Justice-driven insolvency law

1. Introduction

Why is insolvency law legitimate?^[1] Various insolvency theories have sought to answer this fundamental question. Since the introduction of the Creditors’ Bargain Theory (CBT), which portrays insolvency law as a collectivised debt-collection mechanism, insolvency scholarship has been strongly shaped by a functionalist orientation.^[2] The Loss Distribution Theory (LDT) challenged CBT, arguing that bankruptcy is a mechanism for distributing loss among stakeholders.^[3] The Communitarian Theory (CT) challenged both, arguing that bankruptcy law is a communal response to failure.^[4] While these theories arrived at their central claims through various methods, they share a broadly functionalist orientation and common core: insolvency as a form of social cooperation. Where they diverge is in the normative commitments they attach to that core.

Baird, a leading CBT theorist, argues that divergence reflects both methodological and epistemic realities that may only be resolved through the study of aesthetics and morals.^[5] Gross, a leading CT theorist, contends that existing theories fail to articulate the philosophical basis of their claims thereby leaving the field without a fully developed account of its normative foundations.^[6] This article draws on the normative analysis of law to examine these canonical theories. In particular, it applies Singer’s approach to normative analysis, which grounds moral reasoning in pragmatic justification rather than idealised thought experiments.^[7] This approach enables a more complete justification of insolvency law, particularly in light of its coercive effects across multiple stakeholder groups and public acceptability. It is the approach that enables a full response to the challenges issued by both Baird and Gross.

The article grounds its claims in moral and political philosophy. In so doing, it follows the methodological approach of Korobkin,^[8] Gross^[9] and Mokal^[10] in offering an alternative to normative economics and empirical analysis. In contrast to prevalent functionalist scholarship, however, which asks what insolvency law exists to do, this article adopts a conceptual-normative approach.^[11] First, it examines the nature of insolvency as a social situation, identifying the conditions under which it operates, and then it derives from those conditions the normative framework that governs it. This approach enables the development of justice-driven insolvency law (JUDIL), grounded in Rawlsian fairness and Deweyan pragmatism, and provides a basis for reconceptualising and evaluating canonical insolvency theories.^[12]

The arguments are developed in six sections. Section 2 re-examines the canonical insolvency theories; Section 3 introduces JUDIL and reframes the debate around the position of justice in insolvency law; Section 4 considers its practical application; Section 5 examines the justice considerations of CBT; and Section 6 concludes.

2. Canonical theories of insolvency law

Various attempts have been made to categorise the theoretical foundations of insolvency law.^[13] Yet, many such classifications conflate conceptually and methodologically distinct frameworks, eliding key differences.^[14] Under the typology in the US, which roughly divides the field into traditionalist and proceduralist theories, LDT is effectively collapsed into CT, although each is driven by fundamentally different conceptual and methodological ideals.^[15] Gross’ categorisation, which divides the field into individualist and communitarian theories, likewise risks grouping both CBT and LDT together as individualist theories, even though their outlooks diverge sharply.^[16]

Given its central quest of identifying the conceptual ideas undergirding competing canonical theories of insolvency law, this section examines CBT, LDT and CT. In examining these theories, it attends not only to their substantive claims but also to the methodological foundations from which these emerge. Methodology shapes the claims that each theory relies on, as well as the phenomena each prioritises; conceptual framing determines how evidence is interpreted, what problems are seen as central and where boundaries are drawn.^[17] Together, these elements influence both the scope the theory accords to insolvency law and the kinds of values it privileges. By comparing the methodological approaches and conceptual anchors of each theory, it becomes possible to see how differences in intellectual starting-points produce tangible similarities and divergences.

These canonical theories also represent the dominant approaches to insolvency theorisation. They are orientations of thought grounded in distinct conceptual outlooks that admit internal variation. For instance, CBT is the progenitor of the contemporary proceduralist approach and is rooted in the economics analysis of law, though its collective orientation sets it apart from variants such as Rasmussen’s menu approach.^[18] LDT, likewise, represents the historical approach to insolvency law that prioritises values such as equality or equity. LDT itself progresses from an intuitive approach that rests on empirical evidence and differs from the normative orientation of subsequent formulations such as Korobkin’s value-based approach.^[19] This section sets out the classic expression of each named theory. However, as the article develops, contemporary expressions of the approaches will also be examined.^[20]

A. Creditors’ Bargain Theory

Jackson developed CBT in the early 1980s, as an intervention in bankruptcy scholarship.^[21] At the time, the newly reformed US Bankruptcy Code had prompted a proliferation of claims about the goals of bankruptcy law.^[22] Jackson rejected the prevailing scholarship on both normative and methodological grounds.^[23] Methodologically, Jackson believed that the field was relying largely on intuition; identifying a range of purposes without articulating any coherent normative foundations for their claims.^[24] For him, that approach overlooked the fact that bankruptcy law dealt chiefly with creditors, focusing on the distribution of a debtor’s assets rather than debtor-relief. Jackson considered the lack of an inter-creditor theory – a principled account of how creditors should be treated in relation to one another – a key gap in the field.^[25]

In response, he advanced CBT, a theoretical model that sought to distinguish between what bankruptcy law should do – its core function – from what it might do – its incidental use.^[26] In this way, functionalism was introduced into bankruptcy scholarship and shaped the theories that would follow. CBT was anchored in the economic analysis of law, which, at the time, was being systematically applied to the analysis of other areas of law.^[27] Thus, it follows the narrow functionalism of economics.^[28] Through both the theory and methodology, Jackson sought to identify the historical function of bankruptcy law; using that insight to map its role, define its limits and provide a principled framework for evaluating its rules. This section first examines and then critiques CBT.

(i) Creditors’ bargain theory: an examination

At its analytical core, CBT argues that insolvency law is a collectivised debt-collection device that responds to a debtor’s multiple defaults.^[29] Its key function is to maximise the aggregate value of the debtor’s estate.^[30] For clarity, this section treats the first assertion as making a positive claim and the second, a normative claim.

Positively, the need for a bankruptcy procedure emerges when a debtor is unable to meet its obligations to all its creditors. While a system for individual creditor remedies exists, it is inadequate because it operates on a first-come, first served basis, creating the risk that some creditors may be paid in full while others receive nothing.^[31] This dynamic triggers a race for the debtor’s assets, which is detrimental to the creditors as a group. Bankruptcy law resolves this problem by imposing a binding, collective and compulsory proceeding on them, enabling the group of diverse creditors to act as a single body.^[32] On this basis Jackson insists that it is accepted by all as merely a debt-collection device. The latter claim is not only a positive but an empirical assertion.^[33]

Normatively, CBT argues that bankruptcy law replicates, as closely as possible, the outcomes that creditors would have agreed in advance, if they had been able to bargain ex ante and if bargaining were costless.^[34] In that sense, the bankruptcy context can be described as a common pool problem or, in game-theory terms, a prisoners’ dilemma, in which rational self-interest would result in sub-optimal decisions in relation to the debtor and its assets, producing undesirable outcomes for the group.^[35] Drawing on Rawls’ veil of ignorance, CBT constructs a hypothetical bargain among creditors negotiating before the onset of financial distress and without knowing their eventual position.^[36] Behind this veil, rational creditors would agree to a collective procedure that maximises the debtor’s estate.^[37] Once the estate is maximised, distribution proceeds according to pre-bankruptcy entitlements. The legitimacy of any bankruptcy rule, therefore, depends on whether it preserves the hypothetical bargain and addresses the collective-action problem without conferring advantages or disadvantages on particular creditors beyond their pre-insolvency rights.^[38]

Drawing its claims together, CBT insists that the accepted historical function of bankruptcy law is to act as a collective debt-collection mechanism that preserves value by enabling the creditors to reach a cooperative, and therefore optimal, outcome. Jackson argues that this historical function is beneficial to the creditors as a group, as well as the debtor.^[39] For unsecured creditors, a compulsory collective process reduces the strategic costs associated with a creditors’ race and eliminates variance in recoveries between risk-tolerant and risk-averse creditors. It would increase the aggregate pool of assets and generate administrative efficiencies. Some of these advantages would also appeal to secured creditors, whose non-bankruptcy priorities would in any event be preserved by the system. By lowering the costs associated with uncoordinated enforcement, the process benefits the body of creditors directly, and indirectly, by reducing the overall cost of capital for debtors.

CBT’s combination of positive (and empirical) claims with normative defence narrows the scope of legitimate bankruptcy purposes to those consistent with the enforcement of prior bargains. This structure has given CBT enduring influence but means that the theory’s force depends on the persuasiveness of its claims.

(ii) Creditors’ bargain theory: a critique

CBT is typically treated as a single normative theory, but the examination above reveals it to be a composite of positive, empirical and normative claims. At its core lies a straightforward descriptive claim about the nature of bankruptcy law: it provides a coordinated mechanism for addressing situations of multiple defaults that cannot be repaid fully by a debtor.^[40] This positive claim is accepted by all dominant theories, and by this article also. The challenge therefore lays with the empirical and normative claims.

Jackson’s empirical assertion that bankruptcy law is generally accepted as a mere debt-collection mechanism does not hold. Patterson, for instance, accepts Jackson’s normative justifications for the coordinated procedure but rejects his characterisation of bankruptcy as a mere debt-collection device.^[41] She recasts it instead as being simultaneously a coordinated mechanism for capital redistribution, which accepts restructuring as an independent element of insolvency law in a manner that Jackson rejects.^[42] Both LDT and CT likewise reject Jackson’s empirical premise.^[43] Moreover, Jackson himself cautions against conflating the uses to which a thing can be put and its core function.^[44] Hence, the fact that bankruptcy can be used as a debt-collection mechanism does not mean that it is by nature solely or primarily one. His empirical claim therefore cannot stand.

Jackson’s key distinctive normative claim is that bankruptcy law seeks to maximise wealth for its contractual creditors. This claim is supported by further normative claims, such as that bankruptcy law must confine itself to enforcing pre-bankruptcy entitlements and not extend to readjusting them after proceedings commence.^[45] With its descriptive claim shared by others, and empirical assertion countered, these normative claims become the theoretical fulcrum on which CBT turns. These are not simply claims about the technical boundaries of insolvency law but about the very legitimacy of its rules. It is here that other theories, including that advanced by this article, mount their challenge.

To legitimise these normative claims, Jackson asserts that the creditors’ bargain emerges from behind a Rawlsian veil: a normative heuristic intended to legitimate purported outcomes.^[46] However, he draws on a contestable use of the Rawlsian veil: one that fails to engage all members of the social structure, strips away the thin theory of the good and produces outcomes that are fundamentally at odds with Rawls’ theory of fairness.^[47] Such contrary modification and application of the veil requires justification that Jackson does not provide. Moreover, Rawls’ veil itself remains highly contested within moral and political philosophy.^[48] As Sandel argues, once all individuating characteristics are excluded, parties are not merely similarly situated but identically situated.^[49] Hence it is a single person, rather than multiple persons, behind the veil. This eliminates the possibility of bargaining or discussion as all plurality is dissolved.^[50] It follows that the normative claims are not the result of an objective creditors’ bargain but the propositions of a single theorist. On that basis, this article will engage with the normative claims that have been proposed, rather than the heuristic through which they have been produced.

