Function and Objectives of Insolvency Law

Why have insolvency law? The simple answer to that question is that credit is indispensable in a modern free market economy but credit brings with it the possibility of default. The extension of credit in whatever form, and whether in large or small amounts, creates a need for the law to provide remedies to deal with that default when it occurs. The ordinary remedies are private remedies; the creditor obtains and enforces a judgment for its private benefit but sometimes the debtor cannot pay because its liabilities are greater than its means. Insolvency law then provides the method by which the remaining assets are administered in accordance with a predetermined scheme, replacing private competition between creditors with an orderly distribution to all in so far as there are assets to support it.