Capitalism is a barbaric and unforgiving system, especially toward the working people and the planet on whose shoulders it stands—exploiting human beings and nature alike. Yet, with the help of the state and government, it designs policies and processes that help to socialise the crisis, forgiving corporations when they fail to repay their borrowings due to insolvency or bankruptcy. Insolvency is a financial situation which triggers legal process of discharging debts that cannot be repaid by the debtor. From Lehman Brothers in the US during the 2008 crisis, to Mr Subhash Chandra’s Rs 22,006-crore debt being written down to just Rs 6.5 crore in the personal insolvency proceedings recently concluded in India in 2026—and countless other such examples across the world—all reveal a deeper economic arrangement. This arrangement takes the form of insolvency laws and policies tailored to the needs of crony capitalists and investors, who socialise their risks while privatising public resources and the personal savings of working people, all with the unwavering support of states and governments across the globe. Capitalism and bedbugs follow the same functional logic of parasites and its ideological values: surviving by sucking others’ blood. However, bed bugs are often better than the managerial crooks of crony capitalism—a system where politicians, corporates, bankers, and legal practitioners ensure that the state and government provide security to the private capitalist class without any form of risk.
Global insolvency trends show that more corporations and businesses are following the secure path of insolvency as a method of escaping with public money. States, governments, and their tribunals tend to approve these insolvencies. It looks as if failed industrialists, business owners, and investors are being rewarded by governments—almost like an insurance policy for business failures. But when common people fail to repay their small loans, they are harassed by financial institutions with legal threats and, often, physical threats. For the rich, however, there is always the path of insolvency to follow, where governments and banks simply write off their loans based on political, professional and personal networks. It is argued that a robust insolvency ecosystem—based on quick insolvency processes such as early settlements and out-of-court settlements—helps build business resilience, market maturity, consumer confidence, and stronger value-preserving recoveries, while also creating conditions for a positive business and investment trajectory. These claims lack any empirical evidence. The so-called case studies lack facts and figures to justify these fraudulent claims.
Historically, various societies dealt with insolvencies in different ways, but most of the time, bankrupts were branded as social and economic evils and as crooks. Bankruptcy laws were historically designed to provide a legal framework for debt recovery. Practices ranged from ‘debt slavery’ in Greece to humiliation and punishment by imprisonment and death, which were enforced across Europe and other parts of the world. The Romans, English, and French imposed the death sentence on bankrupts. However, the approach to bankruptcy has shifted over time—from punishment and retribution to recovery—allowing the debtor time and space to repay over time. Most religions advocate forgiving the debtor, which contributed to the growth of the Jubilee Debt Relief campaign for indebted countries. Similarly, insolvency laws were designed to offer debt relief to individuals and businesses who failed due to circumstances beyond their abilities and control.
The Statute of Bankrupts, or Bankruptcy Act 1542, in England is the first legislation which deals with insolvency and argues in its preamble that:
“where divers and sundry persons craftily obtaining into their hands great substance of other men’s goods do suddenly flee to parts unknown or keep their houses, not minding to pay or restore to any their creditors their debts and duties, but at their own will and pleasure consume the substance obtained by credit of other men, for their own pleasure and delicate living, against all reason, equity and good conscience … the Lord Chancellor … shall have power and authority by virtue of this Act to take … imprisonment of their bodies or otherwise, as also with their [real and personal property however held] and to make sale of said [real and personal property however held] for true satisfaction and payment of the said creditors, that is to say; to every of the said creditors a portion, rate and rate like, according to the quantity of their debt.”
In this way, the 1542 Act denounced the debtors who fraudulently obtained goods and services on credit, escaped from repayment, and squandered the wealth on personal pleasure—while granting the Lord Chancellor the power to imprison the debtor, seize their property, and distribute the proceeds proportionally among creditors.
However, this very essence of the 1542 Act was diluted over the years, as individual debts and corporate, business, and investment debts were treated differently with the rise, expansion, and consolidation of capitalism. In the name of innovation in the field of law, banking and finance, individual debtors continue to face the wrath of the law, whereas well-networked corporates and businesses escape their debts in various ways across the world with the help of modern bankruptcy laws and their legal processes. These have created corporate insolvency regimes with the support of the state and government—regimes that are fully concomitant with the interests of crony capitalism. It looks as if governments create policy and legal loopholes for the corporates to escape from their debt. Individual debtors continue to suffer from personal stress, legal threats, and social stigma of bankruptcy, whereas corporates, bankers, and businesses consider various forms of debt relief a strategic success. Such an insolvency regime socialises risk and provides security to capitalist corporates.
Philosophically, from the economic realist Adam Smith to the utopian socialist Charles Fourier and the postmodern philosopher Michel Foucault, all detested insolvency in its various forms. Charles Fourier, in his book The Theory of Universal Unity, argued that insolvency is a reckless business practice which creates a ‘class of parasitic and unproductive agents’. Adam Smith, in his treatise An Inquiry into the Nature and Causes of the Wealth of Nations, called for both states and individuals to recognise that “a fair, open, and avowed bankruptcy is always the measure which is both least dishonourable to the debtor and least hurtful to the creditor“. These moralities, however, are alien to the capitalist system, for as Fourier observed, “bankruptcy is the only social crime that is epidemic, and that necessarily makes the reliable man imitate the rogue“. This dynamic is central to contemporary crony capitalism, which uses insolvency as an honourable business strategy to escape from massive debts, while common people continue to suffer under their debt burden.
In Capital, Vol. III, Part V, Chapter 27, Karl Marx argues that the credit system incentivises capitalist production and exploits ‘the labour of others, to the purest and most colossal form of gambling and swindling‘—a process that produces crises within credit circulation. Such a framework of crony capitalism and its criminal system where insolvency laws work as a purification ceremony for failed businesses, bankers, and corporates. Such a system only promotes crime and criminals—both in the financial world and in society at large. Insolvency not only operates as a form of socialist relief for the capitalist classes but also accelerates conditions of exploitation, inequality, and hegemonic hierarchy in society—where radical social, political and economic change is abandoned in favour of business and market stability, all to ensure profit accumulation and the survival of the capitalist system.
Insolvency is itself a systemic loophole designed for the survival of capital at the cost of people. Insolvencies have been transformed into legal regimes of capitalist accumulation. The insolvency laws across the world need radical reforms to protect people and their savings held in banks and insurance companies. The current insolvency laws promote the daytime robbery of people’s money—gambling with it in speculative financial markets or siphoning it off to subsidiaries under the guise of internal borrowings and lending, all within the frameworks of crony capitalism supported by states and governments. This is no longer sustainable, as it destroys people’s trust upon which economic systems are built.
The views expressed in this article are the author’s own and do not necessarily reflect (North London News) editorial policy.