The article will return to CBT’s core normative claims in Sections 3 and 5. For now, it turns to other theories that emerged in response to the CBT.^[51]

B. Loss Distribution Theory

LDT emerged in the late 1980s in response to CBT, led by Warren, Westbrook and Sullivan, who argued that the Bankruptcy Act 1978 was legislated in a vacuum of fact.^[52] They sought, therefore, to test the arguments and unspoken premises of emerging bankruptcy theories against hard data on how the system actually worked.^[53] In achieving their purpose, they animated the real life or human complexity underlying those cold, hard figures.^[54]

Given its inherent eclecticism, LDT has been described under several labels. Some texts refer to it as the multiple values approach, reflecting Warren’s argument that bankruptcy law does not serve a single clear goal but instead advances several competing and sometimes conflicting values, none of which singularly dominates.^[55] Multiple values captures its pluralism but not its fundamental distributive focus. It has also been characterised as communitarian, noting its emphasis on the consideration of a broad range of interests in bankruptcy, a hallmark of communitarian thinking.^[56] Communitarian risks misclassifying it as normatively grounded in community ties, which it does not profess; Warren was concerned about multiple defaults and distributional effects, not expressly communitarian values.^[57] Finally, it has been classified as a traditionalist approach to insolvency but this categorisation fails to distinguish it from CT.^[58] Hence, the most accurate designation for the theory advanced by Warren, Westbrook and Sullivan is LDT, because its central claim concerns how the losses from financial failure should be allocated.^[59]

(i) Loss distribution theory: an examination

LDT frames bankruptcy as a system of coordinated loss allocation.^[60] Its analytical core comprises positive claims grounded in historical analysis and normative assertions grounded not in theory but in the empirical observation of bankruptcy’s actual operation. Methodologically, it draws on empiricism to inform its opinions on how bankruptcy has functioned in practice.^[61]

LDT aligns with CBT’s positive claim that bankruptcy responds to multiple default. In the US, this demonstrates why bankruptcy law differs fundamentally from state collection law. Where they diverge is on the normative claims that follow. LDT argues that where assets are insufficient to pay all the debts and the discharge of unpaid debts looms, conflict among stakeholders is inevitable, with each seeking to shift the losses of default onto others.^[62] The conflict will centre on entitlement to shares of the debtor’s estate and the rules governing their distribution. Normatively, it argues, therefrom, that distribution is not incidental to other concerns; it is the centre of bankruptcy law.^[63] LDT therefore characterises bankruptcy law as reckoning with a debtor’s multiple defaults and corollary conflicts, and its distributional rules as seeking to allocate these losses amongst various stakeholders.^[64] Contrary to CBT, LDT argues that the collective process exists primarily not to coordinate but to resolve conflicts over loss allocation.

Consequently, LDT treats bankruptcy predominantly as a policy tool for distributing losses in line with broader social and economic policy objectives, making it open to a wider range of legitimate purposes.^[65] This reframing shifts the theoretical centre of gravity from ex ante consensus to ex post contestation, broadening the range of possible outcomes. Rather than anchoring the process in pre-bankruptcy entitlements, it treats distributional outcomes as a matter for legislative and policy choice, informed by the empirically justifiable needs of wider society. It is on this account that bankruptcy may serve multiple, sometimes competing values: preserving going-concern value, protecting vulnerable stakeholders, ensuring procedural fairness and promoting economic stability, none of which is treated as inherently superior.^[66]

By treating distributional outcomes as a matter of policy choice rather than entitlements fixed by prior creditors’ bargains, LDT broadens the normative horizons of bankruptcy law.^[67] Its reorientation of bankruptcy from a system enforcing historical bargains to pursuing policy-determined outcomes has contributed to LDT’s influence but it also leaves it without principled limits on the aims it may advance.

(ii) Loss distribution theory: a critique

LDT’s positive claim that bankruptcy law provides a collectivised response to situations of multiple default is uncontroverted. It coincides with that of CBT and the position taken by this article. Its normative assertion that the ultimate purpose of bankruptcy law is to allocate the losses resulting from a debtor’s failure in line with broader social and economic policy objectives becomes the focus of attention; so will the methodology from which it emerged.

CBT theorists argue that LDT lacks a real normative basis because it is rooted in empirical claims, which do not provide systematic frames from which to develop first principles.^[68] This article agrees with that assertion. LDT provides no normative anchor for the values it advances. Although its emphasis on protecting vulnerable stakeholders echoes the difference principle proposed by Rawls, LDT does not identify expressly with this normative foundation.^[69] Yet, the difference principle would enable it to demonstrate why any outcomes must be substantively fair and why the worst-off stakeholders must also be considered. As with the theory proposed by this article, such an approach would provide a normative anchor for loss distribution and the redistributive qualities that LDT promotes.^[70]

Further, LDT’s pluralism and its description of the practical dynamics of insolvency systems fail to provide criteria for choosing among competing distributional outcomes, which are left to policy discretion.^[71] In contrast to LDT, Mokal has argued for a hierarchy of values in insolvency law, with fairness as the primary substantive goal.^[72] This article similarly argues for a hierarchical approach that constrains the pluralism of values-based approaches.^[73] Its approach also addresses Gross’ critique: that theories which focus on the debtor and creditor – dual-pillared theories – fail to address how community interests are to be addressed.^[74]

Hence, while LDT broadens the range of legitimate aims of bankruptcy law and grounds its account in empirical observation, it remains a positive distribution theory with no normative anchor for its claims. While some accounts treat LDT as resting on communitarian foundations, this is misplaced. As the next section demonstrates, CT was conceptualised as a distinct and parallel theory, responding to LDT’s lack of a normative foundation not by supplying one but by introducing an alternative account. CT therefore does not provide the assumed normative anchor for LDT.

C. Communitarian Theory

CT was proposed by Gross in the nineties within a context of rising bankruptcy filings in the US.^[75] It founds its account on communitarian thought, an established tradition of moral and political philosophy.^[76] In doing so, it significantly broadens the normative foundations of insolvency law, introducing distinct wider social policy considerations that have helped to establish its global influence.

As noted in Section 2B above, CT is often treated as interchangeable with LDT, with some classifying LDT as a variant of CT.^[77] Like LDT, CT is rooted in a discharge-based view of bankruptcy and is placed within the traditionalist categorisation.^[78] Yet, while it extends the reorientation begun by LDT, CT departs from it both in normative grounding and in scope. Whereas LDT is positive theory rooted in empirical methodology, CT is normative theory grounded in philosophical thought. Whereas LDT focuses on the allocation of losses among creditors and debtors, CT situates bankruptcy within a broader social fabric. It treats bankruptcy law not simply as a functional mechanism for debt collection or loss distribution but as a process normatively embedded in and responsive to the relationships, obligations and shared values of the community in which the debtor operates.^[79] These distinctions render it untenable to classify LDT as a variant of CT. Nonetheless, its normative focus generates challenges of complexity and indeterminacy in application that will be examined after its core claims have been considered.

(i) Communitarian theory: an examination

In Gross’ view, insolvency scholarship needs to proceed from a philosophical basis that discusses, perhaps contests, all premises.^[80] Thus, CT must be understood first from its methodological orientation. Gross argues that both CBT and LDT are inadequate because they adopt a rival-form or dual-pillared perspective of bankruptcy, built on a narrow philosophical commitment to individualism.^[81] This orientation, she contends, obscures their understanding of the goals of the bankruptcy system, and, ultimately, prevents them from engaging with its broader societal effects.^[82] Accordingly, CT advocates a reconceptualisation of insolvency through a multi-pronged approach; one that better reflects the insolvency context as comprising, at a minimum, the debtor, its creditors and the community.^[83]

Like other theories, CT accepts the positive claim that bankruptcy law responds to a debtors’ multiple default.^[84] Its normative views differ, however. Gross argues that bankruptcy law, properly situated, is not only about individuals in the narrow sense but about individuals’ responsibilities to one another and to society, as well as society’s reciprocal responsibilities to them.^[85] The interconnectedness of persons can be understood reflecting the multiple communities in which each individual lives.^[86] Thus, while an insolvency system addresses policy questions about what should happen to a particular company or its assets, it also, crucially, confronts the broader question of what society wants to happen to a distressed company in a credit-based society.^[87]

On this account, CT holds insolvency as the context in which society determines how to treat those who have failed financially in a credit-based economy and what price, if any, it wishes to exact for failures that manifest themselves in monetary terms.^[88] CT maintains therefore that while bankruptcy raises economic issues, it also raises equally important social ones, emphasising the relationships, obligations and shared values that connect the debtor, creditors and wider community. Its core normative premise is that the legitimacy of insolvency law depends on its capacity to sustain social bonds, distribute burdens fairly across the whole community, and advance collective well-being. It is on this reasoning that insolvency law can be used to achieve multiple goals.

The multi-pronged approach creates, however, significant complexities. By expanding the array of interests that bankruptcy must consider, it raises the difficult question of determining the contours of the ‘community’ and its representation in the bankruptcy context, which Gross herself acknowledges.^[89] She argues that the communities recognised by the bankruptcy system should be those with a substantial nexus to the debtor.^[90] In the case of corporate bankruptcy, these would include the communities in which the debtor conducts its business.^[91] Judges, she contends, should be imbued with the responsibility, through their equitable powers, to incorporate community interest into the bankruptcy procedure by engaging in contextualised decision-making.^[92] This process would operate within a contextualised policy model designed to achieve both procedurally and substantively fairer outcomes by balancing the interests of the debtor, creditors and community alike. Yet, by relying heavily on judicial discretion and an open-ended notion of community, CT becomes vulnerable to charges of indeterminacy and subjectivity; a challenge that underscores its practical limits.^[93]

(ii) Communitarian theory: a critique

As with other theories, this article does not contend with CT’s core positive claim that insolvency law responds to a situation of multiple default. It contests both its methodological and normative offerings, however. The first challenge stems from Gross’ uncomfortable engagement of communitarianism. She distances herself from full communitarianism, presenting her framework instead as a heuristic intended to enable and guide judges in exercising their equitable discretion.^[94] This dilution corrodes the normative force of CT and exposes it to charges of intuitionism.^[95]

Some critics contend that Gross’ approach encourages judges to override economic contingencies without establishing clear principles for how and when such intervention would be appropriate or addressing issues such as viability and funding.^[96] This article agrees. CT’s approach lacks clear support even within its methodological tradition. Communitarian theorists such as Sandel and Walzer who emphasise context-dependent decision-making cannot ground Gross’ claims.^[97] While these communitarians argue that community interests must inform law and policy, they typically operationalise this through democratic mechanisms such as community organising, consultations or citizens’ assemblies, not through judicial discretion in individual cases.^[98] Gross’ extension of communitarian principles to community-as-stakeholder within judicial proceedings therefore lacks normative grounding in the very tradition she invokes. It also runs the risk of transforming judges into interested parties in contexts in which they should be impartial.^[99]

Moreover, Gross provides no stable normative definition of community.^[100] She asserts that there are various communities, and these could include direct and indirect stakeholders.^[101] Further, that the communities that matter must have nexus, which means that they must have close connection to the debtor’s bankruptcy. Once that is established, there must be some real and palpable injury that would be felt because of the debtor’s failure. While this injury does not have to be economic, it cannot be hypothetical.^[102] Finally that the injury must be capable of being redressed in the bankruptcy case in various ways, including by adjusting the treatment of parties within the reorganisation plan.^[103] She herself notes, however, that the test is geographically limited to those connected to the place where the bankrupt company is situated.^[104] If the goal is to benefit the ‘community’, then why is the community in which the distressed company is located superior to another where it may be relocated, for example?^[105] This geographical limitation suggests that judicial decision-making becomes constrained not by principled legal analysis but by arbitrary territorial boundaries; boundaries that undermine broader, more inclusive conceptions of community at the national level.^[106]

Notwithstanding the foregoing critique, CT occupies a distinctive place in the development of bankruptcy scholarship. It broadened the theoretical horizon by introducing normative social and moral concerns into what had been primarily functional and empirical debates. Its effort to embed insolvency within the wider social fabric remains an important contribution, offering a richer account of the social stakes of insolvency and exerting significant influence in scholarly and policy discussions worldwide.

