Kamq 4y ago
        Also fair, I used the wrong word there. Though, I don't think the distinction really matters within the context of my point. Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent in the future and having extra money to either pay back debts or pay out dividends. My point is that America tends to get a lot of flak for rigging the system in favor of those with excess money (some of it is even fair). My point is that if you want to structure your system past what we're willing to do, you may want to stop and think for a second about if that's what you really want. Now, if you want to protect the money of people with extra money to lend out, that's absolutely fine. It's a completely internally consistent position. But my understanding is that it's not that popular of a position, so I'm surprised the system is set up this way.
- bcrosby95 4y ago
  Who says it makes it worse? Limited liability is a privilege not a right, as such it can be taken away from you if you can't act responsibly.
  - AuthorizedCust 4y ago
    Just because the government claims something to be a mere privilege does not justify bad policy.
    - avianlyric 4y ago
      We could go back to bad old days, where business owners were directly exposed to their creditors. Business fails, say goodbye to home, car, personal savings. If that’s not enough, off to the debtors prison with you, you can work till you’ve repaid your business debts.
- wongarsu 4y ago
  Does it? You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. VCs invest instead of lending and aren't owed anything if you shut the company down.
  - AbrahamParangi 4y ago
    Well, you’re basically taking something (cost of capital) that could be priced (via interest rates and collateral requirements) and turning it into a regulatory barrier. Personally I doubt that that is better, and I think the general consensus is that it is quite a bit harder to do business in those places with these regulations.
  - mlyle 4y ago
    > You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. Banks can take into account the borrowing history of the executive teams already. > And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. Being unable to make payments on leases, etc, is pretty likely for startups that fail.
- anonymouskimmer 4y ago
  Screwing over the bond market by screwing over owners of your company's bonds make the entire investing and general retirement and pension climates worse. Retirements and pensions are often guaranteed in part by the government, with tax funds. Tax increases and retirement deficits directly hit consumers in their ability to consume, and at least a few years back consumers were responsible for about 2/3rds of GDP (in the US, at least), so a bit more important than the business climate itself. And that's without even factoring in the effect of bankruptcy on consumers employed by the bankrupt company. Employees of a bankrupt company are considered the highest level of unsecured creditors, but they still come behind secured creditors. So bankruptcy can not only result in an employee (who is also a consumer in the more general economy) losing their job, but losing their last paycheck and benefits coverage. Which has a consequent effect not only on consumption, but on utilization of public, tax- or fee-supported services. --- If a person bankrupts a company, they could probably use 5 years to let all of the lessons that they should have learned sink in. If you fail out of school you have to retake your classes in order to graduate.
- avianlyric 4y ago
  Does it? For most companies their creditors are other businesses that they’re sourcing supplies from. What makes you think those businesses can afford to take the hit? Ultimately most of the real creditors to small and medium businesses are other small and medium businesses. So if you offer no protection to them at all, you either get extremely risk adverse companies that refuse to offer any sort of credit (such as 30 day invoices), or a single business failure ends up causing a cascade of failures all of their suppliers take the hit, and also go out of business. Ultimately increasing the trust between businesses, so they’re able to extend thing like 30 day invoices as standard, substantially improves the business climate. It reduces the barrier and risk of everyday business transactions, makes it easier for businesses to manage their cashflow, and ultimately allows businesses to grow faster and in more robust manner. None of this is about protecting lenders like banks, or investors. Most of the time they screwed anyway, it’s about protecting other businesses who’s primary function isn’t financial risk management.
galleywest200 4y ago
Is it possible to have declared bankruptcy with no creditors? Can you just spend all of your own money down to zero? Would you still be banned due to losing only your own money?
- toast0 4y ago
  Bankruptcy is something you get into when you can't pay debts to your creditors. If you have no debts, and thus, no creditors, you can't go bankrupt by definition. Of course, if there are government fees or taxes to pay, the collector of those becomes a creditor. You would want to formally close the business so that it doesn't accrue annual fees and force you to do more paperwork.
- avianlyric 4y ago
  I think it would be very difficult to achieve, you would somehow need to convince a bankruptcy court to accept your bankruptcy, despite having no creditors. If you spend all your money down to zero, then the normal thing is to just have your company dissolved and struck of the companies register. For which there is no consequences, you just tell the state your business is no longer operating, they make a note of that, and that’s it. Business dissolved, you get on with your day.
adrr 4y ago
You can also screw over your creditors without declaring bankruptcy. Just stop paying your bills. Elon is famous for not paying creditors at twitter. Bankruptcy is just a way to get relief from creditors and prevent them from suing you.
qwytw 4y ago
So just bring in another CEO just for the bankruptcy. Currently that's not an uncommon practice in the US. Of course this new CEO would have to be a one-use fall guy with somebody else actually doing the job... > If you prove yourself unable use that privilege responsibly Good luck determining whose actually to blame and who is innocent... at the end of the days only unlucky small to medium business owners who can't afford expensive lawyers or consultants will suffer from such a policy.
- ClumsyPilot 4y ago
  > Good luck determining whose actually to blame and who is innocent... I really dislike this attitude, lawyers, engineers and auditors are liable in case of negligence. Why should CEO's be excluded from liability?
  - qwytw 4y ago
    Because you can just hire the CEO to take the blame and continue running the company from another position. Unlike with lawyers, engineers and auditors this arrangement would be much hard to prove. Also CEO are liable when they engage in criminal behavior just like everyone else. And where are talking about auditors there are very specific and procedures which define they duties and responsibilities. How could you replicate that for CEOs? > I really dislike this attitude I'm just trying to be rational...
    - deleted 4y ago
      [deleted]
auggierose 4y ago
Germany is not small to medium business friendly. No need to argue about that.
- kazen44 4y ago
  do you have any sources for that? Considering that in germany, the "Mittelstand" is the major economic engine powering the economy compared to major corporations.
  - auggierose 4y ago
    Just experience. Maybe my claim is too strong, and I should exclude medium businesses from it.

