The Basics
Reading last quarter’s publication I was very taken by the knowledgeable insight many of the contributors provided with regard to the legal and financial backgrounds of their respective national economies. Most of their focus was on reform measures to counter financial crisis within their respective countries. Apparently even the most developed nations were not prepared to face the crisis as it unfolded due to lack of sound legal procedures on the one side and on the other, inexperienced judiciary systems.
Many contributors cited aspects of development in their nation’s applied laws and cases on insolvency issues such as Greece, Ireland, Spain etc… After all, insolvency is the least you’d expect in a thriving economy so how do you deal with it when it hits? Is anyone prepared? How do you do so? The first reaction I suppose is to restructure, cut costs and shrink operations. Second if that is unsuccessful, then it is perhaps a case of seeking bank agreement to debt rescheduling and cash flow management measures. Unless of course the banks themselves are not doing so well then the third option is to go and ask the Government for money; make everyone else pay. But perhaps there is a fourth measure within insolvency reform systems that would allow for efficient allocation of resources, hence offsetting the adverse consequences of the financial crisis.
Back in the years of studying for my masters degree we covered a book: “The Commanding Heights”. One topic the book addressed was the role of legal systems in creating and regulating business cycles, i.e. to circulate money within the economy while ensuring continuity of trading. Indeed, we are in the era of knowledge. We all accept that we have the information, resources, experience and common sense to plan ahead. It is nevertheless only possible to do this through developing and maintaining appropriate legal systems and safeguards.
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