Ultimately, Section 3 demonstrates that Jackson’s demand for a rigorous normative foundation for insolvency law marked an existential turn in the scholarship, while CT’s further insistence that normative theories must clearly articulate their foundational ideals remains a lasting provocation, one that reopens Jackson’s original challenge and reframes it for contemporary debate. Although CBT, LDT and CT have generated diverse conceptual and methodological approaches, this foregoing analysis reveals that beneath these differences lies a shared core: all dominant theories of insolvency law can be understood as theories of social cooperation. This is understandable because insolvency is fundamentally a social situation that involves the associated actions of multiple persons affected by the inability of the debtor to repay its debts in full.^[107]

It is this social quality, rather than any particular use like debt collection or loss distribution, that forms the universally accepted core of insolvency law. This article likewise affirms that descriptive core. Where each theory, including that proposed by this article, diverges is in the implications that they attach to this cooperative foundation. The article turns next to the theoretical proposition it advances.

3. Introducing justice-driven insolvency law (JUDIL)

To better understand the implications of social cooperation in insolvency law, this article turns to moral and political philosophy. Like some other scholars who have deployed this methodology, it draws on Rawls’ insights.^[108] Uniquely, it engages Rawls’ substantive principles of justice, not his justificatory heuristic – the veil. It also draws on Dewey’s substantive insights to identify whose interests matter in insolvency and how these should be accommodated. Further, it argues that the central question in insolvency is not what insolvency law exists to do, but on what basis its coercive social cooperation under conditions of moderate scarcity can be regarded as legitimate.

A. The founding and organising principle of insolvency law

Cooperation is required where collective action produces better results than individual pursuit.^[109] It is characterised both by shared interests and by conflict.^[110] Interests are shared because cooperation results in better outcomes for all than would be possible if each tried to live by their own efforts only. However, there is conflict because each person would prefer a larger to a lesser share of the benefit created. Thus, each person is not indifferent to how the benefits produced by the collaboration are shared.^[111] In such situations, justice is necessarily engaged.^[112]

It has been accepted in Section 2 that insolvency is a situation that requires cooperation. Although social cooperation seeks to achieve mutual advantage, it is ideal only where background conditions are right.^[113] These include objective conditions that make cooperation possible and necessary: the actual situation that brings parties in proximity to one another, the vulnerability of each party’s interests vis-à-vis the group, and conditions of moderate scarcity that make it feasible to achieve mutual advantage through collaboration but where the output cannot meet all needs.^[114] They also include subjective conditions in which the parties have different but complementary interests that enables cooperation to happen even if each has different purposes that they want to achieve.^[115] Rawls calls these the circumstances of justice.^[116]

Insolvency is a paradigm case of the circumstances of justice: various parties are brought into proximity by the financial distress of a company; each party’s interest is vulnerable in relation to the actions of the group; and the inability of resources to meet all needs creates a situation of moderate scarcity. These objective conditions make it feasible to achieve mutual advantage through collaboration even if not all needs would be met. With insufficient assets to satisfy all claims, each participant has an incentive to seek a greater share than others. Participants in such collective arrangements are therefore not indifferent to how gains are distributed.^[117] Given that these conditions instantiate circumstances of justice, principles of justice are required to specify fair terms of both cooperation and distribution. Justice is therefore the founding and organising value of insolvency law, governing the structure of cooperation as well as the allocation of its benefits and burdens.^[118] On this basis, the article advocates JUDIL.

The importance of values in insolvency law has long been recognised.^[119] They direct the treatment of all individuals and groups within a social structure; how social, political and economic positions, benefits and burdens in relation to that structure are recognised and governed. One question that is repeatedly posed to value-based accounts, nonetheless, is how to determine a hierarchy of values. Given that cooperative decision-making and conflict over distribution lie at the very core, not the periphery, of insolvency law, justice is not only engaged but is its organising value. This explains why questions of fairness persist in insolvency debates.^[120] Fairness in a social context refers to justice.^[121]

Section 2 notes that the dominant theories also seed the dominant approaches of insolvency law. Warren’s dominant theory advocated the importance of multiple values, within which fairness was but one value. It is the forerunner of an approach in which values including fairness have been deemed important in insolvency law. Within this broad approach, however, fairness has been accorded various treatments. Along with Warren, Korobkin, who proposed the values-based account, and Finch, who proposed the explicit values approach, treat fairness as one of multiple values engaged by the insolvency context and law.^[122] More recently, Tait has argued that questions of insolvency law cannot be insulated from broader questions of justice and related evaluative concerns.^[123] Although his account focuses on justice, like the others, it does not resolve its status within the broader evaluative structure of insolvency law. This leaves open whether justice is one value among many and, in that case, which would be the dominant or organising value.

A distinct approach is taken by Mokal, who advocates the importance of values but rejects the multiple values approach insofar as it treats competing values as commensurable.^[124] This article aligns with Mokal’s rejection of value-pluralism in insolvency law. Nonetheless, it departs from Mokal’s argument of fairness as the substantive goal that all laws, including insolvency law, must pursue. Instead, it advances a different proposition: that insolvency law is necessarily governed by justice as its organising value on the basis that the circumstances of insolvency are also circumstances of justice. Rather than justice being a general end that all laws ought to aspire to, it is a specific value engaged by its very nature. Rawls establishes that when circumstances of justice obtain, justice is not merely a value to be pursued but the governing framework appropriate to those conditions. ^[125] It is this distinction that underpins JUDIL and provides normative support for the claim that all theories of insolvency law must confront justice directly, which they do. The article returns to this discussion in Section 5.

B. Justice-driven insolvency law and the legitimacy of insolvency law

As a legal framework that compels private actors into collective procedures, the authority of insolvency law depends not only on the need for cooperation but also on the moral grounds upon which those subject to it may accept its terms.^[126] Its legitimacy rests on the fundamental premise that each human being matters; echoing the Kantian principle that they are ends in themselves, not merely means to the ends of others.^[127] Rawls grounds legitimacy in the idea that social arrangements are justifiable only if they could be accepted as fair by free and equal persons engaged in cooperation.^[128] Although social cooperation requires that the structure must benefit each participant, this is not its normative foundation. Rather, cooperation must be undergirded by the principle of reciprocity, which requires that all those engaged in cooperation, and who play their part as required, participate as free and fair equals and benefit in a relationally appropriate way.^[129] Singer similarly emphasises that cooperation must be reciprocal but, in an account closer to Scanlon’s contractualism, holds that legitimacy requires that arrangements cannot be reasonably rejected by those who lose out.^[130] JUDIL follows Scanlon and Singer’s construction, thereby distinguishing it from contractarian accounts grounded in mutual advantage, which cannot adequately account for duties owed to parties who lack bargaining power or reciprocal leverage.

Insolvency law affects multiple groups who hold varied concurrent positions: creditors seeking debt recovery; employees depending on continued employment; suppliers relying on continued trade relationships; debtors seeking a fresh start; and communities affected by business failure. Their participation is coerced as they are prevented from enforcing rights that they would otherwise exercise, for the benefit of the collective. They evaluate insolvency outcomes in light of their full moral and social circumstances, including their interests in debt recovery, continued employment, the flow of taxes or the survival of commercial relationships, and their standing as free and equal participants.

As a legal institution distributing economic gains and losses with consequences for persons’ life prospects, insolvency law must therefore be accepted as legitimate by all affected by its social arrangements as free and equal persons. These persons together constitute its justificatory constituency. The various approaches in Section 2 advance varied claims on whose interests should be considered in insolvency. CBT scholars focus on contractual creditors only, and LDT on a wider range of stakeholders directly affected by the failure, while CT includes the community as a stakeholder group. JUDIL rejects CBT’s limited focus. Like LDT, it admits a broader range of stakeholders, while rejecting the community as a distinct stakeholder.^[131] It argues, instead, that insolvency law must consider the public interest. To make its case, it draws on Dewey.

Dewey conceives individuals not as isolated economic actors but as social beings perpetually engaged in complex associations that generate both direct and indirect consequences.^[132] Where the actions between singular persons or groups create indirect but serious consequences those affected are called the public.^[133] Dewey stresses that there is not a single public but multiple publics, each fluid and contingent, with interests that may be local, national or even transnational.^[134] Their common interests are therefore protected by institutions such as law, legislatures and courts that translate diffuse consequences into coherent policy.^[135]

For Dewey, it is incoherent to treat the community as a category that can be set apart from or against the individual.^[136] Instead, social interests are to be embedded in the very process of policy formation.^[137] The task of law and policy is to mediate between overlapping and often conflicting interests.^[138] On that account, there is no need to single out community interests as a distinct stakeholder category or to identify the community more deserving of protection. The public interest, broadly conceived, is realised and protected through rules that are socially acceptable, while still applying to those directly concerned with a specific proceeding. Insolvency law is therefore legitimate insofar as it responds to the direct, as well as indirect, consequences of financial failure in ways acceptable to the multiple publics whose interests are synthesised and embedded in the system by the policymaker. Reframed in this light, law ceases to be a mere device for private ordering and becomes a social instrument for managing the conditions of associated life.

Following Dewey’s approach, therefore, JUDIL does not reify the community as an independent stakeholder, unlike CT.^[139] However, it does not reject it entirely. JUDIL recognises that public perception of fairness directly shapes institutional legitimacy. When all significantly affected parties are treated with fairness and reciprocity through meaningful participation and just outcomes, broader public confidence in the system is created and sustained. In this way, JUDIL resolves the central difficulty faced by CT.

