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Jack Esher’s article “Insolvency Mediation Around the Globe” is published in GRR’s 2018 inaugural magazine

CBI Principal Jack Esher’s article is featured in the January online edition published by Global Restructuring Review (GRR). The article gives an illuminating summary of key developments in dispute resolution in insolvency cases around the globe, including Canada, South America, Europe, Southeast Asia, Asia, Russia and Australia. It also highlights related judicial and legislative developments.  Download or read the article here:

Insolvency mediation around the globe


Jacob (“Jack”) Esher, a principal of the cross-border mediation and consulting firm CBInsolvency LLC and who served as a primary mediator for international disputes in the Lehman Brothers case for over six years, looks at the historic use of ADR in bankruptcy cases and argues for a greater role for mediators in light of recent efforts by legislators and judges to harmonise their approaches to insolvency.


Seeing the development of mediation in insolvency cases over the past 10 or 15 years, and particularly the last five, has been pretty exciting. At least in the US, mediation has reached a tipping point and is commonly used from the most sophisticated reorganisations to the smallest pro bono cases. I had the good fortune and opportunity to serve as a primary mediator for six years in Lehman Brothers’ New York Chapter 11 case, in which mediation was used most effectively. A recent status report filed in the Lehman proceedings stated that over US$3.1 Billion had been collected in 500 alternative dispute resolution (ADR) matters resolved with 593 counterparties. Of the 267 disputes that went through mediation and were concluded, 263 were settled and only four failed to reach settlement.


The reported Lehman mediation procedure involved the resolution of numerous affirmative derivative contract claims asserted by the Lehman Estate against multiple counterparties. This type of mediation procedure in insolvency cases is usually referred to as an “ADR Procedure” or a “Claims Facility”, and these procedures have been used for decades in large US cases for large-scale recovery actions and disputed proofs of claim. In one of the first uses of a facility in the 1990s, the procedure implemented in the Greyhound Bus Chapter 11 case involved more than 3,000 claimants. Initial uses in subsequent cases resolved substantial numbers of disputed claims without resort to more expensive and time-consuming court processes, resulting in these procedures becoming a mainstay in large cases.

More recently, mediation has also been used to assist in the resolution of complex, multi-party plan disputes. While official reports of these mediation efforts are limited, there are excellent published articles (see References below) that provide illuminating anecdotal summaries highlighting mediation’s effectiveness (and some failures) to resolve plan disputes in the US, including one of the largest efforts for the City of Detroit Chapter 9 case.


But what about outside of the US? This article takes a look at what’s going on around the globe. Regrettably, the advance of mediation in the arena of international insolvency is slow.


Mediation and insolvency: A slow brew


It is difficult to find sources of information to determine the extent of use of mediation in insolvency cases, primarily due to the fact that mediation is inherently private and cases resolved through it do not result in reported decisions. However, we do know that, despite its recent growth, the use of mediation in insolvency cases is several years behind its use in commercial cases generally.


Using the US experience as a benchmark, it is possible to see how, as mediation becomes more prevalent and awareness of it increases in a jurisdiction generally, it will come into the insolvency practice there as well. Consequently, countries such as the UK and certain other countries in the European Union where mediation has a relatively robust presence generally are likely candidates for using mediation to resolve insolvency disputes.


Canada has already developed this to a significant extent, and mandates mediation in personal bankruptcy cases as well as farming matters. Similarly, France appears to be ahead in implementing mediation in matters involving distressed businesses, where pre-insolvency procedures known as mandat ad hoc (ad hoc mediation) as well as more formal conciliation, are commonly used. And Australia, generally a very mediation-friendly country, uses mediation to a significant extent in large insolvency-related cases in its Federal Court. Australia has developed national accreditation standards for mediators, and the Federal Court maintains a staff of Registrars of the Federal Court from which it appoints mediators to serve in appropriate cases.


However, mediation has not been used in insolvency cases in many countries due to antiquated insolvency regimes, which do not permit determinations of whether a company can be saved and under what terms. Instead, some of those countries provide a carte blanche to secured, governmental and even unsecured creditors, typically resulting in a quick liquidation of a debtor’s assets.


For example, Russia’s insolvency laws have been described by lawyers at Cleary Gottlieb Steen & Hamilton in GRR’s European, Middle Eastern and African Restructuring Review 2017, as follows: “The Russian insolvency process lacks predictability and effective rehabilitation procedures and, thus, mechanisms that would incentivise a debtor to initiate insolvency at an early stage, with the most common outcome of the insolvency process being liquidation of the debtor rather than recovery of the debtor’s financial position.”


In jurisdictions like this, the leverage of law and relative strength of position between the debtor and its creditors do not provide an adequate base from which negotiations and mediation would be encouraged to be pursued.


