Rectifying an unconstitutional dispensation? A consideration of proposed reforms relating to no income no asset debtors in South Africa

The South African natural person debt relief system remains heavily procreditor and consequently excludes many deserving debtors from any form of relief. This is despite the fact that such marginalisation amounts to unjustifiable, unfair discrimination on the basis of debtors' financial status. The main aim of this article is to establish whether proposed reforms, and specifically the debt intervention procedure, will rectify the current unconstitutional dispensation and particularly the unreasonable unfair discrimination against “no income no asset” (NINA) debtors, who undoubtedly constitutes the largest part of relegated debtors. The article may benefit developing countries seeking to introduce debt relief measures curtailed to the needs of their ever‐escalating NINA debtors.     

Natural person ltd.: Towards a unified discharge regime for entrepreneurs and consumers

Personal insolvency proceedings are increasingly fulfilling an economic function, aimed at the rehabilitation of the debtor. The idea of the fresh start and second chance, including an early discharge of residual debts, is an important illustration thereof. Despite the fact that this evolution is noted in all personal insolvency procedures, both with regard to entrepreneurs and consumers, debt discharge used to be easier to justify and more readily granted to entrepreneurs (traders) than to non-entrepreneurs. Clear examples of the discomfort legislators seem to have with discharging unpaid debts of consumers are the EU Member States that differentiate between commercial and consumer insolvency procedures. In addition, the narrative of promoting entrepreneurship is now driving EU insolvency reforms. That (narrow) focus leads Directive 2019/1023/EU to make the same distinction between insolvent individual entrepreneurs and other natural persons, offering the former a full discharge of debt after a reasonable period of time, while providing no mandatory discharge principles for the latter. This means that not all natural persons are equal when it comes to the possibility of having a second chance, despite compelling evidence that shorter discharge periods lead to more productive individuals. The question therefore arises as to whether EU Member States should run separate discharge systems for entrepreneurs and consumers, and whether this is justified in relation to its purpose. Focusing on natural persons in an insolvency context, this article argues that the objectives of providing a fresh start and second chance, by promoting debt discharge, are as relevant for consumer debtors as they are for entrepreneurs.     

Reorganizing Czech Businesses: A Bankruptcy Law Reform under a Recession Stress‐Test

The new Czech Insolvency Act, featuring a brand new reorganization option for business debtors, has now been in force for over 3 years—a period of a severe downturn in the Czech (and the global) economy. This presents an opportunity to observe the workings of the new insolvency law on a “recession‐loaded” empirical dataset extracted from the on‐line insolvency register also introduced as part of the reform. This is the goal of this article, the subject matter of which is an initial empirical look at insolvency proceedings conducted over debtors whose reorganization attempts had been allowed in the years 2008 and 2009. Copyright © 2011 John Wiley & Sons, Ltd.     

Hurdles to debt relief for “no income no assets” debtors in Germany: A case study of failed consumer bankruptcy law reforms

Given that many overindebted households have low or no assets and income, governments have increasingly tried to adapt their consumer bankruptcy regimes to the needs and capacities of these NINA (“no income, no assets”) debtors. Most notably, since the mid‐2000s, some countries from the Anglosphere have created low‐cost, means‐tested, and administrative (i.e., nonjudicial) debt relief procedures as alternative to traditional bankruptcy for NINA debtors. By contrast, in some European countries such as Germany, legislators have tried—but until today failed—to create efficient debt relief measures for NINA debtors. This contribution aims to make English‐speaking readers familiar with the history of consumer insolvency law in Germany, with a focus on legislative developments regarding NINA debtors, and to identify actors, institutions, and ideas that have contributed—especially during the 2000s—to the failure of consumer bankruptcy reforms addressing the main problems of NINA cases in Germany (i.e., high hurdles to relief for debtors, high administrative efforts for trustees and courts, high costs for the public purse, and yet very few payments to creditors). The German case is relevant not only because it is a striking case of failure to adapt a debt relief regime to NINA debtors but also because German consumer bankruptcy law—despite its shortcomings—continues to serve as a template for insolvency law reforms in European and other countries.     