C. Justice-driven insolvency law and substantive justice in insolvency law

Having established the centrality of justice and its relationship with the legitimacy of insolvency law, we must now determine its content: what conception of justice can ground a system that is both coercive and social? Rawls’ conception of justice as fairness provides a viable alternative for three principal reasons.^[140]

First, it offers a necessary bridge between procedure and substance through a framework that justifies both the process and its distributive outcomes. This directly addresses a fundamental debate in insolvency about outcomes expressed through the inclusion or exclusion of distribution as a necessary component of insolvency frameworks. Second, it treats persons as free and equal despite economic differences, which is essential when some parties have vastly greater bargaining power than others. It demands that when individuals are compelled into a cooperative scheme that restricts their liberty for the benefit of the collective, all those who are constrained by such restrictions acquire a right to a corresponding acquiescence by those who benefit from their submission. This moral obligation forbids benefiting from the cooperative labour of others without doing one’s fair share in return. At its core, justice as fairness transforms social cooperation into a moral relationship of reciprocal obligation. Third, it is institutional, designed for the basic structure of society including economic institutions like insolvency law that affect persons’ life prospects.

Justice as fairness comprises two key principles: (i) equal basic liberties and (ii) the difference principle with fair equality of opportunity.^[141] The liberty principle guarantees each person an equal right to a fully adequate scheme of basic liberties, which is compatible with a similar scheme of liberties for all.^[142] It ensures that individuals are treated as free and equal moral agents whose basic rights and freedoms cannot be compromised for the sake of social or economic advantage. The difference principle requires that social and economic inequalities should be arranged so that they are (a) to the greatest benefit of the least advantaged and (b) attached to positions and offices that are open to all under conditions of fair equality of opportunity.^[143] The baseline is equality, with inequalities justified only when thy improve the position of the least advantaged compared to an equal distribution.

JUDIL adopts these Rawlsian principles to give substantive content to its test at the applicative level. However, the test itself draws on Singer’s contractualist framing, which itself is drawn from Scanlon, and holds that legitimacy requires that the arrangement cannot be reasonably rejected by those who fare the worst under such arrangements.^[144] This standard is more appropriate for insolvency, where cooperation is legally coerced rather than freely chosen. Under this standard, a party can reasonably reject an arrangement if it makes them worse off than necessary, fails to respect their standing as free and equal or exploits their cooperation without reciprocal benefit. Applied to insolvency, this standard prohibits excluding junior creditors from deliberations or distributing the assets only to senior creditors while their junior counterparts get nothing. Such arrangements could be reasonably rejected by those disadvantaged because they fail the reciprocity and fairness tests. JUDIL thereby reconciles individual incentives with collective justice. It is, in essence, a distributive and procedural theory; one with significant implications for CBT, which will be explored more substantively in Section 5.

4. Justice-Driven insolvency law: an evaluative framework

JUDIL reshapes how insolvency’s core mechanisms are understood, recasting them as instruments of reciprocal justice, rather than mere tools of cooperation. In that way, it illuminates the moral architecture of insolvency law’s central mechanisms of social cooperation such as moratoria, priority rules and asset distributions, each embodying a balance between coercion and reciprocity, restraint and benefit. Having established that the circumstances of insolvency engage justice as its governing value, and that Rawlsian fairness principles and the Scanlonian reasonable rejection test provide substantive content for justice, the question becomes how these principles govern cooperation in insolvency practice.

To operationalise these insights, JUDIL takes the form of a bi-partite evaluative framework comprising two interdependent components: an applicative test, which evaluates whether the operation of specific mechanisms reflects rules or principles that cannot be reasonably rejected by those who fare the worst under them, and a systemic test, which evaluates whether the design of the overall framework, and its public perception, cannot reasonably be rejected.

The evaluative framework performs a dual function. First, it provides a principled basis for assessing whether the mechanisms and structures of insolvency law can be justified to those subject to them. Second, it equips parties, their representatives, courts, and policymakers with a normative framework through which arguments about the fairness and legitimacy of both particular applications and systemic design may be formulated. In this way, JUDIL offers not merely a theoretical but also an analytical device for evaluating insolvency law at both micro and macro levels.

A. Justice-driven insolvency law: applicative test

At the applicative level, JUDIL enables the evaluation of the legitimacy of insolvency mechanisms by examining the principles that structure their operation. It does not assess the fairness of individual outcomes in isolation. Rather, it asks whether the rules governing various aspects of the mechanism, such as participation and constraint, are justifiable to those subject to them under conditions of reciprocal cooperation. The applicative test therefore operates at the level of normative structure. Accordingly, adverse outcomes are treated as evidence of potential defects in the governing principles, rather than as independent objects of evaluation.

The applicative test is structured around three interdependent principles: procedural fairness, substantive fairness and reciprocity. Together, these principles enable the constitutive principles of any insolvency mechanisms to be examined against justice requirements. Procedural fairness requires that all those significantly affected by a mechanism are recognised as participants in a scheme of cooperation, with meaningful opportunities to influence decisions that affect their interests.^[145] This requires genuine capacity to be heard, access to relevant information and real influence over decisions affecting their interests. Substantive fairness requires that the distributional rules governing the mechanism are justifiable to all parties, particularly the least advantaged, and do not systematically exclude any group from economic participation. Reciprocity requires that those who benefit from the coerced restraint of others must provide corresponding acquiescence and that the arrangement must be justified on terms that cannot reasonably be rejected by others.

In the case of restructuring, such as under Schemes of Arrangements for example, the central question is whether the principles used to determine participation and distribution can be justified to those excluded from the process. In My Travel Group Plc,^[146] an insolvent group operating a holiday business with international subsidiaries sought to address a balance sheet deficiency of over £800 million. To preserve the business and avert insolvent liquidation, the group needed a financial restructuring that would also enable it to preserve its Air Travel Organisers’ Licenses (ATOL), which was under threat from the Civil Aviation Authority. A consensual agreement having fallen through, a Scheme of Arrangements was proposed.^[147] Under that proposal, certain institutional creditors would release their claims for 94 per cent equity in newco – My Travel Holdings plc, to which the business of My Travel Group would be transferred. A limited quantity of their debts would also be assumed by newco, along with those owed to trade creditors. Shareholders in My Travel Group would receive 4 per cent equity in exchange for their existing shares. Various liabilities, including those owed to the subordinated convertible bonds, would be left in My Travel Group.

A Scheme of Arrangements permits directors to convene meetings only of classes of shareholders and creditors whose rights will be modified by the proposal.^[148] Hence, they did not invite the subordinated bondholders because they were deemed to have no economic interests in the group following valuation.^[149] The bondholders challenged the jurisdiction of the court to order the convening of the meeting, arguing that a liquidation valuation had been used to determine economic interest in a company going through a restructuring, and that a going-concern valuation, which better reflected the circumstances, was the appropriate standard. The valuation issue raised concerns about the substantive fairness of the principles applied in schemes.

In restructuring, schemes are structured around a principle that ties participation to economic interest. The central question is whether the standard used to determine economic interest is justifiable to those subject to it. As economic interest is tied to the implementation of an appropriate valuation standard that determines both participation and distribution, JUDIL requires that this underlying standard also be justifiable under conditions of reciprocal cooperation.

In MyTravel, economic interest was determined using a liquidation valuation, in circumstances where all parties understood that value maximisation depended on maintaining the business as a going concern.^[150] Yet the going concern could not be preserved without legally constraining junior creditors, raising a structural concern. A principle that excludes a class from participation based on a valuation method that does not reflect the operative restructuring context risks imposing constraints without reciprocal justification. Over time, such an approach may systematically position certain groups as instruments for the benefit of others, contrary to the requirement that all participants be treated as ends in themselves. In such circumstances, the governing principle is vulnerable to reasonable rejection by the most disadvantaged. Thus, where a mechanism imposes coercive restraints on a class, JUDIL requires that either participatory inclusion or compensatory justification is provided, such that the governing principle remains one that affected parties cannot reasonably reject. The spirit of My Travel Plc lives on in the Restructuring Plan. Hence, this approach can also be engaged in interpreting recent decisions such as re AGPS Bondco PLC.^[151]

B. Justice-driven insolvency law: systemic test

At the systemic level, JUDIL evaluates whether insolvency procedures, such as administration, restructuring plans or company voluntary arrangements, are just and legitimate for resolving a debtor’s insolvency. The test comprises two components: scope and acceptability. Scope requires the identification of all those significantly affected by the procedure, such as creditors, employees, debtors, suppliers and the various interests through which they are implicated. This reflects Dewey’s insight that the relevant public is constituted by those whose interests are substantially impacted by the arrangement’s operation. Acceptability asks whether the principles structuring the procedure could not be reasonably rejected by those significantly affected. Both formulations require the procedure to treat all involved with equal concern and respect.

At the systemic level, JUDIL considers the public interest in having legitimate systems for dealing with failure, as public confidence affects institutional stability. Hence, a legitimate procedure must be one that the public can accept as fair under conditions of reasonable justification. However, rather than requiring judges to represent public interests in individual cases as CT argues, JUDIL locates responsibility for systemic legitimacy with policymakers, who are institutionally positioned to design and revise the frameworks within which adjudication occurs.^[152] The systemic test therefore combines internal reciprocity among the participants with external public acceptability.

It is in policy deliberations that the various identities of affected parties come to bear. Policymakers must consider whether both the public and different stakeholder groups can accept the framework as fair. For instance, in the case of the debate whether pre-pack administrations required reform prior to 2021, the system level of JUDIL could have been engaged by scholars or the policymaker.^[153] First, they would have identified the persons significantly affected by a pre-pack. A pre-pack is a procedure under which the sale of distressed but viable businesses can be negotiated prior to the formal commencement of administration and executed immediately upon entry, without seeking prior creditor approval.^[154] While lauded for speed and job preservation, pre-packs were criticised for their opacity and unfairness. They also attracted considerable public censure. The key question was whether the procedure treated all involved with equal concern and respect such that they could not reasonably reject it as a fair basis for cooperation even when expecting to lose under it. Acceptability would have required considering the interests of the public in having a fair system. On this analysis, the pre-pack regime in its original form was vulnerable to reasonable rejection, given its opacity and the systematic exclusion of affected stakeholders from meaningful participation. Any proposals for reforms would have had to be tested against their consideration for all significantly affected persons, and acceptability both to these persons and the public. As the experience revealed, any reforms that did not meet these tests did not quell pre-pack’s legitimacy concerns.^[155]

The two tests operate at distinct but interdependent levels. A procedure may satisfy the systemic test because its principles are justifiable to stakeholders, but it can still fail the applicative test in particular applications. Conversely, even careful application cannot remedy an illegitimate procedure. Persistent applicative failures, such as recurring unfair distributions or exclusionary procedures, undermine systemic legitimacy, while an illegitimate framework distorts the fairness of its individual applications. Thus, both elements are necessary to engage in full assessment of the legitimacy of a procedure’s design and justice in its application.