AbrahamParangi 4y ago

The counterpoint is what's the point of reducing losses on bankruptcy if it makes the entire business climate worse? By trying to protect creditors you just make everyone poorer.

KyeRussell 4y ago
This is an ideological take, and an American one at that. Not necessarily a fact.
- AuthorizedCust 4y ago
  It reflects a system where that shields creditors from fewer risks. Nothing wrong with that per se.
- Kamq 4y ago
  I mean, fair, but when even the Americans are saying to let the investors lose their shirts, you might want to at least think about it.
  - mpweiher 4y ago
    This isn't about investors, it's about creditors.
    - DANmode 4y ago
      Investors and/or startup loans, depending on structure, are generally right at the top of the list of creditors.
      - anonymouskimmer 4y ago
        https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid... > Shareholders are often last in line to receive proceeds with preferred stock shareholders getting better treatment than common stock shareholders. Loans aren't shares; not even early loans. Else they'd get much better returns from the successful businesses.
    - Kamq 4y ago
      Also fair, I used the wrong word there. Though, I don't think the distinction really matters within the context of my point. Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent in the future and having extra money to either pay back debts or pay out dividends. My point is that America tends to get a lot of flak for rigging the system in favor of those with excess money (some of it is even fair). My point is that if you want to structure your system past what we're willing to do, you may want to stop and think for a second about if that's what you really want. Now, if you want to protect the money of people with extra money to lend out, that's absolutely fine. It's a completely internally consistent position. But my understanding is that it's not that popular of a position, so I'm surprised the system is set up this way.
bcrosby95 4y ago
Who says it makes it worse? Limited liability is a privilege not a right, as such it can be taken away from you if you can't act responsibly.
- AuthorizedCust 4y ago
  Just because the government claims something to be a mere privilege does not justify bad policy.
  - avianlyric 4y ago
    We could go back to bad old days, where business owners were directly exposed to their creditors. Business fails, say goodbye to home, car, personal savings. If that’s not enough, off to the debtors prison with you, you can work till you’ve repaid your business debts.
wongarsu 4y ago
Does it? You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. VCs invest instead of lending and aren't owed anything if you shut the company down.
- AbrahamParangi 4y ago
  Well, you’re basically taking something (cost of capital) that could be priced (via interest rates and collateral requirements) and turning it into a regulatory barrier. Personally I doubt that that is better, and I think the general consensus is that it is quite a bit harder to do business in those places with these regulations.
- mlyle 4y ago
  > You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. Banks can take into account the borrowing history of the executive teams already. > And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. Being unable to make payments on leases, etc, is pretty likely for startups that fail.
anonymouskimmer 4y ago
Screwing over the bond market by screwing over owners of your company's bonds make the entire investing and general retirement and pension climates worse. Retirements and pensions are often guaranteed in part by the government, with tax funds. Tax increases and retirement deficits directly hit consumers in their ability to consume, and at least a few years back consumers were responsible for about 2/3rds of GDP (in the US, at least), so a bit more important than the business climate itself. And that's without even factoring in the effect of bankruptcy on consumers employed by the bankrupt company. Employees of a bankrupt company are considered the highest level of unsecured creditors, but they still come behind secured creditors. So bankruptcy can not only result in an employee (who is also a consumer in the more general economy) losing their job, but losing their last paycheck and benefits coverage. Which has a consequent effect not only on consumption, but on utilization of public, tax- or fee-supported services. --- If a person bankrupts a company, they could probably use 5 years to let all of the lessons that they should have learned sink in. If you fail out of school you have to retake your classes in order to graduate.
avianlyric 4y ago
Does it? For most companies their creditors are other businesses that they’re sourcing supplies from. What makes you think those businesses can afford to take the hit? Ultimately most of the real creditors to small and medium businesses are other small and medium businesses. So if you offer no protection to them at all, you either get extremely risk adverse companies that refuse to offer any sort of credit (such as 30 day invoices), or a single business failure ends up causing a cascade of failures all of their suppliers take the hit, and also go out of business. Ultimately increasing the trust between businesses, so they’re able to extend thing like 30 day invoices as standard, substantially improves the business climate. It reduces the barrier and risk of everyday business transactions, makes it easier for businesses to manage their cashflow, and ultimately allows businesses to grow faster and in more robust manner. None of this is about protecting lenders like banks, or investors. Most of the time they screwed anyway, it’s about protecting other businesses who’s primary function isn’t financial risk management.

