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Theoretical foundation for a debtor friendly bankruptcy law in favour of creditors

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Abstract

Although many works support creditor friendly bankruptcy laws, an evolution towards debtor friendly systems is at work. This paper proposes a theoretical ground to meet this paradox. It reconsiders the economic role of bankruptcy law by stressing on the courts’ production of information. It reveals that the transmission of a lenient signal by judges makes it possible to reduce the hazard that bad risks seek to avoid going on trial. Thus, it shows that debtor friendly bankruptcy laws are not systematically opposed to creditors’ interests. They reduce the risk of the economy and contribute to the improvement of the global efficiency.

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  1. Centre d’Économie de la Sorbonne, MATISSE, CNRS et Université Paris 1, Programme Doctoral ESSEC, Bureau 101, 106-112, boulevard de l’Hôpital, 75647, Paris Cedex 13, France

    Philippe Frouté

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  1. Philippe Frouté
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Correspondence to Philippe Frouté.

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Frouté, P. Theoretical foundation for a debtor friendly bankruptcy law in favour of creditors. Eur J Law Econ 24, 201–214 (2007). https://doi.org/10.1007/s10657-007-9033-7

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  • DOI: https://doi.org/10.1007/s10657-007-9033-7

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