5. Justice-driven insolvency law: reconceptualising the field

All dominant theories of insolvency law propose cooperation governed by just principles even if the applicable conception of justice remains unarticulated. CT clearly envisages cooperation governed by communitarian principles of justice, but its challenges have been addressed in Sections 2 and 3. LDT’s empirical account converges with the Rawlsian reasoning developed in Section 4 and so it will not be fully explored here. Nevertheless, some observations are required. While its canonical expression focused mainly on distributional issues, its more contemporary expression considers both procedural and distributional issues as important to insolvency law and theory.^[156] Despite proposing important normative ideals for addressing current Chapter 11 challenges, contemporary LDT still lacks a normatively grounded theory of insolvency law.^[157] JUDIL’s Rawlsian framework therefore provides a stable foundation for both the traditional and contemporary versions of LDT.^[158]

This section therefore focuses mainly on CBT. By uncovering its hidden assumptions, this section demonstrates why CBT’s conception of justice is fundamentally ill-suited to the circumstances of insolvency. It argues further that JUDIL’s Rawlsian lens therefore provides a framework capable of not only grounding its legitimacy but also securing stability and guiding the principled development of the field.

A. Creditors’ bargain theory and its underlying theories of justice

Although much of CBT’s original commitments have faded – the Rawlsian veil,^[159] the debt-collection claim,^[160] and its liquidation focus^[161] – yet its core normative commitments endured: respecting pre-insolvency entitlements, rejecting new rights, and redistribution in insolvency.^[162] Even these pillars have eroded. First, it must be recognised that CBT situates itself within proceduralism, an approach to insolvency that presents as pragmatic and value-neutral, sharing the same core normative commitments as CBT.^[163] As Janger and Levitin observe, however, contemporary proceduralism has jettisoned core CBT/proceduralist claims for a simple commitment to speedy bargaining and power allocation in insolvency.^[164] This section begins with CBT/proceduralism’s initial normative assumptions before examining contemporary expressions that reveal its fundamental unsuitability for the circumstances of insolvency.^[165]

From its canonical to its most contemporary expression, CBT has been proposing unarticulated and unstable conceptions of justice. Wealth maximisation immediately emerges as CBT’s foundational conception of justice. Not only is it the expressed normative goal of the collective bankruptcy rules but it also underpins the economic analysis of law that informs CBT and proceduralism methodologically.^[166] Yet, CBT’s uncompromising insistence on the inviolability of pre-insolvency rights and its strict adherence to the bargaining process more accurately reflect a distinct commitment to justice that is most clearly developed by Nozick. ^[167] Nozick’s procedural conception of justice also serves CBT’s self-identification as a proceduralist theory of insolvency law.^[168] Understanding Nozick’s theory of justice is therefore essential to understanding CBT in its canonical and more contemporary expressions.

Nozick argues that social structures, such as the State, emerge legitimately to provide a protective purpose: to preserve individuals from harm to their person and property.^[169] He contends that this is their sole or, at least, principal purpose. These structures have no new rights of their own and create no special rights by virtue of their existence as they possess only the rights already held by everyone within them.^[170] Hence, they are inherently minimalist. Notwithstanding, Nozick maintains that a minimalist structure is the most extensive social structure that can be justified.^[171] From this premise, Nozick develops the theory of justice that operates within this structure: justice as entitlement – a form of procedural justice.^[172]

Justice as entitlement comprises three major elements: justice in acquisition, justice in transfer and justice in rectification.^[173] Justice in acquisition and justice in transfer require that, where holdings have arisen by a legitimate process, either through initial legitimate acquisition or by voluntary exchange or transfer, they are legitimate and the individuals with rights to them must not be deprived of them.^[174] To interfere with such holdings would violate individual rights. It is for those with legitimate entitlements to decide for themselves to whom they will give their holdings and on what grounds. Justice in rectification permits correction, however, but only where an injustice has occurred, either in the initial acquisition or subsequent transfer.^[175] It is backward-looking rather than redistributive; authorising restoration, not reallocation, because the holding was achieved illegitimately.

Given that they have no special rights of their own, Nozick argues that social structures cannot alter individual holdings without violating the entitlements of individuals.^[176] Altering social institutions to achieve greater material equality based on the perceived needs of individuals – what is often called distributive justice – is not neutral.^[177] To Nozick, redistribution assumes that there is a supply of things with a mechanism for distributing these. It does not consider that the things or actions to be redistributed come already tied to people with legitimate entitlements over them.^[178] Ultimately, the social structure has no special rights or power to redistribute, regardless of its moral aspirations. Its sole duty is to protect existing entitlements and rectify past wrongs. By contrast, a more extensive structure would assume special rights not emerging from rights of the individuals within it, to achieve patterned ends that are deemed more morally acceptable by some.^[179] For example, it could intervene to achieve equality or distributive justice through reallocation of holdings. Justice as entitlement rejects such patterning arguments outright. It makes no presumption in favour of patterning or equality and rejects the notion that equality in material conditions must form part of any theory of social justice.^[180]

Whether or not CBT proponents drew consciously from Nozick, their normative exposition of the nature and limits of bankruptcy law is best understood through his entitlement theory of justice. The social structure in this case is insolvency law, which emerges to serve a protective purpose for stakeholders. Without insolvency law, their interests would be harmed by failure to coordinate. As Nozick argues, the mechanism is protective, not redistributive. Similarly, CBT’s proponents argue that insolvency law does not create any new rights by virtue of its existence.^[181] On this account, insolvency law preserves and respects pre-bankruptcy entitlements.^[182] These claims are deontological – made as matters of right, not with regard for the instrumental pursuit of wealth maximisation.^[183]

For CBT’s proponents, any redistribution to achieve patterned ends, such as greater equality, equity or the ability to better absorb losses, unlawfully interferes with legitimate rights.^[184] Like Nozick, CBT treats pre-bankruptcy holdings as presumptively legitimate; placing the burden of proof on challengers rather than holders. Illegitimate holdings will be rectified, mirroring Nozick’ third principle: justice in rectification, which authorises correction where acquisition or transfer was unjust. Thus, CBT’s claims are not axiomatic principles of insolvency law, still less value-neutral ones; they are normative claims that reflect the entitlement conception of justice applied to insolvency law. Put differently, CBT advances justice as entitlement as the conception of justice governing cooperation in insolvency.

As has been stated, bargaining is central to Chapter 11, which stipulates the rules under which it is executed. Baird’s ‘unwritten law of bankruptcy’ re-examines the rules of bargaining. Though described as a departure from the usual bankruptcy scholarship, the text is in fact the culmination of Nozickian architecture operating in CBT scholarship.^[185] The expectation that original holdings would be legitimate is implicit. Baird argues for senior creditor control of bargaining.^[186] Under Chapter 11, where the stakeholders do not arrive at a consensual bargain, the debtor may still approach the court for confirmation. However, such plans cannot be confirmed over a dissenting class of junior interests unless the holder of any claim or interest that is junior to the claims of such class will not receive or retain any property under the plan on account of such junior claim or interest.^[187] The absolute priority rule (APR) essentially requires that senior interests be paid in full before junior interests can receive anything.^[188] Baird has long advocated for replacing the APR with a relative priority rule (RPR) under which junior interest holders may retain property under the plan even where those with senior interests to them have not been paid in full.^[189] He argues that this will enable faster and more efficient reorganisations.^[190]

Long accepted as a quintessential pillar of US bankruptcy law,^[191] the APR was recast by Baird, rightly, as a principle of fairness.^[192] If the APR is a rule of justice, so is the RPR; specifically, it introduces a rule that is best explained as justice in transfer – voluntary exchanges between those with holdings and those to whom they wish to make a transfer. Baird argues that where an outcome offends procedure and results in deviations from pre-insolvency entitlements then rectification is required.^[193] This merely reprises Nozick’s third principle – justice in rectification. Thus, all three elements of Nozick’s theory of entitlement are accounted for in Baird’s conception of insolvency law. Far from displacing the centrality of justice in insolvency law, this confirms that justice – even when conceived procedurally – is the founding and organising value of insolvency law. The remaining question is whether such proceduralism can sustain the legitimacy of insolvency law under the circumstances in which it must operate.

B. Creditors’ bargain theory and justice: a critique

Law cannot escape normativity: every purportedly neutral principle rests on contestable moral judgements.^[194] Whether CBT reflects Nozick’s procedural justice or Posner’s wealth maximisation, each entails a justice proposition that must be examined.^[195] Hence, this section critiques the suitability of both conceptions of justice. Thereafter, it discusses the relationship that CBT has with the two and its implications for the stability and future development of the field.

(i) Creditors’ bargain theory and the limits of justice as entitlement

Nozick’s stringent proceduralism restricts its concerns solely to the legitimacy of holdings and their transfer, forbidding redistribution that violates established entitlements.^[196] In insolvency, this translates to respecting pre-bankruptcy rights of creditors, permitting voluntary transfers of those rights and rectifying any illegitimate holdings through backward-looking correction. Yet, this framework confronts immediate difficulties when applied to insolvency’s empirical realities.

Insolvency affects far more than creditors with clear legal entitlements or those clearly in the money. Its effects significantly impact tradespeople and their interests in preserving a commercial relationships, unpaid employees and their interests in preserving their employment, the government and its interests in preserving both a taxpayer and social stability.^[197] Section 3 established that these groups, including those indirectly but significantly impacted by the debtor’s failure and the design of its insolvency law, form part of insolvency’s justificatory constituency.^[198] A theory that excludes their interests may well satisfy Nozickian proceduralism but generates legitimacy crises in practice.

The pre-pack controversy discussed in Section 4C illustrates this failure. Practitioners complied with established procedures: they were permitted to complete a sale without calling a meeting of unsecured creditors;^[199] and made required disclosures after the fact, in accordance with Statements of Insolvency Practice (SIP 16).^[200] Available assets typically satisfied only secured creditors.^[201] Thus, they were entitled to their holdings under the entitlement theory. From a Nozickian perspective, justice was served – legitimate holdings were respected, proper procedures followed and no rectification required. Yet, this procedurally correct outcome generated a sustained legitimacy crisis that did not abate until the law was reformed to impose additional constraints.^[202] The failure lay not in procedural defects but in the framework’s inability to address whether outcomes were justifiable to those excluded from participation; precisely the question entitlement theory treats as irrelevant.

More fundamentally, entitlement theory rests on assumptions incompatible with insolvency’s structural features. Posner himself argues that justice as entitlement depends on the stringent assumption that there are no third-party effects; a condition that is rarely met in practice, and one that he rejects.^[203] Implicit in this critique is the distinction between justice as wealth maximisation, a social and consequentialist theory, and justice as entitlement, an individualist and deontological one.^[204] Nozick’s theory assumes that individuals acquire their holdings independently through legitimate initial acquisition or voluntary transfer. Yet in a cooperative economy, particularly in the context of insolvency, where value arises from coordinated collective action, exclusive entitlement to those holdings disregards the contributions of others whose cooperation makes value preservation possible. This exclusion creates a deeper problem. It violates the very deontological foundations on which Nozick’s theory rests, for it treats some as means rather than ends in themselves. If stakeholders’ cooperation is instrumentally necessary for value preservation, excluding them from consideration in distribution fails to respect their status as autonomous agents.

