Philosophy of Bankruptcy Law

Document Type : Research Paper

Authors

1 PhD in Private Law from Allameh Tabatabai University, Tehran, Iran.

2 PhD in Private Law from University of Judicial Sciences and Administrative Services, Tehran, Iran.

Abstract

 
Law is a phenomenon born of human reason and designed to achieve a specific end. Legislation is a scientific method that is carried out in order to achieve a specific goal, without which legislation remains a pile of rules that are unrelated to each other. Therefore, the legislator must always take into account the goals he is trying to achieve when creating new legal regulations in order to avoid inconsistencies between legal regulations. Regarding the special importance of the objective of bankruptcy law, it should be said that the design and implementation of bankruptcy law affects the economy of the country, and the design of an efficient bankruptcy law also depends on the knowledge of the appropriate objectives of bankruptcy law. In addition to the authority of the legislation, the existence of the objective of the bankruptcy law helps to interpret the legal provisions correctly. Of course, setting appropriate goals for a law is not enough and must be accompanied by its effective implementation. Therefore, once the appropriate law has been enacted, it is necessary to monitor its objective results at the level of society to see whether it has achieved the desired goals in practice or not.
In this research, the importance of paying attention to the principles and objectives of bankruptcy has been recalled and various theories that exist in this regard have been examined. In Iran's legal system, the basic goal of bankruptcy law is to protect the rights of creditors, but in this research, regardless of Iran's laws, the basic goal of bankruptcy law has been considered and studied. One of the common functions of bankruptcy law in different legal systems is to reduce the problems of coordination between debtors and creditors and to adjust the incompatible demands of them and other parties affected by bankruptcy, but the basic question in this research is what is the fundamental purpose of bankruptcy law? In fact, bankruptcy affects a wide range of groups, so the main issue is whether bankruptcy law should only protect creditors or should balance the rights of different groups? Another question is what is the main objective of bankruptcy law, to satisfy creditors' claims or to rehabilitate and survive the business and give the entrepreneur a fresh start? In response to this question, several theories have been expressed and analysed as follows: creditors' bargain theory, broad-based contractarian theory, multiple value theory, explicit value theory and fresh start theory.It seems that bankruptcy law should keep all creditors, debtors and different interested groups in proper conditions, and with the fair and optimal distribution of losses, bankruptcy law should balance the conflicting interests of different groups.
Indeed, the most effective means of balancing the interests of disparate interest groups is to redistribute the losses incurred as a result of bankruptcy among them. The fundamental objectives of bankruptcy legislation can be distilled into two key principles: firstly, to achieve a balance between the interests of the various groups affected by bankruptcy, and secondly, to provide debtors with a fresh start and to stimulate the economic activity of companies. It appears that bankruptcy legislation should prioritise the provision of a fresh start for the merchant before preparing collective debt collection in an optimal and fair manner. The objective of enhancing the welfare of creditors represents only one aspect of the secondary goals of bankruptcy law. Furthermore, legislative and judicial policies should align with this fundamental objective. Indeed, rehabilitating viable businesses and offering a second chance to enterprising individuals can facilitate job retention, enhanced creditor repayment, sustained business relationships, economic growth, and increased social welfare. Ultimately, it is essential to integrate these objectives into the design of a bankruptcy system, with due consideration for their relative priority.

Keywords


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