European Business Organization Law Review

, Volume 19, Issue 3, pp 615–647 | Cite as

Leaving the Shadows of US Bankruptcy Law: A Proposal to Divide the Realms of Insolvency and Restructuring Law

  • Stephan Madaus


Insolvency law used to be a set of rules that govern the way a debtor is treated once he became insolvent and stopped trading. Certain mechanisms respond to this incident in order to safeguard a fair treatment of all creditors and other stakeholders with the aim of minimizing the damage. Modern insolvency laws do more. They have been endowed with tools that shall allow for a restructuring of the business of the failing debtor, often combining the common tools of insolvency law, e.g. a collective stay, with new tools to facilitate a restructuring agreement. But why wait until a debtor is insolvent? The idea of early redress to a business failure has led to a number of legislative pre-insolvency initiatives that make such tools available to debtors that are not yet insolvent. The result is a mixture of insolvency and restructuring law that has grown guided by practical needs rather than doctrinal approaches. In this paper, a doctrinal approach is proposed that offers a clear distinction between insolvency and restructuring law. Based on the description of the debt cancellation effect as the common function of all insolvency and restructuring proceedings, the different mechanisms that both types of procedures use lead to a clear categorization of insolvency and restructuring proceedings and their governing law and principles.


Insolvency Restructuring Common pool Debt Debt cancellation Hardship Anticommons Contractual approach Contract Workout Judicial assistance 