Accordingly, Nozick’s conception of procedural justice as entitlement cannot provide a defensible basis for insolvency’s cooperative system. Where value preservation depends on collective action under circumstances requiring the participation of multiple parties, legitimacy demands more than procedural correctness in enforcing pre-existing entitlements. It requires justification of the cooperative terms themselves to all whose participation the system requires or significantly affects. It is here that we must distinguish between CBT/proceduralism and contemporary proceduralism.

Over decades, efforts to speed up the resolution of insolvency have proliferated. In the US, these have ranged from pre-packaged Chapter 11s to s363 Sales, to debtor-in-possession financing agreements to the current rage – Restructuring Support Agreements (RSAs).^[205] RSAs are contractual agreements among creditors and sometimes the debtor to support restructuring plans that have certain agreed-upon characteristics.^[206] While they offer efficiencies, they risk abuse. Thus, scholars across approaches continually offer normative principles through which to distinguish acceptable from unacceptable RSAs.^[207] Janger and Levitin argue that there has in fact been a proceduralist inversion, with proceduralists, such as Skeel, giving up their erstwhile insistence on respect for pre-bankruptcy entitlements to permit distortions in procedure for the sole purpose of achieving a bargain.^[208]

Contemporary proceduralism’s retreat is best understood through Nozick’s framework. Though typically unstated, even Nozick’s minimalist State requires cooperation: universal prohibition of individual use of force compensated by universal protection. The state of nature to which the minimalist State responds can be mapped against the circumstances of justice posited by Rawls. It is because both the objective and subject elements of the circumstances are present in the state of nature for which cooperation is the response. The key difference is that this cooperation is governed by justice as entitlement. However, that the circumstances of justice necessitate cooperation governed by rules of justice is uncontroverted.

CBT recognised the centrality of cooperation, hence its scholars appropriated Rawls precisely to justify it, while blithely ignoring that Rawls’ framework produces principles incompatible with Nozickian entitlement theory or Posnerian efficiency. This prestidigitation has never been explained. Conversely, contemporary proceduralism abandons even this foundational cooperation for bargaining controlled by powerful groups. Thus, whether creditors lead (as with debtor-in-possession financing agreements) or debtors (as with RSAs), weaker parties in its insolvency system face universal prohibition through the stay without meaningful protection. This retreat from minimal State (universal prohibition and universal protection) to ultraminimal State (universal prohibition with selective protection based on power) is one that Nozick himself rejects as unjust.^[209] While Levitin and Janger contest contemporary proceduralism’s approach on normative grounds, the challenge runs deeper: contemporary proceduralism contradicts insolvency law’s very nature as a framework of social cooperation governed by just principles.^[210]

A normative theory of insolvency law must begin from the recognition that insolvency instantiates circumstances of justice: a situation where cooperation is both necessary and marked by conflicting claims under moderate scarcity. Under such circumstances, justice demands principles that specify fair terms of cooperation and distribution; precisely what entitlement theory, by its nature, cannot provide. Justice as entitlement cannot address the fundamental question insolvency poses. Contemporary proceduralism is, even on Nozickian terms, less able to answer the question of on what basis insolvency’s coercive social cooperation under conditions of moderate scarcity can be regarded as legitimate.

(ii) Creditors’ bargain theory and the limits of justice as wealth maximisation

Posner argues that law operates within social contexts and must serve social ends. His theory grounds legitimacy in the maximisation of social wealth.^[211] Yet his conception of the ‘social’ remains narrowly instrumental. Grounding legitimacy in implied consent to efficiency, he assumes that individual preferences, when aggregated through markets, yield outcomes to which all would rationally agree.^[212] This is what makes his proposition appear neutral and explains its scepticism towards values.

As Singer observes this is not value-neutral reasoning but a moral claim that assumes that all preferences have equal moral status.^[213] Yet, the assertion of a preference is not a self-regarding act when it involves creating arrangements that affect the legitimate interests of others, particularly when they deny basic liberties to them or undermine their dignity.^[214] Restricting legitimate interest to those that can offer the most market value would undermine social cooperation itself; treating some participants as mere means to the maximisation of the wealth of others, while denying them standing even when significantly affected. Law intervenes not merely to maximise preference satisfaction or to maximise wealth but to discipline it; determining which preferences – which moral choices – may be legitimately realised once their effects on others are considered.^[215] ‘Others’ include actors who may not offer monetary value but who remain essential to cooperation.

This goes to the heart of insolvency’s challenge. Consider who falls outside Posner’s ‘social’ in insolvency: employees whose livelihoods depend on the business but cannot bid against secured creditors; tort creditors harmed involuntarily who lack market power; and, in principle, debtors, seeking a fresh start, whose interests in economic participation may not be expressed through willingness to pay. Within the insolvency framework, LDT has argued that although junior creditors are out of the money, their coerced restraint enables cooperation.^[216] Even Jackson concedes that senior creditors benefit from this arrangement and therefore have reason to accept insolvency law’s social but coercive cooperation.^[217] Yet, under Posner’s efficiency calculus, the contribution of these junior creditors receives no normative weight; treating their coerced restraint as normatively neutral, even though it sustains the required social cooperation. They become mere means to senior creditors’ recovery, their contributions to cooperation rendered invisible by a calculus focused solely on willingness to pay. This is not a rejection of distribution; it enforces redistribution from junior to more senior interests.

Insolvency law should approach cooperation from Dewey’s conception, rather than Posner’s. Dewey accepts that the ‘social’ merely refers to associated action between multiple people.^[218] Associated actions, however, produce significant consequences, directly and indirectly.^[219] Singer emphasises that legitimacy depends on the capacity to justify the social structure to those who lose out, in ways that remain acceptable to them.^[220] This would include both these direct stakeholders and significantly affected indirect stakeholders. Even Posner concedes this point through his own appeal to implied consent, though his version remains confined to those with market power.^[221] Insolvency law is precisely such a domain; its deliberations cannot be limited only to those who can pay.

Moreover, Posner assumes that just distribution is not necessary; everyone would participate in the maximised wealth.^[222] This is empirically untrue and ignores participation at the applicative level, as the My Travel Group case demonstrated.^[223] Persistent exclusion from economic participation corrodes the legitimacy of the process among its justificatory constituency including the public. Similarly, CBT mistakes administrative cooperation for legitimate cooperation. What is required is a social structure recognising both participation and outcome as morally relevant, and that includes all significantly affected parties regardless of their ability to pay.

Theories grounded in such narrow interpretations of justice are unsustainable as they cannot meet the justificatory demands of all those significantly affected by insolvency’s coerced cooperation, ultimately eroding their legitimacy.

C. Justice-driven insolvency law: implications for development and stability

Janger and Levitin note, echoing Gross, that the traditionalist approach is enshrouded in a pejorative mist.^[224] This can be elicited from Baird’s position that the traditionalist approach is intuitive because it is not undergirded by a clear normative methodology, and that it is merely applicative, lacking a broader substantive policy.^[225] In contrast, proceduralists operate from a neutral, clear and consistent policy orientation delivered through an articulated and replicable methodology.^[226] To what extent can this position be defended? CBT and proceduralists have contributed significantly to the advancement of insolvency theory, and the field owes them a wealth of debt. However, their framing claims are contestable and not consistent with the normative frameworks that they identify with.

This article agrees with Baird that the traditionalists cannot deliver normative claims without a consistent methodological framing. Hence, the normative analysis of law deployed by this article provides the appropriate response to the economic analysis of law that undergirds proceduralism. It reveals that proceduralism comprises three inconsistent philosophical positions: Posnerian instrumentalism – the consequentialist orientation underlying wealth maximisation; Nozickian proceduralism – a Hobbesian-deontological orientation; and Rawlsian cooperation – a hypothetical heuristic that justifies compulsory collectivity. Proceduralists have merely deployed whichever normative framework served their intuitive goals at any moment. This inconsistency went undetected because proceduralists presented their intuitions through the economic analysis of law – a seemingly neutral and consistent methodological frame. This why only a consistent methodological response, the normative analysis of law, can uncover its theoretical sleight of hand.^[227]

Baird’s view is that insolvency law is a mere procedural system within a broader social framework: an open system.^[228] Its main purpose is to provide a mechanism enabling the market to function efficiently towards the broader goal of societal wealth maximisation (instrumentalism). It is why, for him, bankruptcy law did not require substantive goals, only procedural ones. Hence, the core normative claim of canonical CBT and proceduralism is that bankruptcy law makes no distributional choices and must preserve pre-bankruptcy entitlements (proceduralism). CBT was merely grafting proceduralist expression onto instrumentalism. Yet instrumentalism and proceduralism are inconsistent propositions. If CBT was purely an instrumentalist theory, then redistribution and the adjustment of pre-bankruptcy entitlements would be permitted whenever it served an identified social goal.

When CBT needed to justify the automatic stay – the compulsory cooperation at the core of bankruptcy law – it turned to Rawls. This was likely because instrumentalism is not built on cooperation, and though cooperation is implicit in Nozick’s procedural theory, it is not clearly expressed. Hence, neither instrumentalism nor proceduralism could justify a core insolvency element. Yet, Rawls’ heuristic could never ground an instrumentalist or proceduralist theory, as it can only generate a distributive theory comprising both procedural and substantive elements.

The normative analysis of law also permits a better understanding of the shift from proceduralism to contemporary proceduralism. While contemporary proceduralism seems to contradict settled proceduralist claims, it is not a betrayal. Bargaining is the rallying social policy around which contemporary proceduralism is framed, enabling it to cast off the Nozickian proceduralism of CBT/proceduralism and embrace full instrumentalism. This permits the abandonment of the preservation of pre-bankruptcy entitlements – a deontological argument. As instrumentalism is not built on cooperation, outcomes determined by bargaining power rather than entitlements are allowed, even if these offend erstwhile proceduralist claims.

For completion, the normative analysis of law also extends and systematises the arguments made by canonical and contemporary traditionalists.^[229] In that light, the shift from traditionalism to contemporary traditionalism represents an attempt to fully articulate the contours of the traditionalist position. JUDIL is produced through the normative analysis of law. It provides a conceptual-normative foundation for the legitimacy of insolvency law, among directly and indirectly affected parties. It therefore offers a steady anchor for traditionalist and contemporary traditionalist ideals.

In contrast to the proceduralist approach that lacks principled elasticity and fragments as practice evolves – hence the calls for new theories of restructuring or to replace CBT – JUDIL can secure the stability of insolvency law by offering a consistent evaluative framework through which new procedures developed by policymakers or practitioners can be assessed and, where necessary, adapted.^[230] It can explain why legitimacy crises historically prompted reforms such as the APR in the 1930s; yet can diagnose contemporary challenges in the US or England. JUDIL therefore enables insolvency law to evolve with changing realities while preserving its moral coherence, offering a stable yet adaptive framework capable of sustaining legitimacy across evolving practice.