However, there have been notable advances in insolvency reform in several countries. Recent improvements in insolvency procedures across Europe, most notably the French Sauvegarde, the Dutch Akkoord, the German Protective Shield, the Spanish Pre-Concorso, and the Romanian Preventive Concordat suggest that whether in or out of court, the desirability of achieving consensual restructurings and avoiding straight liquidations in cases is high. Developments in Singapore, discussed below, are also noteworthy. This is coupled with an increase in the awareness and development of mediation generally, which should lead to increased use of mediation in insolvency.


The European Parliament has promulgated rules and recommendations for the broader use of mediation generally in the cross-border context within the European Union. An extensive study on the 2008 EU directive – on certain aspects of mediation in civil and commercial matters – for the use of mediation for disputes in cases, and particularly cross-border matters, was completed in 2014 and updated in 2016 by the European Commission. While it indicates that mediation continues to develop in Europe, there is still a cultural roadblock in favor of arbitration and other adjudicative processes and judges remain reluctant to refer parties to mediation. Specifically regarding insolvency cases, the report states:


One area where mediation remains underdeveloped is that of insolvency proceedings. It should be recalled that in its Recommendation on a new approach to business failure and insolvency, the Commission has encouraged the appointment of mediators by courts where they consider it necessary in order to assist the debtor and creditors in the successful running of negotiations on a restructuring plan.

The “Recommendation” in the quoted paragraph of the study refers to the recast European Insolvency Regulation (EIR), much of which went into effect on 26 June 2017. The mediation suggested by the EIR is for the resolution of the insolvency cases of groups of related companies in different countries, such as parent and subsidiaries or affiliates, by an appointed “coordinator” who could mediate among the “insolvency practitioners” in charge of the various proceedings in each country toward a global restructuring. UNCITRAL is working on model legislation to facilitate the cross-border insolvencies of multi-national enterprises as well. This clearly indicates that the seeds are being sewn for increasing the use of mediation in insolvency cases in Europe and the UK (however, Brexit has raised questions about the future viability of EU Directives in the country).


International advances in general mediation


While there is currently only limited use of mediation in insolvency matters outside the US, commercial mediation continues to grow everywhere. Consequently, it may be informative to look at a few highlights in the development of mediation globally, albeit not specific to insolvency. Many of these developments should be directly applicable to insolvency disputes, whether to resolve discrete litigated matters such as claims or recovery actions or to achieve ultimate restructurings. For example, there are interesting new developments (discussed below) in procedures to provide for the enforcement of mediated settlement agreements in a more effective way than to have to initiate an action on contract in the appropriate forum.

UNCITRAL continues to promote its Model Law on International Commercial Conciliation (MLICC) (in many parts of the world, the term “conciliation” is often used interchangeably with mediation). UNCITRAL has also proposed a multilateral convention on the recognition and enforceability of international mediated settlement agreements (iMSAs). This was explored in depth at the recent 65th session of the UNCITRAL Working Group II on arbitration and conciliation in Vienna. A standardised, expedited enforcement scheme for iMSAs such as is available for arbitration awards is considered desirable to avoid the time, cost and expense of pursuing enforcement as would be required for the typical contract.

To address the issue of enforceability of mediated settlement agreements, mediation is sometimes used in combination with arbitration in hybrid processes such as the “arb-med-arb” process suggested by the Singapore International Mediation Centre and the Hong Kong Mediation Centre. This brings in the more developed protocols for arbitration awards, notably the New York Convention, as one answer to the enforcement of mediated settlement agreements. However, there is considerable controversy over engrafting arbitration rules, procedures and enforceability standards onto mediation, which has very different ground rules and expectations in confidentiality and party autonomy, not to mention enforceability of more flexible or creative resolutions imbued with subjective standards of fairness, such as issuance of an apology.

In some countries such as Thailand, the overwhelming presence of disputes clogging up the judicial system has been a primary motivator for establishing a mediation system. I, together with my colleague George Kelakos, a former vice president for international affairs at the American Bankruptcy Institute (ABI), was the lead mediation trainer during 2001 through 2005 for the ADR Office of the Judiciary in Thailand, training approximately 750 mediators for every civil court in the country through a program funded by US AID and the Thai non-profit Kenan Institute of Asia. This effort grew out of the ABI’s efforts to help the country reform its insolvency laws.


Brazil is also an example: according to a Kluwer Mediation Blog article by Rio de Janeiro and Miami-based mediator Paul Eric Mason, The Brazilian Mediation Wave – Will It Rise, “Brazil is a country where new approaches and modalities are starting to be used to deal with disputes because, among other things, the Brazilian court system has a backlog of over 100 million cases….”. Similarly there is a new mediation policy in Vietnam, where the Government of Vietnam issued Decree no. 22/2017 (24 February 2017) on Commercial Mediation.


