Unveiling Stigma in Corporate Insolvency: Analyzing Legal Lessons for India's Insolvency Framework - A Comprehensive Examination

Abstract

The historical stigma attached to personal bankruptcy, rooted in moral judgments and harsh penalties, has been a subject of extensive legal discourse. Initially perceived as a gross moral indiscretion, bankruptcy was historically viewed as a breach of trust, with debtors facing severe consequences. While some argue that public stigma against personal bankrupts has waned in recent decades due to factors such as industrialization and increased awareness of external financial pressures, others contend that the stigma persists, exacerbated by the widespread availability of bankruptcy information on the Internet. This article acknowledges the ongoing debate regarding the decline of bankruptcy stigma but emphasizes the consensus that both personal and corporate bankruptcies still carry a level of societal disapproval. While existing legal research predominantly focuses on personal bankruptcy, this study aims to bridge the gap by investigating the relationship between bankruptcy and stigma in the context of corporate insolvency. Recognizing the distinctions in effects and manifestations between personal and corporate bankruptcies, this research is crucial in understanding how stigma impacts entrepreneurs in different settings. While personal bankruptcies affect a broad spectrum of entrepreneurs, corporate bankruptcies specifically impact high-growth entrepreneurs associated with limited liability companies. By delving into this underexplored area, the article contributes to a comprehensive understanding of the complex interplay between bankruptcy and societal perceptions, shedding light on the potential implications for both personal and corporate insolvency.