6. Conclusion

Understanding the legitimacy of insolvency law does not begin merely with identifying its unique function as this refocuses attention on the use to which it is put, such as liquidation versus reorganisation. It begins with the examination of its nature. This article finds that insolvency law responds to circumstances that require cooperation governed by suitable principles of justice. All canonical theories of insolvency law accept the centrality of cooperation but profess varying theories of justice. While the field has framed its ongoing debate on values as one of efficiency versus fairness, this article reveals that it is about competing theories of justice.

All theories stake normative claims, even if some wish to disguise theirs as value-neutral.^[231] The reasons for this have been both epistemological and methodological. Hence, the normative analysis of law deployed by this article provides the appropriate lens through which to examine both the canonical insolvency theories and their contemporary expressions. While the normative analysis is not unprecedented in insolvency scholarship as scholars including Mokal, Korobkin and Gross have drawn on moral and political philosophy, this article contributes a systematic, pragmatic methodology comprising conceptual grounding, substantive principles and an operational bi-partite structure that provides a replicable evaluative framework for assessing insolvency procedures. This approach to normative analysis constitutes a competing methodology to the economic analysis of law, matching it in rigour and replicability. Moreover, it is this approach that responds suitably to both Baird’s and Gross’ challenges to uncover the hidden foundations of insolvency theories.

While it critically examines all canonical theories and approaches to insolvency law, the article focuses significantly on the Creditor Bargain Theory and the proceduralist approach to insolvency. It demonstrates their fundamental inconsistencies, names their foundational theories of justice, identifies their unsuitability to insolvency law and shows how contemporary proceduralism offends the very nature of insolvency law by retreating from cooperation and relying on an instrumentalist theory of justice in which the end always justifies the means. What’s worse, in instrumentalism, individuals are also a means to the ends of others. Such outcomes offend the reciprocity undergirding insolvency law and can be reasonably rejected by those significantly affected. The controversies of such procedures also undermine public opinion, leading to legitimacy concerns.

The article offers an alternative proposition it calls JUDIL, which draws on a Rawlsian framing to advance both procedural and substantive justice anchored in reciprocity and delivered through a Scanlonian test. To capture insolvency’s public dimension, JUDIL incorporates Deweyan pragmatism. Its theoretical ideals are operationalised through its bi-partite evaluative structure, providing a scalable device for doctrinal and institutional analysis. JUDIL allows for the assessment of individual applications of justice, while also furnishing criteria for determining whether the insolvency system commands broader legitimacy. In this way, JUDIL offers a framework capable of guiding judicial reasoning, policy design and insolvency scholarship.

Intuitively, the early proceduralists recognised that cooperation, substantive policy and procedural rules matter in insolvency. JUDIL agrees. What the normative analysis of law enables is understanding how these three cohere consistently. This methodological approach is crucial to understanding why contemporary proceduralism is objectionable. Ultimately, the article produces not only a normative theory of insolvency law but a durable framework for its continual reform.

1. Insolvency and bankruptcy will be used interchangeably in this article. ↑

2. T Jackson, The Logic and Limits of Bankruptcy Law (HUP 1986) 3. ↑

3. E Warren, ‘Bankruptcy Policy’ (1987) 54 U Chi L Rev. 775. ↑

4. K Gross, Failure and Forgiveness: Rebalancing the Bankruptcy System (YUP 1999) 21. ↑

5. D Baird, ‘Bankruptcy’s Uncontested Axioms’ (1998) 108 Yale LJ 573. ↑

6. K Gross, ‘Taking Community Interests into Account in Bankruptcy: An Essay’ (1994) 72 Wash U LQ 1031. ↑

7. J Singer, ‘Normative Methods for Lawyers’ (2009) 56 UCLA LR 899. ↑

8. D Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’ (1993) 71 Texas LR 541. ↑

9. K Gross, Failure and Forgiveness (n 4). ↑

10. R Mokal, Corporate Insolvency Law: Theory and Application (OUP 2005). ↑

11. Thanks to the anonymous reviewer for improving clarity on this point. ↑

12. Discussed in Section 3. ↑

13. Bankruptcy and insolvency will be used interchangeably. ↑

14. V Finch and D Milman, Corporate Insolvency Law (3rd edn, CUP 2017) ch 2. ↑

15. Baird, ‘Axioms’ (n 5); D Baird, ‘Loss Distribution, Forum Shopping and Bankruptcy: A Reply to Warren’ (1987) 54 U Chi L Rev 815. ↑

16. Gross, Failure and Forgiveness (n 4) 3. ↑

17. On conceptual schemes and interpretation: H Putnam, Reason, Truth and History (CUP 1981) ch 6; on paradigms structuring inquiry: T Kuhn, The Structure of Scientific Revolutions (2nd edn, University of Chicago Press 1970); on observation being theory-laden: N Hanson, Patterns of Discovery (CUP 1958) ch 1; on fact/value entanglement: H Putnam, The Collapse of the Fact/Value Dichotomy and Other Essays (HUP 2002) chs 2–3. ↑

18. R Rasmussen, ‘Debtor’s Choice: A Menu Approach to Corporate Bankruptcy (1993) 71 Tex LR 51. ↑

19. T Sullivan, E Warren and J Westbrook, As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America (Beard Books 1999); D Korobkin, ‘Rehabilitating Values: A Jurisprudence of Bankruptcy’ (1991) 91 Columbia LR 717. ↑

20. See Sections 3 and 5. ↑

21. T Jackson, ‘Bankruptcy, Non-Bankruptcy Entitlements and the Creditors’ Bargain Theory’ (1982) 91 Yale LJ 857. ↑

22. Jackson, Logic and Limits (n 2) 2–3. ↑

23. ibid 3–5. ↑

24. Jackson, ‘Non-Bankruptcy Entitlements’ (n 21) 860. ↑

25. ibid 859–60. ↑

26. ibid 860; Jackson, Logic and Limits (n 2) 2–3. ↑

27. On the economic analysis of law: F Parisi and C Rowley (eds), The Origins of Law and Economics: Essays by the Founding Fathers (EE 2005). ↑

28. M Nussbaum, ‘Flawed Foundations: The Philosophical Critique of (a Particular Type of) Economics’ (1997) 64 U Chic Law Rev 1197. ↑

29. Jackson, Logic and Limits (n 2) 4. ↑

30. ibid 3. ↑

31. ibid 9–11. ↑

32. ibid 13. ↑

33. ibid 5. ↑

34. Jackson, ‘Non-bankruptcy Entitlements’ (n 21) 859. ↑

35. Jackson, Logic and Limits (n 2) 15–17. ↑

36. Jackson, ‘Non-bankruptcy Entitlements’ (n 21) 859. ↑

37. Section 4 considers whether this focus on preserving pre-bankruptcy entitlements is normatively justified. ↑

38. Jackson, Logic and Limits (n 2) 21. ↑

39. ibid 14–15. ↑

40. Jackson, Logic and Limits (n 2) 21. ↑

41. S Paterson, ‘Rethinking Corporate Bankruptcy Theory in the Twenty-First Century’ (2016) 36 OJLS 697. ↑

42. ibid 726–27. ↑

43. E Warren, ‘Bankruptcy Policymaking in an Imperfect World’ (1993) 92 Michigan LR 336, 344; Gross, Failure and Forgiveness (n 4) chs 6 and 8. ↑

44. Jackson, Logic and Limits (n 2) 2. ↑

45. ibid 24–26. ↑

46. Jackson, ‘Non-bankruptcy Entitlements’ (n 21) 859. ↑

47. J Rawls, A Theory of Justice (HUP 1971) 396. Similar critique made in: Mokal, Corporate Insolvency Law (n 10) chs 2 and 3. ↑

48. M Sandel, Liberalism and the Limits of Justice (CUP 1982) 102–03, 120–32. ↑

49. ibid 132. ↑

50. ibid 132. ↑

51. Warren, ‘Bankruptcy Policymaking’ (n 43); Gross, Failure and Forgiveness (n 4) ch 12. ↑

52. T Sullivan and others, The Law of Debtors and Creditors: Text, Cases, and Problems (Little Brown & Co 1986) 7. ↑

53. ibid 7–8. ↑

54. ibid 7–8. ↑

55. Finch and Milman (n 14) ch 2. ↑

56. ibid ch 2. ↑

57. Warren, ‘Bankruptcy Policy’ (n 3) 777. ↑

58. Baird, ‘Axioms’ (n 5) 576. ↑

59. Sullivan and others (n 52) 219. ↑

60. Warren, ‘Bankruptcy Policy’ (n 3) 776–77. ↑

61. E Warren and J Westbrook, ‘Search for Reorganization Realities’ (1994) 72 Wash U LQ 1257; E Warren and J Westbrook, ‘Financial Characteristics of Businesses in Bankruptcy’ (1999) 73 AM Bankr LJ 499; E Warren and J Westbrook, ‘Contracting Out of Bankruptcy: An Empirical Intervention’ [2005] 118 HLR 1197. ↑

62. Warren, ‘Bankruptcy Policy’ (n 3) 785. ↑

63. ibid 785–86. ↑

64. ibid 786. ↑

65. Warren, ‘Bankruptcy Policymaking’ (n 43) 343. ↑

66. ibid 343–77. ↑

67. ibid 372. ↑

68. Baird, ‘Axioms’ (n 5) 578. ↑

69. Rawls, Theory of Justice (n 47) 60–64. ↑

70. See Section 3 on how a Rawlsian framework can be developed to serve insolvency law. ↑

71. Section 3 addresses this issue. ↑

72. R Mokal, ‘On Fairness and Efficiency’ (2003) 66 MLR 452. ↑

73. Section 3A. ↑

74. Gross, Failure and Forgiveness (n 4) 17–19. ↑

75. ibid 1–8. ↑

76. On communitarianism broadly: A Macintyre, After Virtue (Duckworth 1981); Sandel, Liberalism (n 48); M Walzer, Spheres of Justice: A Defense of Pluralism and Equality (Basic Books 1983); A Etzioni, The Spirit of Community: The Reinvention of American Society (Crown Publishers 1993). ↑

77. Section 2B. ↑

78. Baird, ‘Axioms’ (n 5) 576. ↑

79. ibid 17–19. ↑

80. K Gross, ‘Taking Community Interests into Account in Bankruptcy: An Essay’ (1994) 72 Wash U LQ 1031. ↑

81. Gross, Failure and Forgiveness (n 4) 5. ↑

82. Gross, ‘Taking Community Interests’ (n 80) 1032–35. ↑

83. Gross, Failure and Forgiveness (n 4) 23. ↑

84. ibid 11–14. ↑

85. ibid 5. ↑

86. ibid 196. ↑

87. ibid 21. ↑

88. ibid 1–2. ↑

89. Gross, ‘Taking Community Interests’ (n 80) 1032–33. ↑

90. Gross, Failure and Forgiveness (n 4) 6. ↑

91. ibid 20. ↑

92. ibid 216. ↑

93. Similar points: Finch and Milman (n 14) ch 2. ↑

94. Gross, Failure and Forgiveness (n 4) 206–10; ch 14. ↑

95. Baird, ‘Axioms’ (n 5) 596. ↑

96. B Schermer, ‘Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy – A Modern-Day Tale of Belling the Cat’ (1994) 72 Wash U LQ 1049. ↑

