WHY GO BANKRUPT?

Auckland Star, Volume LXIX, Issue 221, 19 September 1938, Page 5

WHY GO BANKRUPT?

ACCOUNTANT'S COMMENT.

"GOLDEN RULE IS A REALITY?'

"As the benefits to be derived by the debtor and his creditors are so much greater, generally speaking, when conducted outside the Bankruptcy Court, it is interesting to consider why so many estates were made bankrupt," comments Mr. G. W. Butterell, an Australian accountant in a review of bankruptcies in Australia in "The Chartered Accountant"

'Usually it is found that bankruptcy proceedings are instituted either where a debtor's affairs have become so hopelessly involved that no reasonable dividend may be exacted, or where it is suspected that the debtor is not disclosing all the assets of which he is possessed," he proceeds.

"In the first place, with the public accountancy profession at such a high peak and with bookkeeping knowledge so widely available, it would appear that a great number of these estates should and could have been brought to the notice of the creditors before the creditors' equity had been lost. Here the commercial community can assist by asking for periodical statements of account, balance sheets, and income tax returns, and where this information is refused, suspicion of the accounts should be immediately aroused. Unfortunately, however, " self-preservation beins the first law of life, a creditor, having obtained _the necesary information regarding the debtor's affairs, oft times proceeds to compromise with the debtor in order to have his account liquidated, even to the extent of omitting to disclose his knowledge of the deMor's affairs to other creditors

"Although such a creditor obtains a temporary advantage, he himself eventually suffers by some other creditor adopting the same principle. So the vicious circle ensues. A debtor cannot pay his account ou its due date, the creditor then stops supplies, and the debtor begins to buy elsewhere. The creditor then sues for his money and is paid with the money received from the sale of goods which had been bought elsewhere.

"The golden rule of 'do unto others as you would they should do unto you,' is not some theoretical dream of the far distant future, but a practical reality necessary in the commercial community of to-day, if the long list of sequestration orders is to be in any way curtailed."