The shifting nature of insolvency theory: from liquidation to rescue and sustainability

Today, there is an emphasis on sustainability and social impact connected to the insolvency of corporate entities that classic theoretical approaches to the aims and purposes of insolvency would simply not countenance. The purpose of this chapter is to answer the following question: how have the theoretical aims and purposes of insolvency shifted over time to account for parallel shifts in economic and social policy? This question will be answered by examining the rise and fall of the pure concept of ‘creditor wealth maximisation’ and the Law and Economics based insolvency theories that subscribe fully to this ideal (section 2). This will be followed by an examination of the more inclusive approaches introduced to mitigate the pure economic approach, extending the benefits of insolvency processes to other corporate stakeholders (section 3). The final substantive analyses theoretical insolvency and rescue approaches through the lens of feminist legal theory with a view to recognising a future adaptation of the traditional hierarchical and stratified perspective to a more nuanced and sustainability embracing approach that considers stakeholder dependence on the corporate entity along with practical, socially mindful solutions to corporate financial distress.