Plea for a different treatment of bankruptcy

Specialist articles by Alexander Eichner,, 12.11.2014

He who files for bankruptcy in this country is branded a loser and has to battle against prejudice and ridicule. Why is that, asks Transition Manager Alexander Eichner.

In Germany, he who goes bankrupt, for whatever reason, runs around stigmatized as bad, a loser and even criminal, battling against prejudice, ridicule and the public prosecutor. In the absence of any malicious intent, the question is legitimate: why exactly?

It is not always the fault of the company manager

Naturally it is also often due to losing grip on reality or distorted perceptions, which cause a company to go down the drain. To always look for the causes in the incompetence of management is often too simple. Personal misfortune can also influence the judgment and motivation of a general manager. And the chain of unfortunate circumstances often given as a reason, is indeed a reality in the oh so thoroughly calculated world of business. Perhaps just a change in management at the company’s bank, leading to a new credit strategy and subsequently to the direct collapse of the company, as commodity loans are no longer being granted.

Learn from mistakes and make a fresh start

For this reason I much prefer the common formulation in England for anyone filing for insolvency, “He was rather unlucky, he will make it again!” That is fair and gives a person a second chance. The message: if the company manager made mistakes, he will learn from them, and will not do the same a second time. As a matter of fact there are number of well-known entrepreneurs, who, after going bust once, took a second shot, analyzed their mistakes and – like stock exchange veteran Andrè Kostolany – became a legend.

Insolvency as a stepping stone to a second future

Insolvency does not have to be the last act in the life of an enterprise, even if the management responsible for the collapse on filing for bankruptcy usually vacates their position in resignation. Insolvency does not necessarily mean the end, but can, as part of a concept, become a stepping stone to a second future. Concept insolvency therefore begins mentally at the point when insolvency becomes evident, because there is no white knight in sight and the protective measures procedure has been rejected.

Concept insolvency focuses on the new start

Concept insolvency therefore becomes a module in a new business plan and, just like other milestones, simply has to be worked through. Concept insolvency is by no means meant to remove the moral obligation of the company towards its creditors. However as a new start is involved and not the winding up of the company, there are far more possibilities to find constructive solutions, taking creditors money especially into consideration from the very beginning.

Risky Insolvency administrators

However, one of the most important people for this concept poses at the same time the greatest risk: the insolvency administrator. This manager is appointed, he cannot be selected in a competitive process based on qualification and rewarded based on success. Lawyers become insolvency administrators just as German teachers become finance ministers. The insolvency administrator can undermine an otherwise largely controllable concept insolvency process. For instance, if he is not sufficiently creative and constructive. However, the stronger the company manager’s position with his creditors is, the easier it will be for him to manoeuvre the situation in his own direction.

The moral obligation towards the creditor remains

Also in concept insolvency – as in a legal insolvency situation - the moral obligation towards the creditor should not be removed. A new start, which takes into consideration from the very beginning the creditors’ funds invested, is a genuine option to be constructive. However the mistakes, which led to insolvency, should not be repeated. In short: a proactive approach to the management task “insolvency” can achieve good results. Because he who does not fight, has already lost!

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