An insolvent breaches her promises. Does she commit a moral wrong?
How should the society respond to the default? What is the justification
for discharge of debts in bankruptcy? The ethics of bankruptcy seeks
to answer these questions.
We start by charting the development of the institution of bankruptcy.
Traditionally, the debtor has been punished for her impecuniousness.
The penalizing policy is still alive in many countries, although it
has given way to debtor protection in the English-speaking world.
Whether a bankrupt should be punished or exonerated depends, in the
ethical sense, on the moral wrongness of her actions and on the consequences
of reprisals. The effects of laws may be estimated empirically, but
a moral inquiry is needed to decide whether an insolvent's breach
of promise is an evil: we have to find out why promises ought to be
This inquiry contrasts and compares the Humean doctrine of promises
as useful conventions with the Kantian view of autonomous agency constituting
promissory obligations. Kant's ideas are disentangled from some of
his more dubious metaphysics, while the notion of autonomy is preserved
and used to support the normative thesis of the ethics of bankruptcy.
The revised Kantianism yields a theory of promissory autonomy, which
overcomes some of the difficulties afflicting Humean conventions.
According to promissory autonomy, my promise is a demonstration of
my autonomous will which shapes the future through the imposition
and observance of moral obligations: it is an expression of a free
will restricting its own freedom.
After defining the source of moral obligations in promising, we look
at the responsibility of promisors who go broke. In addition to promissory
autonomy, ethical concerns raised by forgiveness, utilitarianism,
and distributive justice are discussed. The moral aspects of insolvents'
contractual, fiduciary, and tortious liability are studied, and their
criminal liability is reviewed in the light of fraud, recklessness,
negligence, and deterrence.
An account of commercial credit completes the evaluation of bankrupts'
wrongdoing. The outcome is that an honest insolvent has done no wrong,
and that punitive bankruptcy laws cause unnecessary harm. Discharge
of debts is justified as a moral right because it re-establishes the
bankrupt's status as an autonomous person, and it is justified as
a social practice because its consequences are beneficial.
Next, the ethics of bankruptcy assesses law reforms in the United
Kingdom and Australia, and the efforts to convene an internationally
enforceable bankruptcy. It appears that debtor protection has received
less attention than would be ethically appropriate. We also take on
failed high-flyers, and the finding is that their lifestyle and leverage
do not make their dealings unscrupulous.
The final section examines corporate moral personhood. A new philosophy
of the corporation as a nexus of contracts is suggested. Moral responsibility
for corporate actions is accounted for with an emphasis on the autonomous
agency, leading to a justification for the limited liability corporation
in line with the principles applied to insolvent natural persons.