Economists advocate for extended intellectual property safeguards
In the face of persistent economic challenges caused by the COVID-19 pandemic, leading economists are advocating for a balanced approach to insolvency protection for businesses. The UK Insolvency Service is emphasizing the need for modernizing insolvency frameworks and improving support mechanisms through reforms aimed at making the regime fit for current business realities.
In a statement made to Handelsblatt, Gabriel Felbermayr, president of the Kiel Institute for the World Economy (IfW), opposed further suspension of the insolvency application requirement. Instead, he suggested generous advance payments and transparent rules as initial steps to address bureaucratic issues with the corona aid. Felbermayr also emphasized the importance of business partners' creditworthiness and advocated for eliminating bureaucratic problems with the corona aid.
Clemens Fuest, from the Munich Ifo Institute, considered extending the suspension of the insolvency application requirement as the lesser evil in the current economic situation. Henning Vöpel, director of the Hamburg Institute of International Economics, has supported an initiative by Hesse in the Bundesrat for a corresponding extension of insolvency protection. Vöpel also suggested that if the corona aid is not liquidity-effective in time, insolvency protection should still be ensured by the second instrument (longer insolvency protection).
Lars Feld, head of the Council of Economic Experts, has shown openness to a longer insolvency protection. However, all these experts agree that the difficulties in distributing aid should not delay the resumption of the core element of the market economy, which is the insolvency application requirement.
The currently discussed suspension of the insolvency application requirement for over-indebtedness until the end of March 2021 aims to achieve greater consistency with lockdown and corresponding state compensation payments in the first quarter of 2021. This measure does not provide any new information about the suspension of the insolvency application requirement only concerning the insolvency ground of over-indebtedness and not payment incapacity.
A consistent set of instruments is important for the credibility and effectiveness of crisis policy, according to Henning Vöpel. The experts recognize that insolvencies remain high, influenced by pandemic after-effects combined with economic headwinds like rising interest rates and supply disruptions. They generally see a need to balance continued support for genuinely struggling businesses while preventing abuse of protections and ensuring accountability.
Bankruptcy and insolvency remain important tools for businesses overwhelmed by pandemic debts, but must be balanced with measures to prevent exploitation of protections. The UK Insolvency Service continues to emphasize modernizing insolvency frameworks and improving support mechanisms through reforms aimed at making the regime fit for current business realities, including those stemming from the pandemic. This includes enhancing transparency, enforcement against financial wrongdoing, and improving processes for insolvent businesses and individuals.
In summary, expert opinion and government policy suggest cautious extension or reform of insolvency protections is necessary—support measures should continue to aid genuine cases, but with stronger safeguards and modernized insolvency procedures to address ongoing economic challenges and prevent abuse.
In light of the ongoing economic crisis due to COVID-19, some experts such as Gabriel Felbermayr and Lars Feld are advocating for measures like generous advance payments and transparent rules to address bureaucratic issues with the corona aid, rather than a complete suspension of the insolvency application requirement. Meanwhile, others like Henning Vöpel support an extension of insolvency protection, but emphasize the importance of implementing stronger safeguards to prevent abuse. Regarding finance, the UK Insolvency Service is advocating for modernizing insolvency frameworks to better support businesses amidst the pandemic.
