The Regulatory Paradox: Why Efforts to Govern AI May Sabotage the Global ‘Rescue Culture’ in Insolvency?

A Comparative Analysis of the EU and U.S. Approaches to AI-Driven Insolvency Prediction

Abstract

Insolvency rules are no longer merely instruments of closure; for some time, they have been transformed into levers for recovery. The transition from a liquidation culture to a rescue culture is now underway, as evidenced by Directive (EU) 2019/1023 and the US model of Chapter 11 and the SBRA, both oriented towards early detection mechanisms and more flexible restructuring procedures. In this context, predictive Artificial Intelligence has emerged as the technology best placed to give concrete form to the rescue culture: timely diagnoses, targeted plans, and greater efficiency. However, this article highlights a Double Regulatory Paradox that risks jamming the mechanism. In Europe, one could speak of a “Mandate vs. Barrier”: on the one hand, the public obligation to promote accessible algorithmic tools; on the other, the AI Act may qualify advanced AI-driven EWTs as high-risk systems, thereby increasing the compliance costs for the providers, public-private developers and professional intermediaries that are expected to make such tools available to SMEs. The burden is therefore not imposed directly on SME debtors as users, but indirectly on the ecosystem that should develop affordable and accessible rescue-oriented tools. In the United States, the paradox assumes the form of “Innovation vs. Trust”: a light regulatory framework encourages rapid experimentation, but the lack of binding standards fuels opacity and legal uncertainty, reducing the usability of AI as an evidentiary basis in Chapter 11 proceedings. The result? Two systems that, while moving in opposite directions, both fail to effectively integrate AI into crisis management. The solution is clear: insolvency-aware regulation capable of adapting to the context of crisis. In Europe, this means preferential lanes for rescue tools; in the United States, minimum standards of legal reliability. Only in this way can the promise of the rescue culture be translated into reality.