97. On contextualism in communitarianism: O Uysal, ‘Revisiting Communitarianism: Neither Liberal Nor Authoritarian’ (2025) Humanit Soc Sci Commun 12. ↑

98. Sandel, Liberalism (n 48) 172–73; M Sandel, Democracy’s Discontent: A New Edition for our Perilous Times (HUP 2022) 259–80; Walzer, Spheres of Justice (n 76) 318. ↑

99. Also, Baird, ‘Axioms’ (n 5) 590–95. ↑

100. Gross, Failure and Forgiveness (n 4) ch 12. ↑

101. ibid 207. ↑

102. ibid 212. ↑

103. ibid 212. ↑

104. ibid 214. ↑

105. ibid 214. ↑

106. Schermer (n 96) 1051; Baird, ‘Axioms’ (n 5) 590–95. ↑

107. J Dewey, The Public and its Problems (Henry Holt 1927) 7. ↑

108. Korobkin, ‘Contractarianism’ (n 8); R Mokal, ‘The Authentic Consent Model: Contractarianism, Creditors’ Bargain and Corporate Liquidation’ (2001) 21 Legal Studies 400. ↑

109. Rawls, Theory of Justice (n 47) 4. ↑

110. ibid 4, 127. ↑

111. ibid 4, 127. ↑

112. ibid 4, 127. ↑

113. Rawls, Theory of Justice (n 47) 126. ↑

114. ibid 126. ↑

115. ibid 127. ↑

116. ibid 126–27. ↑

117. ibid 4. ↑

118. Institutional theory of law sets out the relationship between law and its branches and general and specific values. For example: N MacCormick, Institutions of Law: An Essay in Legal Theory (OUP 2007) ch 16. ↑

119. For example: Mokal, Corporate Insolvency Law (n 10) ch 3. ↑

120. See contrasting view in Section 5. ↑

121. Both terms will be used interchangeably. ↑

122. Korobkin, ‘Rehabilitating Values’ (n 19); Finch and Milman (n 14) 41. ↑

123. H Tait, Normative Foundations of Corporate Insolvency Law (DPhil thesis, University of Oxford 2019) 58–64. ↑

124. Mokal, ‘On Fairness and Efficiency’ (n 72) 457. ↑

125. Rawls, Theory of Justice (n 47) 69–71. ↑

126. Singer (n 7) 959–60. ↑

127. I Kant, Groundwork of the Metaphysics of Morals (Renaissance Classics 2012) 38. ↑

128. Rawls, Theory of Justice (n 47) 11–12. ↑

129. J Rawls, Political Liberalism (Columbia University Press 2005) 16–17. ↑

130. T Scanlon, What We Owe to Each Other (HUP 1998) 4; Singer (n 7) 975–76. ↑

131. Also, Schermer (n 96) 1051; Mokal, ‘Authentic Consent Model’ (n 108). ↑

132. J Dewey, Liberalism and Social Action (Prometheus Books 2000) 44–45. ↑

133. Dewey, Public and its Problems (n 107) 8–13. ↑

134. ibid 73–74. ↑

135. ibid 29. ↑

136. ibid 101 ↑

137. ibid 101–02. ↑

138. ibid 101–02. ↑

139. Also, Mokal, ‘Authentic Consent Model’ (n 108) 417. ↑

140. In this way JUDIL differs from other theories that draw on Rawls. While it rejects the veil, it draws directly on the substantive principles. ↑

141. Rawls, Theory of Justice (n 47) 60. ↑

142. E Kelly (ed), J Rawls, Justice as Fairness: A Restatement (HUP 2001) 42. ↑

143. ibid 42. ↑

144. Singer (n 7) 975–76. ↑

145. See Sections 3B and 3C. ↑

146. [2004] EWHC 2741 (Ch). ↑

147. Companies Act 2006, Part 26. ↑

148. Companies Act 1985, s 427; Companies Act 2006, s 897. ↑

149. In re Tea Corporation [1904] 1 Ch 12; In the matter of Telewest Communications PLC [2004] EWCH 924 (Ch). ↑

150. Also, M Crystal QC and R Mokal, ‘The Valuation of Distressed Companies – A Conceptual Framework’ <https://law.bepress.com/cgi/viewcontent.cgi?article=6303&context=expresso> accessed 2 October 2025. ↑

151. [2024] EWCA Civ 24. There is not enough space to develop the argument here fully. ↑

152. Also: Thames Water and another v Thames Water Utilities Holdings and others [2025] EWCA Civ 475. ↑

153. On the pre-pack and its regulatory challenges: B Adebola, ‘Transforming Perceptions: The Development of Pre-pack Regulations in England and Wales’ (2023) 43 OJLS 150. ↑

154. ibid 151. ↑

155. ibid 165. ↑

156. M Jacoby and E Janger, ‘Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy’ (2014) 123 Yale LJ 862. ↑

157. E Janger and A Levitin, ‘Badges of Opportunism: Principles for Policing Restructuring Support Agreements’ (2018) 13 Brook J Corp Fin & Com L 169. ↑

158. The word limit does not permit arguments by Jacoby, Janger and Levitin on Restructuring Support Agreements to be interpreted through the lens of JUDIL. ↑

159. Not mentioned once in D Baird, The Unwritten Law of Corporate Reorganizations (CUP 2022). ↑

160. T Jackson, ‘A Retrospective Look at Bankruptcy’s New Frontiers’ (2018) 166 U PA L Rev 1867. ↑

161. D Baird, ‘The Initiation Problem in Bankruptcy’ (1991) 11 Intl Rev L & Econ 223; Jackson, ‘Retrospective Look’ (n 160). ↑

162. Baird, ‘Axioms’ (n 5) 576. ↑

163. ibid 576. ↑

164. E Janger and A Levitin, ‘The Proceduralist Inversion – A Response to Skeel’ (2020) The Yale LJ Forum 335. ↑

165. CBT and proceduralism will be used interchangeably. ↑

166. Jackson, Logic and Limits (n 2) 12–19; R Posner, The Economics of Justice (HUP 1983) ch 3. ↑

167. R Nozick, Anarchy, State and Utopia (Basic Books 1974) 150. ↑

168. Baird, ‘Axioms’ (n 5) 576. ↑

169. Nozick (n 167) 16–18. ↑

170. ibid 118, 133. ↑

171. ibid 118, 149. ↑

172. ibid 150, 232. ↑

173. ibid 150. ↑

174. ibid 150–51, 232. ↑

175. ibid 153. ↑

176. ibid 233. ↑

177. ibid 149–50. ↑

178. ibid 151–53. ↑

179. ibid 156–60. ↑

180. ibid 233. ↑

181. Jackson, Logic and Limits (n 2) ch 2. ↑

182. ibid 21–25. ↑

183. Posner repeatedly drew differences between his claims and Nozick’s deontology. ↑

184. Jackson, Logic and Limits (n 2) 27–33. ↑

185. ibid xi. ↑

186. D Baird, ‘Priority Matters: Absolute Priority, Relative Priority and the Costs of Bankruptcy’ (2017) 165 U PA L Rev 785. ↑

187. 11 USC, s 1129(b)(2)(B)(ii). ↑

188. I Pachulski, ‘The Cram Down and Valuation under Chapter 11 of the Bankruptcy Code’ (1980) 58 NCL Rev 925. ↑

189. Baird, ‘Priority Matters’ (n 186) 812. ↑

190. ibid 812. ↑

191. Northern Pacific Ry. Co. v. Boyd (1913) 228 U.S. 482; Case v Los Angeles Lumber Products Co (1939) 308 US 106. Additionally, Trust Indenture Act 1939. ↑

192. Baird, Unwritten Law (n 159) 104–06. ↑

193. ibid ch 8. ↑

194. Rawls, Theory of Justice (n 47) 67–71; Singer (n 7) 915. ↑

195. Posner (n 166) 13, 48. ↑

196. Nozick (n 167) 150–60. ↑

197. See Section 3B. ↑

198. See n 22. ↑

199. Re Transbus International Ltd [2004] 1 WLR 2654. ↑

200. ICEAEW, ‘Statements of Insolvency Practice (SIPs), England and Wales’ <https://www.icaew.com/regulation/insolvency/sips-regulations-and-guidance/statements-of-insolvency-practice/statements-of-insolvency-practice-sips-england> accessed 4 October 2025. ↑

201. ‘Graham Review into Pre-pack Administration’ (2014) <https://www.gov.uk/government/publications/graham-review-into-pre-pack-administration> accessed 4 October 2025. ↑

202. Adebola (n 153) 20–26. ↑

203. Posner (n 166) 90. ↑

204. ibid 65, 144. ↑

205. L Lopucki, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts (University of Michigan Press 2006); D Skeel, ‘The Past, Present and Future of Debtor-in-Possession Financing’ (2004) 25 Cardozo L Rev 1905. ↑

206. Janger and Levitin, ‘Badges’(n 157) 170–73. ↑

207. D Skeel, ‘Distorted Choice in Corporate Bankruptcy’ (2020) 130 Yale LJ 366. ↑

208. Janger and Levitin, ‘Badges’(n 157) 340–41, 351–52. ↑

209. Nozick (n 167) ch 3. ↑

210. Janger and Levitin, ‘Badges’ (n 157) 340–41, 351–52; Section 3. ↑

211. Posner (n 166) 61. ↑

212. ibid 101–05 ↑

213. Singer (n 7) 965. ↑

214. ibid 966. ↑

215. ibid 964–66. ↑

216. Warren, ‘Bankruptcy Policy’ (n 3) 353–54. ↑

217. Jackson, ‘Non-bankruptcy Entitlements’ (n 21) 862. ↑

218. Dewey, Public and its Problems (n 107) 8–13. ↑

219. ibid 8–13. ↑

220. Singer (n 7) 975–76. ↑

221. Posner (n 166) 97–100. ↑

222. ibid 81. ↑

223. Section 4A. ↑

224. Janger and Levitin, ‘Proceduralist Inversion’ (n 164) 335–36. ↑

225. Baird, ‘Axioms’ (n 5) 578. ↑

226. ibid 578. ↑

227. Similar observation in Janger and Levitin, ‘Proceduralist Inversion’ (n 164) 338–39. ↑

228. Baird, ‘Axioms’ (n 5) 578. ↑

229. Including LDT and CT scholarship. ↑

230. Rawls, Political Liberalism (n 129) 140. ↑

231. Also, Tait (n 123) 58. ↑