Main Article Content


A broad diversity of interests could be affected by the bankruptcy of companies. If a company is bankrupt, aquestion on whether the main goal of bankruptcy rules should be to protect the interests of creditors or it should create a balance between the interests of creditors as well as non-creditors, e.g., employees, suppliers, and third parties. A number of theories on the policy underpinning bankruptcy law exist. These theories can be, in general, categorized into two main groups: i) the first theory is of the view that the main objective of bankruptcy law should be merely to maximize the collective returns to creditors, ii) the second theory is to create a balance between the rules protecting creditors versus others, as bankruptcy creates a community of parties who are affected by the debtor’s financial distress beside creditors such as employees, customers, supplier, and local authority. The purpose of this article is to analyze, compare, and evaluate the theories underpinning bankruptcy law.


Bankruptcy/Insolvency Law Creditors’ Bargain Theory Communitarian Theory Multiple Values Theory Explicit Value Theory

Article Details


  1. Aghion, P., O. Hart, and J. Moore. 1992. The economics of bankruptcy reform. Journal of Law, Economics and Organization 8, pp. 523-546.
  2. Baird, D. and T. Jackson. 1984. Corporate reorganization and the treatment of diverse ownership interests: a comment on adequate protection of secured creditors in bankruptcy’, University of Chicago Law Review 51, pp. 97-130.
  3. Baird, D. 1987. Loss distribution, forum shopping, and bankruptcy: a reply to Warren. 54 University of Chicago Law Review 54, pp. 815-834.
  4. Baird, D. 1987a. World without bankruptcy. Law and Contemporary Problems 50, pp. 173-193.
  5. Baird, D. and T. Jackson. 1988. Bargaining after the fall and the contours of the absolute priority rule. University of Chicago Law Review 55, pp. 738-789.
  6. Bruckner, M. 2013. The virtue in bankruptcy. Loyola University Chicago Law Journal 45, pp. 233-286.
  7. Carlson, D.G. 1987. Philosophy in bankruptcy. Modern Law Review 85, pp. 1341-1389.
  8. Cudd, A. 2013. Justice, rights, and bailouts: a contractarian approach to corporate bailout. Georgetown Journal of Law and Public Policy 11, pp. 283-300.
  9. Deakin, S., Mollica, V. and Sarkar, P. 2017. Varieties of creditor protection: insolvency law reform and credit expansion in developed market economies. Socio Economic Review 15, pp. 359-384.
  10. Estrin, S., Mickiewicz, T. and Rebmann, A. 2017. Prospect theory and the effects of bankruptcy laws on entrepreneurial aspirations. Small Business Economics 48, pp. 977-997.
  11. Finch, V. 1997. The measures of bankruptcy. Oxford Journal Legal Studies 17, pp. 227-251.
  12. Finch, V. 2009. Corporate insolvency law: perspectives and principles. Cambridge University Press, Cambridge.
  13. Gauthier, D. 1986. Morals by agreement. Oxford University Press, Oxford.
  14. Goode, R. 2011. Principles of corporate insolvency law. Sweet and Maxwell, London.
  15. Gross, K. 1994. Taking community interests into account in bankruptcy. Washington University Law Quarterly 72, pp. 1031-1048.
  16. Gross, K. 1999. Failure and forgiveness: rebalancing the bankruptcy system. Yale University Press, New Haven.
  17. Jackson, T. 1986. The logic and limits of bankruptcy law. Harvard University Press, Cambridge.
  18. Jackson, T. 1991. Bankruptcy, non-bankruptcy entitlement, and the creditors’ bargain. Yale Law Journal 91, pp. 857-907.
  19. Jackson, T. and R. Scott. 1989. On the nature of bankruptcy: an essay on bankruptcy sharing and the creditors’ bargain. Virginia Law Review 75, pp. 155-204.
  20. Keay, A. 2000. Insolvency law: a matter of public interest. Northern Ireland Legal Quarterly 51, pp. 509-534. Keay, A. and P. Walton. 2003. Insolvency law: corporate and personal. Longman, Harlow.
  21. Klee, K. 1979. All you ever wanted to know about cram down under the new bankruptcy code. American Bankruptcy Law Journal 53, pp. 133-171.
  22. Korobkin, D. 1991. Rehabilitating values: a jurisprudence of bankruptcy. Columbia Law Review 91, pp. 717- 789.
  23. Korobkin, D. 1993. Contractarianism and the normative foundations of bankruptcy law. Texas Law Review 71, pp. 541-630.
  24. McCormack, G. 2008. Corporate rescue law - an Anglo-American perspective. Edward Elgar Publishing, Cheltenham.
  25. Milman, D. 2003. Winding up of companies: recent litigation and legislative development. Insolvency Lawyer 4, 157-161.
  26. Mokal, R. 2003. On fairness and efficiency. Modern Law Review 66, pp. 452-467.
  27. Mokal, R. 2005. Corporate insolvency law: theory and application. Oxford University Press, Oxford.
  28. Newborn, M. 1994. The new Rawlsian theory of bankruptcy ethics. Cardozo Law Review 16, 111-146.
  29. O’Dea, G. 2009. Craving a cram-down: why English insolvency law needs reforming. Butterworths Journal of International Banking and Financial Law 24, pp. 583-589.
  30. Paterson, S. 2016. Rethinking corporate bankruptcy theory in the twenty-first century. Oxford Journal of Legal Studies 36, pp. 697-723.
  31. Rawls, J. 1980. Kantian constructivism in moral theory. Journal of Philosophy 77, pp. 515-572.
  32. Schermer, B. 1994. Response to Professor Gross: taking the interests of the community into account in bankruptcy. Washington University Law Quarterly 72, pp. 1049-1054.
  33. Stokes, M. 1986. Company law and legal theory. In W. Twining (ed.). Legal theory and common law. pp. 155183. Blackwell, Oxford.
  34. Symes, C. 2008. Statutory priorities in corporate insolvency law: an analysis of preferred creditor status. Ashgate, Aldershot.
  35. Veach, J. 1997. On considering the public interest in bankruptcy: looking to the railroad for answers. Indiana Law Journal 72, pp. 1211-1230.
  36. Walton, P. 2011. When is pre-packaged administration appropriate? A theoretical consideration. Nottingham Law Journal 20, pp. 1-13.
  37. Warren, E. 1987. Bankruptcy policy. University of Chicago Law Review 54, pp. 755-814.
  38. Warren, E. 1993. Bankruptcy policymaking in an imperfect. Modern Law Review 92, pp. 336-387.
  39. Westbrook, J.L. 1989. A functional analysis of executory contracts. Minnesota Law Review, 47, pp. 227-338.