  1. Adler BE (2010) A reassessment of bankruptcy reorganization after Chrysler and General Motors. ABI Law Rev 18:305–318Google Scholar
  2. Andreoni J (1988) Why we free ride? Strategies and learning in public goods experiments. J Public Econ 37:291–304CrossRefGoogle Scholar
  3. Baird DG (1986) The uneasy case for corporate reorganizations. J Leg Stud 15:127–147CrossRefGoogle Scholar
  4. Baird DG (2017) Priority matters: absolute priority, relative priority, and the costs of bankruptcy. Univ Pa Law Rev 165:785–829Google Scholar
  5. Baird DG, Jackson TH (1984) Corporate reorganizations and the treatment of diverse ownership interests: a comment on adequate protection of secured creditors in bankruptcy. Univ Chi Law Rev 51:97–130CrossRefGoogle Scholar
  6. Balz M (2017) Insolvency proceedings and preventive frameworks. In: Ebke WF, Seagon C, Blatz M (eds) Unternehmensrestrukturierung im Umbruch?!. Nomos, Baden-Baden, pp 71–98CrossRefGoogle Scholar
  7. Burdette D, Omar P (2017) Why rescue? A critical analysis of the current approach to corporate rescue. In: Adriaanse J, van der Rest J-P (eds) Turnaround management and bankruptcy. Routledge, New York, pp 221–237Google Scholar
  8. Busche J (1999) Privatautonomie und Kontrahierungszwang. Mohr Siebeck, TübingenGoogle Scholar
  9. Carpus Carcea M, Ciriaci D, Lorenzani D, Pontuch P, Cuerpo C (2015) The economic impact of rescue and recovery frameworks in the EU. European Commission’s Discussion Paper 4, September 2015.
  10. Casey AJ (2016) Bankruptcy’s endowment effect. Emory Bankruptcy Dev J 33:141–170Google Scholar
  11. Chung G (2017) A comparative analysis of the frustration rule: possibility of reconciliation between Hong Kong-English ‘hands-off approach’ and German ‘Interventionist Mechanism’. Eur Rev Priv Law 25:109–142Google Scholar
  12. Clemens GB (2008) Schuldenlast und Schuldenwert, Kreditnetzwerke in der europäischen Geschichte 1300–1900. Kliomedia, TrierGoogle Scholar
  13. Couwenberg O, Lubben SJ (2015) Essential corporate bankruptcy law. Eur Bus Organ Law Rev 16:39–61Google Scholar
  14. Crystal M, Mokal RJ (2006) The valuation of distressed companies: a conceptual frame-work, part II. Int Corp Rescue 3:123–131Google Scholar
  15. De Ruysscher D (2017) Business rescue, turnaround management, and the legal regime of default and insolvency in western history (late Middle Ages to present day). In: Adriaanse J, van der Rest J-P (eds) Turnaround management and bankruptcy. Routledge, New York, pp 22–42Google Scholar
  16. De Weijs R (2013) Too big to fail as a game of chicken with the state: what insolvency law theory has to say about TBTF and vice versa. Eur Bus Organ Law Rev 14:201–224CrossRefGoogle Scholar
  17. Eidenmüller H (1999) Unternehmenssanierung zwischen Markt und Gesetz: Mechanismen der Unternehmensreorganisation und Kooperationspflichten im Reorganisationsrecht. Verlag Otto Schmidt, CologneGoogle Scholar
  18. Eidenmüller H (2005) Verfahrenskoordination bei Konzerninsolvenzen. ZHR 169:528–569Google Scholar
  19. Eidenmüller H (2016) What is an insolvency proceeding? ECGI Working Paper no 335/2016, December 2016. Accessed 25 Apr 2018
  20. Fennel LA (2009) Commons, anticommons, semicommons. John M Olin Program in Law and Economics Working Paper no 457. Accessed 25 Apr 2018
  21. Finch V (2012) Corporate rescue: a game of three halves. Leg Stud 32:302–324CrossRefGoogle Scholar
  22. Fischbacher U, Gächter S, Fehr E (2001) Are people conditionally cooperative? Evidence from a public goods experiment. Econ Lett 71:397–404CrossRefGoogle Scholar
  23. Flessner A (1994) Philosophies of business bankruptcy law: an international overview. In: Ziegel JS (ed) Current developments in international and comparative corporate insolvency law. Clarendon Press, Oxford, pp 15–29Google Scholar
  24. Flessner A (2010) Insolvenzverfahren ohne Insolvenz? Vorteile und Nachteile eines vorinsolvenzlichen Reorganisationsverfahrens nach französischem Vorbild. KTS 71:127–147Google Scholar
  25. Garrido JM (2012) Out-of-court debt restructuring. World Bank Study 2012. Accessed 25 Apr 2018
  26. Garrido JM (2013) The role of personal insolvency law in economic development: an introduction to the World Bank report on the treatment of the insolvency of natural persons. World Bank Leg Rev 5:111–126. CrossRefGoogle Scholar
  27. Goode R (2011) Principles of corporate insolvency law, 4th edn. Sweet & Maxwell, LondonGoogle Scholar
  28. Gottwald P (2010) § 63. In: Rosenberg L, Schwab KH, Gottwald P (eds) Zivilprozessrecht, 17th edn. Beck, MunichGoogle Scholar
  29. Graeber D (2011) Debt—the first 5000 years. Melville House, LondonGoogle Scholar
  30. Gunnthorsdottir A, Houser D, McCabe K (2007) Disposition, history and contributions in public goods experiments. J Econ Behav Organ 62:304–315CrossRefGoogle Scholar
  31. Hardin G (1968) The tragedy of the commons. Science 162:1243–1248CrossRefGoogle Scholar
  32. Hart OD (1988) Incomplete contracts and the theory of the firm. J Law Econ Organ 4:119–139Google Scholar
  33. Hart O, Moore J (1990) Property rights and the nature of the firm. J Political Econ 98:1119–1158. CrossRefGoogle Scholar
