The Restructuring-Bankruptcy Stigma Nexus - In Light of the 2019 Preventive Restructuring Directive of the EU

As early as the first decade of the 21st century, the European Commission had recognised and emphasised the negative repercussions of the pervasive and forceful bankruptcy stigma on Europe’s competitiveness. Nevertheless, this meta-legal phenomenon has since received very little scholarly attention,
especially regarding the methods by which its intensity might be reduced. This particularly applies to the stigma’s impact on the business sector.

This is a major lacuna, given that the propagation of the second chance, or fresh start, bankruptcy philosophy throughout Europe has been significantly hindered by the bankruptcy stigma, as also the successful implementation of the 2019 Preventive Restructuring Directive of the European Union.

To substantiate these claims, this chapter first outlines the features of stigma as a multi-faceted phenomenon. Secondly, to demonstrate its continuing presence, it sketches the various forms in which the stigma appears through an overview of pertinent scholarly and industrial publications, as well as projects
on both sides of the Atlantic. A unique aspect of this paper is the examination of the stigma’s potential presence and impact on previously neglected areas of law, such as abandoned and ‘zombie’ companies. Finally, it presents a range of tested methods for fighting the stigma and advancing the policies enshrined in the 2019 Preventive Restructuring Directive, in Europe and beyond.
As this subject matter is still in its infancy in Europe, and thus the experiences of others are worthy of in-depth exploration, the paper builds on a multi-jurisdictional perspective by examining the experiences and good practices of other developed legal systems such as the United States (US). The US undoubtedly
possesses the most tested bankruptcy system in the world, with its success story enshrined in Chapter 11 of the 1978 Bankruptcy Code on reorganisations that served as the main source of inspiration for the drafters of the EU Directive.