Why insolvency practitioners should use mediation
As one of the few insolvency lawyers who is a mediator I still remain surprised that insolvency practitioners do not make more use of mediation.
While I appreciate that many lawyers still feel to suggest mediation is a sign of weakness in their case, that is quite simply wrong, it is just common sense. In any event experienced litigators know there are ways of engineering a mediation without showing weakness. Mediation provides a quick and commercial settlement and takes away the risks of any litigation. What more could an IP want?
Below I deal with some frequently asked questions to enable the practitioner to have a better understanding of the mediation process before going on to look at how it can be used in insolvency situations.
What is mediation?
It is a confidential and flexible process conducted by a neutral person who helps parties towards a negotiated agreement of a dispute during which the parties retain the ultimate control of the decision to settle and the terms of the resolution.
Practically mediation is an excellent method for settling any dispute quickly, commercially and without the cost, time and risk associated with the litigation process.
However, to maximise the benefit of the process it is not a case of simply sitting back and allowing the process to envelop you, but having a "game plan"
What is the role of the mediator?
He is there to facilitate a settlement of your case. He will not adjudicate on the merits or provide a judgment, but will work towards an agreed settlement.
A mediator starts the process by discovering the facts, before moving to reality test the merits of their case with the parties. He will look at the costs that have been incurred and will be incurred going to trial and the best case and worst case scenarios. Only then will he start to explore ideas for settling the case before moving to record the terms of settlement.
What are the advantages of mediation?
For the insolvency practitioner I believe there are three major advantages, namely:
A mediation could be organised in a day, but realistically can be organised within seven days if the parties want a speedy resolution to a dispute. The process normally takes a day. This is in comparison to the court process which can take from 12 to 18 months, if all goes well, and a court hearing that could turn into weeks.
Cost comparisons will vary depending on the size nature of the case. In terms of the mediation, the mediator will charge in an average case something in the region of £1,250 plus VAT per party. If the mediation lasts for over 8 hours the mediator will charge a further £150 per hour per party. Contrast this to the hourly charge out rate that you pay to your solicitor and the length of the proceedings and the trial where for a case with a 3 day hearing you will be billed in excess of £50,000. There will be significant cost savings.
Mediation puts you in control of the risk of losing and the adverse costs order. There are two sides to every story. One party is going to lose. The Judge is going to have to form a view of the parties and how they perform in the witness box. He is going to have to find for one party and the losing party always feels that he got it wrong. You assess the risks of your own case. You find out the strengths of the oppositions case. Then you can take a view of the "risks of litigation" and negotiate a settlement around that risk and the cost of proceeding to trial.
What are the disadvantages of mediation?
The downside is that you will have had to pay for the costs of the day of the mediation.
However, if you have used the mediation process to its full extent, you will have had the opportunity to reassess the merits of your own case with an independent third-party, while at the same time you will have found out the strengths and weaknesses of your opponents case. This inevitably leads to narrowing the issues as you go forward and saving of time and cost.
What is the role of mediation in insolvency proceedings?
Mediation should be used by the office holder to maximise realisations for the creditors at the least risk
All reading this article will be aware of the costs of litigation and the risks associated with it. Even if the case is successful at trial there are still the problems of enforcement, often against an individual who has given personal guarantees to others to support the failed company.
Mediation provides the opportunity to settle the case. The mediator will ensure that the defendant's very best offer is available to you. Having prompted the mediator throughout the day to probe and discover the strengths and weaknesses of the defendant's case, while having listened to the mediator's own analysis of your case, which will have included an analysis of the cost and percentage chances of success, you will have to hand all the information you need to perform a cost risk benefit analysis.
Having undertaken mediation you are in a position to accept the defendant's offer, which you can justify to the creditors, or decide to risk the cost and time of proceeding to trial in the full knowledge of all the relevant facts.
What type of insolvency case is suitable?
The simple answer is that any dispute or conflict which arises within the case.
Any litigation involving the company or the bankrupt prior to appointment can be resolved through mediation.
Below I list some examples where I have also seen mediation used to resolve claims involving the office holder:
- Transactions at an undervalue
- Transactions defrauding creditors
- Misfeasance claims
- Recovery of directors loans
- Claims by the wife relating to the ownership of the matrimonial home
- Retention of title claims
Mediation is a quick and cost effective method of resolving disputes. In the recovery of any asset or litigation it should be at the forefront of the IP's mind to maximise realisations of the assets for the creditors