In these countries, as in Russia, the development of mediation is a product of governmental action, as opposed to a more organic growth, as Tsisana Shamlikashvili – founder of the Scientific and Methodological Center for Mediation and Law – writes in her article State of the Art: Mediation in Russia:


While in most western countries, mediation was developing mostly as a grassroots movement, Russia’s model was much more top-to-bottom. The leading role of the state was in attempting to modernize its legal system, as well as the culture of conflict resolution prevalent in Russian society.


Since insolvency procedures are a product of governmental and judicial actions, mediation can readily be inserted, accelerating the development of its use considerably in any jurisdiction. An excellent example of this top-down approach is Singapore, which has implemented new insolvency procedures that resemble Chapter 11, while at the same time developing and strengthening its mediation procedures. In fact, the Singapore Mediation Centre already maintains a mediator panel of insolvency experts.


Related developments in the judiciary


Singapore was also the site of a meeting earlier in 2017 which produced the Judicial Insolvency Network (JIN) Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters. Drawing from the existing ALI-III Guidelines of a similar nature, the JIN Guidelines represent the next generation of judicial cooperation in cross-border cases. “I believe that the guidelines speak for themselves as carefully considered, judge-developed guidelines to supplement and enhance statutory directives already in place under Chapter 15 of the Bankruptcy Code for cooperation and coordination in cross-border cases”, stated Judge Robert Drain of the Southern District of New York Bankruptcy Court in a GRR news story reporting their adoption in New York and Bermuda. Along with Singapore, the US (SDNY and Delaware) and Bermuda, initial adoptees of the Guidelines include Canada (Ontario), England and Wales, the British Virgin Isles, the Cayman Islands and Australia (Federal Court and New South Wales).


Looking at these judicial efforts and considering the UNCITRAL and European Union efforts, one can easily see that the growth of mediation does not exist in a vacuum; rather, it is a part of a paradigm shift toward a more party-autonomous dispute resolution culture, providing for parties’ retention of greater control and decisional authority. The International Bar Association’s Mediation Committee has referred to this as “Consensual Dispute Resolution”, or “CDR”.


Where do we go from here?


As has been experienced in the US, it is beyond argument that mediation can be highly effective in resolving disputes and saving costs. However, getting parties to use it is often problematic without some form of court or regulatory compulsion. The European Commission study recognises this quandary and states:


The above shows that practices to incentivize [sic] parties to use mediation, apart from some specific instances set out above, are not yet generally satisfactory. Further efforts at national level – in line with the respective mediation systems in place – should therefore be made.

Current legislative, judicial and international commerce efforts to design more cooperative and efficient insolvency processes will yield better results for debtors, creditors, and the overall economy. Specific measures to support and encourage the use of mediation in insolvency cases are playing an important part in these developments, and can be critical to achieve success in complex, multi-party proceedings.






Thanks to CBI Principals Dan Glosband and Judge Leif Clark, and thanks to Chuck Doran, Director and Mediator at MWI, for assistance with this article.

Polina Lyadnova, Olga Prokosheva and Ekaterina Dorokhova, Russia: Overview, The European, Middle Eastern and African Restructuring Review 2017, https://globalrestructuringreview.com/benchmarking/the-european-middle-eastern-and-african-restructuring-review-2017/1137688/russia-overview

James M. Peck and Erica Richards, Bankruptcy Mediation:Case Studies, Considerations and Conclusions, The International Comparative Legal Guide to Corporate Recovery & Insolvency 2014, Chapter Four (Global legal Group, 8th Edition 2014)

Jacob A. Esher, Recent Use of Mediation for Resolution and Effective Management of Large Case Insolvencies, International Corporate Rescue, Volume 12, Issue 6 at 349 (Chase Cambria Company (Publishing) Ltd, 12/2015)


Hon. Justice Glenn Hainey and E Patrick Shea, Mediation in Canadian Insolvency (ABI 2017 Annual Spring Meeting, The Potential for, and the Challenges of, Mediationin Cross-Border Insolvencies)


Directive 2008/52/EC of the European parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters, OJ L 136, 24.5.2008, available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32008L0052&from=EN

and study on the Directive available at http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1474566207231&uri=CELEX:52016DC0542


Paul Eric Mason, The Brazilian Mediation Wave – Will It Rise? http://kluwermediationblog.com/2016/10/21/the-brazilian-mediation-wave-will-it-rise/


Tsisana Shamlikashvili, State of the Art: Mediation in Russia, Alternatives, Vol. 33 No. 9 at 136 (CPR October 2015).









© Jacob A. Esher 2018

By Jack Esher