galleywest200 4y ago

Is it possible to have declared bankruptcy with no creditors? Can you just spend all of your own money down to zero? Would you still be banned due to losing only your own money?

toast0 4y ago
Bankruptcy is something you get into when you can't pay debts to your creditors. If you have no debts, and thus, no creditors, you can't go bankrupt by definition. Of course, if there are government fees or taxes to pay, the collector of those becomes a creditor. You would want to formally close the business so that it doesn't accrue annual fees and force you to do more paperwork.
avianlyric 4y ago
I think it would be very difficult to achieve, you would somehow need to convince a bankruptcy court to accept your bankruptcy, despite having no creditors. If you spend all your money down to zero, then the normal thing is to just have your company dissolved and struck of the companies register. For which there is no consequences, you just tell the state your business is no longer operating, they make a note of that, and that’s it. Business dissolved, you get on with your day.

adrr 4y ago

You can also screw over your creditors without declaring bankruptcy. Just stop paying your bills. Elon is famous for not paying creditors at twitter. Bankruptcy is just a way to get relief from creditors and prevent them from suing you.

qwytw 4y ago

So just bring in another CEO just for the bankruptcy. Currently that's not an uncommon practice in the US. Of course this new CEO would have to be a one-use fall guy with somebody else actually doing the job... > If you prove yourself unable use that privilege responsibly Good luck determining whose actually to blame and who is innocent... at the end of the days only unlucky small to medium business owners who can't afford expensive lawyers or consultants will suffer from such a policy.

ClumsyPilot 4y ago
> Good luck determining whose actually to blame and who is innocent... I really dislike this attitude, lawyers, engineers and auditors are liable in case of negligence. Why should CEO's be excluded from liability?
- qwytw 4y ago
  Because you can just hire the CEO to take the blame and continue running the company from another position. Unlike with lawyers, engineers and auditors this arrangement would be much hard to prove. Also CEO are liable when they engage in criminal behavior just like everyone else. And where are talking about auditors there are very specific and procedures which define they duties and responsibilities. How could you replicate that for CEOs? > I really dislike this attitude I'm just trying to be rational...
  - deleted 4y ago
    [deleted]

auggierose 4y ago

Germany is not small to medium business friendly. No need to argue about that.

kazen44 4y ago
do you have any sources for that? Considering that in germany, the "Mittelstand" is the major economic engine powering the economy compared to major corporations.
- auggierose 4y ago
  Just experience. Maybe my claim is too strong, and I should exclude medium businesses from it.