  34. Häsemeyer L (2007) Insolvenzrecht, 4th edn. Carl Heymanns Verlag, CologneGoogle Scholar
  35. Hausch D, Ramachandran S (2009) Systemic financial distress and auction-based bankruptcy reorganization. Int Rev Econ Financ 18:366–381. CrossRefGoogle Scholar
  36. Heller MA (1998) The tragedy of anticommons: property in the transition from Marx to Markets. Harv Law Rev 111:621–688CrossRefGoogle Scholar
  37. Hess B (2013) Hybride Sanierungsinstrumente zwischen der Europäischen Insolvenzverordnung und der Verordnung. In: Bruns A et al (eds) Internationales, europäisches und ausländisches Recht, Festschrift für Rolf Stürner zum 70. Geburtstag. Beck, Munich, pp 1253–1261Google Scholar
  38. Jackson TH (1982) Bankruptcy, non-bankruptcy entitlements, and the creditors’ bargain. Yale Law J 91:857–907CrossRefGoogle Scholar
  39. Jackson TH (1986) The logic and limits of bankruptcy law. Harvard University Press, CambridgeGoogle Scholar
  40. Kammel AJ (2013) Catholic social thought and corporate insolvency law. In: Omar P (ed) International insolvency law: reform and challenges. Ashgate, Farnham, pp 3–22Google Scholar
  41. Kastrinou A (2016) Comparative analysis of the informal pre-insolvency procedures of the UK and France. Int Insol Rev 25:99–118CrossRefGoogle Scholar
  42. Kohler J (1891) Lehrbuch des Konkursrechts. Verlag von Ferdinand Enke, StuttgartGoogle Scholar
  43. Kranz C (2017) Die rescue culture in Großbritannien. Carl Heymanns, CologneGoogle Scholar
  44. LoPucki LM (2004) A team production theory of bankruptcy reorganization. Vanderbilt Law Rev 57:741–779Google Scholar
  45. Lubben SJ (2004) Railroad receiverships and modern bankruptcy theory. Cornell Law Rev 89:1420–1475Google Scholar
  46. Madaus S (2011) Der Insolvenzplan. Mohr Siebeck, TübingenGoogle Scholar
  47. Madaus S (2014) On decision-making in rescue cases: why creditors and shareholders should decide about a rescue plan. In: Santen B, van Offeren D (eds) Perspectives on international insolvency law; a tribute to Bob Wessels. Kluwer, Deventer, pp 215–227Google Scholar
  48. Madaus S (2017) The new age of debt and the common function of insolvency and restructuring law. In: Eurofenix Spring 2017. INSOL Europe, Nottingham, pp 14–17Google Scholar
  49. Malek H, Bousfield S (2016) Bad banks and the ‘no creditor worse off’ compensation scheme. JIBFL 6:339–341. Accessed 25 Apr 2017
  50. Mokal RJ (2008) Corporate insolvency law. Oxford University Press, OxfordGoogle Scholar
  51. Mooney C (2004) A normative theory of bankruptcy law: bankruptcy as (is) civil procedure. Wash Lee Law Rev 61:931–1061Google Scholar
  52. Olivares-Caminal R (2015) Introduction. In: Olivares-Caminal R (ed) Expedited corporate debt restructuring in the EU. Oxford University Press, Oxford, pp 1–31Google Scholar
  53. Ottaway C, Harang G (2016) Reform of the French ‘Civil code’. In: Eurofenix Summer 2016. INSOL Europe, Nottingham, pp 32–33Google Scholar
  54. Paterson S (2014) Rethinking the role of the law of corporate distress in the twenty-first century. LSE Law, Society and Economy Working Papers 27/2014. Accessed 25 Apr 2018
  55. Paulus CG (2009) Ein Kaleidoskop aus der Geschichte des Insolvenzrechts. JZ 64:1148–1155Google Scholar
  56. Paulus CG (2016) The erosion of a fundamental contract law principle pacta sunt servanda vs. modern insolvency law. In: Unidroit (ed) Eppur si muove: the age of uniform law. Unidroit, Rome, pp 740–749Google Scholar
  57. Payne J (2013) Cross-border schemes of arrangement and forum shopping. Eur Bus Organ Law Rev 14:563–589CrossRefGoogle Scholar
  58. Pulgar J (2014) A contractual approach to over-indebtedness: rebus sic stantibus instead of bankruptcy. In: Nogler L, Udo Reifner U (eds) Life time contracts—social long-term contracts in labour, tenancy and consumer credit law. Eleven International Publishing, The Hague, pp 531–550Google Scholar
  59. Ramesh K (2017) The Gibbs principle: a tether on the feet of good forum shopping. Singap Acad Law J 29:42–74Google Scholar
  60. Rapoport A, Chammah AM (1965) Prisoner’s dilemma: a study of conflict and cooperation. Michigan University Press, Ann ArborCrossRefGoogle Scholar
  61. Schillig M (2014) Corporate insolvency law in the twenty-first century: state imposed or market based? J Corp Law Stud 14:1–38CrossRefGoogle Scholar
  62. Schmitz PW (2001) The hold-up problem and incomplete contracts: a survey of recent topics in contract theory. Bull Econ Res 53:1–17CrossRefGoogle Scholar
  63. Smits R (2016) Supervision and efficiency of the pre-pack: an Anglo-Dutch comparison. ICR 13:26–35Google Scholar
  64. Stiglitz JE, Heymann D (2014) Life after debt, the origins and resolutions of debt crises. IEA Conference, vol 152. Palgrave Macmillan, New YorkGoogle Scholar
  65. Warren E (1987) Bankruptcy policy. Univ Chic Law Rev 54:775–814CrossRefGoogle Scholar
  66. Zimmermann R (1990) The law of obligations: Roman foundations of the civilian tradition. Juta, Cape TownGoogle Scholar

Copyright information

© T.M.C. Asser Press 2018

Authors and Affiliations

  1. 1.Martin Luther University Halle-WittenbergHalleGermany

Personalised recommendations