An Assessment of Various Theoretical Approaches to Bankruptcy Law

A broad diversity of interests could be affected by the bankruptcy of companies. If a company is bankrupt, a question 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.