Is the Unequal Treatment of Debtors in Natural Person Insolvency Law Justifiable?: A South African Exposition

The South African natural person insolvency system has remained largely creditor‐orientated and excludes many honest but unfortunate debtors from its ambit. This is despite the worldwide trend to accommodate all such debtors. Although the system does provide for three different statutory natural person debt relief procedures, the cumulative effect of these measures' entry requirements results in differentiation on financial grounds. This is as all statutory measures require the debtor to have some form of disposable assets or income available – thereby drawing a distinction between those debtors with and those without assets and or income (the so‐called no income no asset debtors). The main aim of this article is to measure the South African natural person insolvency system against the right to equality in terms of both the South African Constitution and the Promotion of Equality and Prevention of Unfair Discrimination Act. The article may benefit legislatures and policymakers in constitutional jurisdictions that subscribe to the equality principle and that directly or indirectly exclude some debtors from debt relief while providing others therewith. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd.     

Consumer Debt Relief in South Africa—Should the Insolvency System Provide for NINA Debtors? Lessons from New Zealand

South African natural person insolvency law has remained largely creditor‐orientated despite the international trend to assist over‐indebted debtors. Furthermore, although the South African system provides for a number of debt relief procedures, the entry requirements are of such a nature that most debtors are effectively excluded from any form of relief and therefore bound to their desperate situations. The majority of these excluded debtors fall within the no income and no assets (the so‐called No Income No Asset (NINA) debtors) category‐the main feature of this article. In the South African insolvency system, a person can therefore be ‘too poor to go bankrupt’. With reference to international principles and a thorough comparative study of the New Zealand system, the South African system is analysed, and some recommendations are made in order to provide a more accessible, effective and nondiscriminate system with specific focus on the plight of the NINA debtor. This is done by keeping the complex South African debt and poverty situation in mind as it is acknowledged that any reform should take cognisance of the unique socio‐economic and cultural background. It is recognised that providing relief to the NINA category debtors will have an impact on the economy. However, it is submitted that the exclusion of this group will be even more expensive as it creates an obstacle for these debtors to enter the formal sector and economy, thereby discouraging broader economic growth. Copyright © 2013 INSOL International and John Wiley & Sons, Ltd.     

Breakdowns of accountability in the face of natural disasters: The case of Hurricane Katrina

Hurricane Katrina, which struck the Gulf Cost of the United States at the end of August 2005, was one of the most costly and deadly natural disasters ever experienced by the United States. A breach of levees and the subsequent flooding of the city of New Orleans resulted in the displacement of more than 250,000 people. The death toll exceeded 1800 persons and total damages were estimated to exceed $125 billion. The response to the hurricane by city, state and the federal governments has been severely criticized by many commentators. The purpose of this paper is to examine breakdowns in accountability during and after the storm which were manifested by a lack of communication between government officials and a failure on the part of officials to act responsibly on behalf of victims, many of whom were poor, black and elderly. We also examine whether the breakdown in accountability may be traceable to institutional racism embedded in the history and geography of the city of New Orleans. Following McKernan's (2012) argument, the paper reinforces the need to go beyond a “calculative accountability” toward “the potential of accountability to enhance levels of responsibility for the other” (p. 259). It is this moral aspect to the concept of accountability that was sorely lacking in the response of government officials to Hurricane Katrina.     

The Primacy of “Present Fairly” in the Auditor's Report*

In this paper, the author examines the historical evolution in the United States of the use of the term “present fairly” in the auditor's report, as well as the experience and arguments in the United States and Canada regarding the use of a “two‐part” opinion in the report. He then develops an argument for the adoption of a “two‐part” opinion, decoupling “present fairly” from conformity with generally accepted accounting principles, which would place primary emphasis on “present fairly".     

