When a consumer defaults on debt, their credit rating is hurt, and their ability to borrow funds in the future is greatly reduced. But when a corporation defaults on debt, it doesn't necessarily prevent them from turning around and borrowing more money, sometimes from the very lenders who just got shorted. This is because corporation's credit ratings (bond ratings) are based on their ability to pay back funds more than based on past actions. I'm guessing the logic is that corporations are rational actors, and defaults are caused by market actions, not irresponsible behavior, unlike consumers. So if a corporation defaults, and bond holders take a loss, the company may now be on sound financial footing, so bond holders will turn around and begin lending to the reorganized company immediately. I know, simplified explanation of a complex situation, but it's undeniably true that corporate default is less stigmatized than consumer bankruptcy in America. Going bankrupt in America can even effect your ability to find work.
I'm guessing the difference in treatment of personal and corporate default is also true in Israel, based on legislation being proposed to remedy this. More after the squiggly.
Financial institutions managing long-term savings will be prohibited from lending to companies controlled by anybody who defaulted on debt any time in the preceding ten years, under a new "Financial Turpitude" bill that will be presented to the Knesset today.Imagine that, that corporations, and more importantly their managers, will have to face negative repercussions after a default. More interestingly:
Any dividends distributed by the company delivering the haircut, and any other companies the controlling shareholder owns, will be forfeit. The money will be used to repay the bondholders.So, if a company like Bain buys a controlling interest in another company, runs it into the ground, pillaging anything of value, and leaves the company bankrupt and defaulting on debts, their parent company can't pay a dividend or take a profit until they make whole the bond holders of the subsidiary.
For instance, in September 2009 a debt settlement was reached at Zim Integrated Shipping Services, which belongs to the Ofer family. The company put off repaying money from 2012 to 2016 in exchange for some debt conversion into stock and higher interest. Yet in 2010 Zim's parent company, Israel Corporation, paid $70 million in dividends to shareholders, and another of the group companies, Israel Chemicals, paid $680 million in dividends.
I'm not a financial expert, nor a lawyer, but I do know something about running up debt. As a person, I can't divide up my actions, and create legal fictions that my left hand isn't responsible for the actions of my right hand. Corporations and corporate managers shouldn't be able to either.