Using vulnerability and relative resilience to optimise fairness in insolvency and restructuring: A human perspective

Insolvency law has long been theoretically conceptualised on the basis of legal and contractual entitlements with the core purpose of maximising returns to the creditors owed by the debtor during its financial distress. With the onset and steady growth of the rescue culture with its acknowledgment of the broader impacts of insolvency on society and the economy, the simple creditor wealth maximisation approach does not provide equitable solutions for all of the stakeholder associated with the debtor company. In particular, involuntary, non-adjusting, and undiversified creditors, such as employees, tort creditors, and the environment, are often with little recourse and few opportunities for participation at the negotiation table. However, if theories are devised with humans in mind, it may be possible to redress the inequity in fairness by changing the way we view financial distress and the broader purpose for resolving it. This article seeks to examine the potential that Martha Fineman’s Vulnerability Theory may have in optimising fairness in insolvency frameworks to the benefit of the humans that financial distress may adversely affect.