China's Economy Is Not Overtaking America's

Most scholars and pundits, along with the general public, believe that China is an economic juggernaut set to overtake America as the world's dominant power. But the conventional wisdom is wrong. The United States is several times wealthier than China; and since the global financial crisis over a decade ago, the absolute gap between the two nations has been growing by trillions of dollars each year. China's economy is big but inefficient. It produces high output at high costs. Chinese businesses suffer from chronically high production costs, and China's 1.4 billion people generate massive welfare and security burdens. The United States, by contrast, is big and efficient, producing high output at relatively low costs. American workers and businesses are seven times more productive than China's, on average; and with four times fewer people than China, the United States has much lower welfare and security costs. The conventional wisdom about China, besides being wrong, has dangerous policy implications. For starters, it creates the impression that the United States and China are locked in “Thucydides' trap” in which a rising power challenges the ruling hegemon, and the two slide into a major war. This misguided notion, widespread in both countries, is driving a spiral of hostility. Slowing this spiral requires both sides to take a clear‐eyed look at the real balance of power, which is now, and will likely remain, highly skewed in America's favor. A second danger is that an exaggerated sense of China's rise continues to fuel the current trade wars. The United States should aggressively punish unfair Chinese trade practices, but do so through a reformed WTO, regional free trade pacts, and targeted investment restrictions and economic decoupling—not with unilateral tariffs. A third danger is that exaggerated fear of China's rise and America's decline could cause the United States to back off from many of its foreign policy commitments, divesting all obligations to maintaining the global order save those linked to vital national interests. Advocates of an “America First” foreign policy are probably right that the United States could improve its relative position by ditching allies and international institutions and letting the world burn. But one of the benefits of unrivaled wealth and power is that the United States can afford to pursue absolute gains, sacrificing a bit of relative advantage to make the United States and the world better off overall. As the most secure and powerful country in history, the United States can and should do more than ceaselessly struggle for power.     

Bankruptcy and Institutions: Theory and Empirical Evidence from Korea and the United States

Using a simple z-score bankruptcy model, this article explores the relationship between bankruptcy threshold and institutions. The z-score threshold for bankruptcy is found to be higher in countries with stronger institutions. To test this claim, a cross-section data set of 86 Korean firms and 60 US firms from 1991 to 2001, extracted from a panel data set, is used. The empirical finding that the z-score bankruptcy threshold in the United States (which has better quality of institutions than does Korea) is higher than that in Korea is consistent with the prediction of the model. Additionally, having examined bankruptcy laws of the two countries, it is found that filing a petition for bankruptcy is easier and debtors rights are better protected in the United States than in Korea, which suggests that the bankruptcy laws of Korea and the United States may be partially responsible for the difference in the z-score threshold for bankruptcy.     

美国金融科技最新立法监管动态及对我国的启示

金融科技有助于降低交易成本、提高市场效率,但同时也因其“空白型金融创新”的特质给传统金融监管方式带来严峻挑战。美国在金融科技的立法方面,强调“建章立制,立法先行”,创制法律规范具有前瞻性;在监管方面,秉持“负责任的创新”的监管理念,创新监管范式,力求实现金融创新与合法合规之间的动态平衡。我国可合理借鉴美国的立法和监管经验,加强金融科技的顶层设计和立法建设,创制新的专门性立法,构建有利于金融科技发展的监管协调机制,研究以行为监管为导向的监管范式,构建包容性监管制度,探索完善中国式“监管沙箱”机制,最终建构“技术驱动型”的金融监管体系。     

Die niederländische Gesundheitsreform 2006 – Vorbild für eine weitere Reform des Krankenversicherungswesens in Deutschland?

The health sector of many European countries has been subject of a profound process of change for years. Since the federal elections of 2009 a discussion on the direction of the German health insurance system has emerged. In this context, German neighboring countries like Switzerland or the Netherlands are considered due to their changes in health policy for decades. This work deals with the effects of the recent Dutch health care reform. Due to the combination of the two elements “Bürgerversicherung” and “Kopfpauschale”, it serves as a possible model for further reform in the German health system since its introduction in 2006. Special attention was paid to the consolidation of statutory and private insurance in a general citizens insurance in the Netherlands “three-pillar model”. Because of the medium-term time horizon, financial impacts on state and private households and changes in competition between insured individuals, insurers and providers could be analysed. Especially, positive effects in terms of increasing competition and reducing the two-tier health care became apparent.     

