Purpose. To define the principles for the formation of an effective institute of bankruptcy in the context of the economic security of business, to substantiate the model of the state's participation in the institutional design of bankruptcy in Ukraine. Methods. The analysis of the bankruptcy institute in the context of ensuring the economic security of the business is based on the institutional approach, methods of analysis, synthesis, and generalization. The substantiation of the model of the state's participation in the institutional design of bankruptcy in Ukraine was carried out on the basis of a comparative analysis of the bankruptcy institute in Ukraine and models of the bankruptcy institute in the USA, Germany and France. Results. Attention is focused on the priority importance of institutional changes in forming and developing bankruptcy legislation in the context of ensuring the economic security of business entities. Based on the results of the research, the principles of effective bankruptcy legislation are formulated: the goals and mechanisms for implementing insolvency legislation should be coordinated by the institutional environment formed in society; an important factor in the effectiveness of the bankruptcy institute is the balance of stakeholders' interests. Based on a comparative analysis of the bankruptcy institute in Ukraine and the formed models of the institute of bankruptcy in the United States, Germany and France, it has been proved that in the countries of catching-up development, which include Ukraine, there is no mechanism for automatically balancing the interests of stakeholders in carrying out the bankruptcy procedure. This necessitates the participation of the state in the institutional design of bankruptcy. It is substantiated that the model of the bankruptcy institute in Germany is the most appropriate for being implemented in Ukraine since it does not block the development of market institutes. Scientific novelty. There are proposed criteria for the effectiveness of the bankruptcy institute in the context of ensuring the economic security of business based on comparing the standards for ensuring the balance of stakeholders' interests in following the bankruptcy procedure and the institutional environment established in society. Practical significance. The results of the study form a theoretical basis for improving bankruptcy legislation and mechanisms for its enforcement from the standpoint of ensuring the economic security of business entities.