Dr Joseph Spooner contributes to a major remaking of insolvency law in Sri Lanka

Dr Joseph Spooner contributes to a major remaking of insolvency law in Sri Lanka through the Rescue, Rehabilitation and Insolvency (Corporate and Personal) Act

In the summer of 2026, the Parliament of Sri Lanka enacted the Rescue, Rehabilitation and Insolvency (Corporate and Personal) Act, No. 12 of 2026. From the beginning of work on this law in mid-2023, Dr Joseph Spooner contributed significantly to its development through the provision of technical inputs to the personal and small business (MSME) insolvency components of the legislation, as part of his work with the World Bank Group Finance, Competitiveness and Innovation Global Practice (Insolvency and Debt Resolution).

Insolvency law reform can contribute positively to national economies and societies, facilitating economic growth and recovery, while supporting the effective operation of credit markets. Personal insolvency, in particular, can provide a safety net of last resort for financially troubled households and businesspeople, restoring individuals burdened by unpayable debt to economic productivity and social inclusion, thus reducing the social costs associated with over-indebtedness. The 2026 legislation offers over-indebted individuals a route out of debt previously unavailable under Sri Lankan law, in replacing the outdated and unused Insolvency Ordinance of 1854.

The stated aims of the Sri Lankan Act, contained in its Preamble, include the following:

• To enact a code for the timely, efficient and impartial rescue and rehabilitation of individuals and viable enterprises in financial distress...
• To reduce unnecessary losses of value due to insolvency by encouraging creditors to cooperate in producing outcomes beneficial to the interests of creditors as a whole and the public interest;
• To promote economic activity and to reduce the social costs of insolvency by relieving the honest individual debtor from the weight of oppressive indebtedness, and permit such debtor to start afresh; and
• To encourage entrepreneurship and support the rehabilitation and rescue of viable businesses…

On presenting the Rescue, Recovery and Insolvency (Corporate and Personal) Bill to Parliament, the Minister of Justice, the Hon. Harshana Nanayakkara, said:

‘… this is a landmark piece of legislation that most of the persons in the legal profession, the academia as well as the business community have been awaiting… All economies in the world, both corporate and personal, function on credit. Therefore, efficient management of credit and recoveries are essential to the smooth functioning of an economy. In every economy, there would be situations where people or business entities would be in financial distress or facing debt default. Some of them will result in corporate failures and personal insolvency situations. Therefore, without robust laws to deal with such situations, business and personal financial failures could create chaos in a society. We saw many situations like that in the past, perhaps, due to Cyclone "Ditwah" or COVID-19. In the absence of a robust legal regime for regulation or to deal with financial distress and insolvency situations, there would be disorder, a race to grab assets, it could lead to favouritism and side deals, some people would get their monies advanced while others would not and consequently, confidence in the financial system would erode. And, it is to address those negative impacts that this important piece of legislation is being presented…’

The preparation of draft legislation was a project of the Law Commission of Sri Lanka, with a mandate from the Cabinet of Ministers and support from the World Bank. While the content of the legislation reflects national policy preferences and the context of the Sri Lankan economy and legal system, its development involved significant examination of and reflection on comparative knowledge of insolvency law in countries across the world. As part of the World Bank team, and working closely with a Working Group led by the Sri Lankan Law Commission, Dr Spooner contributed expertise in providing technical inputs to the legislative drafting and in participating in extensive consultation with government, practitioner, industry, judicial, and civil society stakeholders. Dr Spooner now continues to contribute to work on the implementation of the Act.

Dr Spooner’s work on law reform projects around the world builds on his extensive research in personal insolvency, further information on which is available here. Dr Spooner’s status as an international expert in this field was recognised, for example, in his election in 2025 to the International Insolvency Institute (III), a global membership of leading professionals, scholars, and judges invited based on expertise in insolvency.