Rethinking priority: The dawn of the relative priority rule and the new “best interests of creditors” test in the European Union

This article identifies one aspect of the cross‐class cram‐down from the EU Directive on restructuring and insolvency that has not drawn wide attention to date. In addition to giving EU Member States the option of a “relative priority rule,” the European legislator has introduced a new “best interest of creditors” test, which does not—like in Chapter 11 of the US Bankruptcy Code—use the value that a party could expect in a hypothetical liquidation as a comparator but refers to the “next‐best‐alternative scenario.” First, this article addresses the concepts of the absolute and relative priority rule from the Directive and explores the motives for introducing the relative priority rule. In particular, a demand for more flexibility in restructuring negotiations, the call for an instrument to overcome structural hold‐out positions of preferential (priority) creditors in some Member States, as well as a trend in Europe to break with the “traditional laws of insolvency law” of law and economics seem to have inspired the legislator in drawing up the relative priority rule. This article then deals with the new “best interest” test and examines its interaction with the relative priority rule. It is shown that the concept of combining the new “best interest” test with the relative priority rule is coherent in theory. However, this article remains skeptical as to whether this interaction can succeed in practice, as the new “best interest” test is likely to add another stress point to the negotiations of restructuring plans.     

An Experimental Investigation of Alternative Going‐Concern Reporting Formats: A Canadian Experience*

This study questions whether the current or proposed Canadian standard of disclosing a going‐concern contingency is viewed as equivalent to the standard adopted in the United States by financial statement users. We examined loan officers' perceptions across three different formats ‐ namely, an integrated note with a clean auditor's report (the current Canadian standard), a stand‐alone note with referencing on the face of the balance sheet and income statement (the proposed and now rescinded standard), and a modified auditor's report with an explanatory paragraph in addition to a stand‐alone going concern note (the standard adopted in the United States and other countries). Bank loan officers were selected as the appropriate financial statement users for this study. The results of the test of the hypothesis suggest that once the going‐concern note is fully disclosed in the notes, the style of presentation within the notes (a stand‐alone note versus an integrated note) does not significantly influence the reactions and perceptions of risk if the auditor's report is unmodified (i.e., if no reference is made to a going‐concern contingency). However, when the auditor's report is modified with an explanatory paragraph detailing the uncertainty and referencing the going‐concern note in the footnotes, the format appeared to convey a stronger signal of financial distress to loan officers. These results appear to differ from prior research, which holds that once the information is released in the financial statements, the format has no additional effect. The finding of this study is that the proposed and withdrawn Canadian standard was not perceived differently by the bankers from the present Canadian standard, but the standard adopted in the United States and most other countries was. This makes a strong argument for moving all the way to that standard as opposed to the “halfway” approach of the now rescinded CICA exposure draft. Thus, the public interest in Canada may not be served by adopting a halfway approach.     

The Annuity Puzzle and an Outline of Its Solution

In his seminal 1965 paper, Yaari showed that, assuming actuarially fair annuity prices, uncertain lifetimes, and no bequest motives, utility-maximizing retirees should annuitize all of their wealth on retirement. Nevertheless, the markets for individual immediate life annuities in the United States, the United Kingdom, and several other developed countries have been small relative to other financial investment outlets competing for retirement savings. Researchers have found this situation puzzling, hence the so-called “annuity puzzle.” There are many possible explanations for the annuity puzzle, including “rational” explanations such as adverse selection, bequest motives, and incomplete markets; and “behaviorial” explanations, such as mental accounting, cumulative prospect theory, and mortality salience. We review the literature on the various plausible explanations given for the existence of the annuity puzzle, suggest ways of stimulating the demand for annuities, and suggest a few of the ingredients needed for further development of hybrid annuity products that may provide a solution to the puzzle.     

