This paper deals with a topic of common concern to China, Europe and the United States: the negative effects of bankruptcy stigma on the second chance (fresh start) policy encouraging restructuring of businesses as an alternative to their liquidation. In most Continental European civil law systems, for example, business restructurings are still only aspirations rather than reality. This is to a great extent due to the ubiquity of intense bankruptcy stigma as a consequence of what, for example, creditors as well as the directors and officers of the bankrupt debtor avoid participating in restructuring proceedings. The resulting dominance of liquidations is perceived as a competitive disadvantage both for China and Europe compared to the United States that possesses the top model enshrined in Chapter 11 of the US Bankruptcy Code. It was for these practical reasons that the second chance policy was given clear priority by the European Union as best expressed in the Commission Recommendation of 12 March 2014 on a New Approach to Business Failure and Insolvency. Similar policy shift characterizes the 2007 Enterprise Insolvency Law of the People’s Republic of China as visible from Chapter 8 on reorganisation and Chapter 9 on compositions (workouts). While bankruptcy stigma is present also in the United States, its effects are the least ‘‘biting’’ in this country and are an issue primarily in the context of consumer-bankruptcies. In light of the above, this article’s main claim is that without proper understanding and acknowledging the impact of bankruptcy stigma, hardly could lawmakers’ efforts aimed at forging a legal environment that would incentivize restructurings of financially distressed businesses yield success. Although some research on the topic is available, it tends to be focused on consumer bankruptcies only. A comprehensive, empirically based, interdisciplinary scrutiny of the impact of stigma on business reorganisations is still lacking just like a ‘‘handbook’’ for combating the bankruptcy stigma. This article attempts to open the doors to this new inter-disciplinary area of law with the tools of comparative law. Besides canvassing the pertaining scholarship’s hereinbefore achievements, the paper extends also to such so far neglected niches of the globe as China and the post-socialist countries of Central and Eastern Europe.

Why focus on bankruptcy stigma?

Both, theoretical and practical reasons justify paying heightened attention to, as well as researching and writing on bankruptcy stigma from a comparative perspective. These revolve around two main interlinked commonalities of all the jurisdictions within the purview of this paper. On the one hand, bankruptcy stigma is ubiquitous and thus it inevitably affects the functioning of all bankruptcy systems. On the other hand, each of these jurisdictions have posited the second chance (fresh start) policybased business restructurings as first priorities. However, although both China and much of Europe faces major challenges with shifting to such rescue-oriented systems, the stigma’s impact on the process has so far been largely neglected both by legal scholarship (especially comparative law) and by expert international bodies having been involved in assisting related law reforms. A foolproof toolbox for decreasing the intensity of stigma, or eliminating some problematic aspects of it, has not yet been forged either. The following paragraphs provide more detail on each of these points. Firstly, bankruptcy stigma is ubiquitous in modern societies, from China, through Europe to the United States (US). Although no exact, commonly accepted quantitative indicators exist,3 the available sources posit that bankruptcy stigma is considerably more intense in China4 and Europe—especially in the Continental European civil law jurisdictions—compared to the US. The intensity of stigma, understandably, varies from country to country (sometimes divergences subsist even on regional levels), due to historic reasons and the dissimilar societies, economies, as well as the non-uniform bankruptcy laws. The manifestations of stigma may also be at variance5 along these geographic lines. Notwithstanding the disparities, however, there is a common denominator of central importance to us here: the bankruptcy stigma affects the functioning of the bankruptcy system—both consumer and business bankruptcies—with varying intensity in all the jurisdictions within the purview of this article. What is known is that in general the intensity of bankruptcy stigma tends to be lower in those Anglo-Saxon legal systems that are at the same time also among the most advanced economies of the world.