Beautifying bankruptcy

Heavy weather for small businesses

IN MEDIEVAL Italy, when a merchant did not pay his debts, the bench at which he conducted business was smashed to force him to stop trading. The word “bankrupt” derives from banco rotto, meaning “broken bench”. Italy’s contemporary bankruptcy laws are less violent (though until 2006 debtors lost their right to vote, and had their mail read by liquidators). But the system is painfully slow, and usually ends in liquidation rather than restructuring.

Italy’s justice ministry has appointed a commission to come up with plans for a comprehensive overhaul. It is due to report in December. In the meantime, the government last week introduced an emergency decree aimed at unblocking a backlog of bad loans. The hope is that this would allow banks to lend to more deserving companies instead and so boost the economy, which after three years of recession grew by 0.3% in the first quarter.

Italy’s slow and inefficient civil-justice system is one of the biggest constraints on growth and investment. The World Bank’s “Doing Business” report ranks Italy...Continue reading