Governance and Climate Change: A Success Story in Mobilizing Investor Support for Corporate Responses to Climate Change

Until fairly recently, the main approach to getting business to respond to climate change has been top‐down efforts to regulate emissions and enact various forms of “carbon pricing.” The aim of such efforts has been to make businesses “internalize” the costs associated with greenhouse gas (GHG) emissions. Governments are expected to set the environmental protection rules for companies in their respective countries, and markets are expected to adjust to the new regulations and carbon prices. But this classical approach to economic policy does not work when applied to a global “public goods” challenge like trying to limit the extent and effects of climate change. Instead of a top‐down approach, in which economic actors are forced to respond to regulations imposed on them, the Paris climate agreement of 2015 was reached using a bottom‐up approach centered on the concept of Intended Nationally Determined Contributions (INDCs)—along with a process that ended up encouraging the participation of all economic actors, not just governments. The authors provide an account of how the Paris agreement was reached, and why the “Portfolio Decarbonization Coalition” under the auspices of the United Nations is the most important of several private‐sector initiatives that are changing the way corporations operate. Thanks in large part to the PDC, investors can now undertake meaningful corporate governance action on climate change. With GHG emissions from a particular companies’ operations now much easier to measure, objective performance metrics on GHG emissions can now be set by boards and verified by shareholders. And current decarbonized indexes can be used as performance benchmarks for asset managers’ compensation, which can be tied to return outperformance relative to a “decarbonized” index.     

Trade Policies and the Highly Indebted Countries

In the early 1980s, faced with a mounting debt crisis, mosthighly indebted developing countries increased trade barriersto save foreign exchange—but in the last three to fouryears, they have reversed course. Almost all of these countrieshave undergone real devaluations, and many have undertaken significantliberalizations, so much so that some (Bolivia, Costa Rica,Jamaica, Mexico, Morocco, and Uruguay) are less protectionistthan before the debt crisis. But industrial countries have imposed new nontariff barriersagainst imports from highly indebted countries. Canada, Australia,the European Community, and the United States have greatly increasedthe use of countervailing duties and antidumping actions. Thismakes it more difficult for highly indebted countries to payoff their debts, and ultimately rebounds on creditor governmentsand banks.     

Why Don't U.S. Issuers Demand European Fees for IPOs?

We compare fees charged by investment banks for conducting IPOs in the United States and Europe. In recent years, the “7% solution,” as documented by Chen and Ritter (2000) , has become even more prevalent in the United States, and is now the norm for IPOs raising up to $250 million. The same banks dominate both markets, but European IPO fees are roughly three percentage points lower, are much more variable, and have been falling. We review explanations for the gap in spreads and find the evidence consistent with strategic pricing. U.S. issuers could have saved over $1 billion a year by paying European fees.     

自然人破产制度的建立

从法政策角度考量,自然人破产制度可以使债权人获得公平受偿,使债务人获得重生,这是自然人破产制度确立的最重要原因;而信贷消费的迅速发展,是我国确立自然人破产制度的社会基础。我国面临的城乡二元结构、信用体系的不健全只是建立自然人破产时必须予以考虑的法技术问题。在建立自然人破产制度时必须正视城乡二元结构、信用体制缺失等问题,并逐步建立自然人财产申报登记制度,完善信用制度。     

Twenty‐five years of consumer bankruptcy in continental Europe: internalizing negative externalities and humanizing justice in Denmark

This paper explores the problems and processes that led to the birth of consumer bankruptcy in continental Europe, a process that began in Denmark in January 1972 and culminated with the adoption of the Danish consumer debt adjustment act, Gældssaneringslov, on 9 May 1984. While this law is often described in primarily humanitarian terms, in the sense of offering a respite to “hopelessly indebted” individuals, both the motivation for the law and its intended scope were not simply accretions on an already multi‐layered welfare system. Instead, the law was designed primarily as a pragmatic response to economically wasteful collections activities that imposed negative externalities on debtors, creditors, and especially Danish society and state coffers; the law was intended to force creditors to internalize (or eliminate) these externalities with respect to all debtors unable to pay their debts within a reasonable period of 5 years. The paper also examines the growing pains of this new system. The law originally left significant administrative discretion to judges, which produced vast disparities in treatment of cases in different regions of the country. Ultimately, a reform implemented in October 2005 made the system more accessible, more unitary throughout the country, and more humane. The effects of this reform are already visible in statistical observations of the system, though significant regional variations persist. Given the striking coincidence in timing, this paper also offers brief comparative comments on the parallel design—but very different effect—of the most significant reform of the US consumer bankruptcy law, also effective in October 2005. Copyright © 2009 John Wiley & Sons, Ltd.