Review of Austrian Economics, 13: 121–146 (2000)
2000 Kluwer Academic Publishers
Bankruptcy Reform in Russia: The Case
for Creditor Rights in Russia
LAURENCE S. MOSS email@example.com
Babson College, Babson Park, Massachusetts, 02457, USA
Abstract. Russia at the dawn of the 21st century is experiencing a collapsing economy. In a world where healthy
economies create and maintain capital, it is critically important that all efforts be made to assure all creditors and
especially private direct investors that in the event of debtor-insolvency their business interests are protected. The
role of bankruptcy law under a regime of what I call “creditor rights” is limited. The court system can be used to
avoid a “creditors’s race” to grab assets. Whenever the “going concern” value of a ﬁrm is greater than the sum of
the assets sold separately a case can be made for a bankruptcy procedure as a way of protecting creditor rights.
This paper examines the historical origins of the “creditor rights tradition” and advocates such a regime for modern
Russia. This paper holds that especially with respect to Russia, we would do well to heed John Stuart Mill’s advice
and support reforms that favor creditors and protect the value of their rights. Those insolvent ﬁrms owned and
managed by political oligarchs should be cut down, dismembered, and the assets they command transferred to
new and more imaginative and solvent groups of managers.
JEL Classiﬁcation: K22, G33
“Every grant of credit is a speculative entrepreneurial venture, the success or failure
of which is uncertain. The lender is always faced with the possibility that [it] may
lose a part or the whole of the principal lent” (Ludwig von Mises 1963  Human
Action p. 539).
“...it is additional capital accumulation alone that brings about technological im-
provement, rising wage rates, and a higher standard of living” (Ludwig von Mises
1963  Human Action p. 851).
What is worse than a ﬁnancial crisis in which the government has defaulted on its promises
to pay its debt? What is worse than a ﬁnancial crisis in which a currency falls by more
than 400% against the currencies of its major trading partners? What is worse than a panic
An earlier version of this paper was presented at a conference entitled “Transition in Historical Perspective:
What Can Be Learned From the History of Economics?” sponsored by both Jagiellonian University and St. John’s
University and held at the Cracow University of Economics, September 17–20, 1998. This revised version has
been prepared for presentation at the International Society for Intercommunication of New Ideas (ISINI) meeting
in Mexico City, August 18–21, 1999.