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The Growing Role of Mediation in Bankruptcy

Pressures Continue to Grow in the Ag, Logistics Industries

As bankruptcy cases have become more complex and litigious, mediation has increasingly offered a forum for negotiation. Formal litigation of disputes in bankruptcy cases and adversary proceedings frequently imposes significant economic burdens on parties and delays resolution of those disputes. In contrast, mediation provides litigants with the means to resolve their disputes more quickly, at less cost, and often without the stress and pressure of litigation.

In recent years, mass litigation involving opioid manufacturers, asbestos-related concerns, and sex abuse situations has shifted to Bankruptcy Courts. Mediation has played a critical, if not central, role in each of these complex Chapter 11 cases of national significance.

In a world of limited dollars and precarious relationships, getting a process in place that brings most stakeholders to the table is often a tall order. Skilled mediators can help thread the needle in difficult negotiations by keeping the parties all working in the same direction. Unlike an arbitrator or a judge, the mediator does not render a decision or take a position on the merits of the dispute. In fact, a mediator lacks the authority to impose any sort of resolution. A mediator's role is to assist parties to reach a consensual settlement.

In this issue of the JCR, we explore recent developments and trends in bankruptcy mediation, beginning with an article from Rick Arrowsmith and Russell Brooks of FTI Consulting, Inc., who walk through best practices for financial advisors participating in bankruptcy mediation. They focus on the unique role financial advisors play in preparing and advising their clients during mediation.

James Lathrop of Goodwin Procter LLP examines bankruptcy cases where parties have sought to compel mediation with an unwilling party or intervene in an ongoing mediation despite the objection of another party. The article highlights important factors that courts consider when those mediation issues arise and evaluates the willingness of Bankruptcy Courts to grant such requests.

My colleague Jeremiah Ledwidge and I address amended local rules for the U.S. Bankruptcy Court for the District of Delaware that became effective February 1. Among other things, the new rules make clear that Federal Rule of Evidence 408, which excludes from admission into evidence settlement offers and communications, also applies to mediation conferences and any related communications with the mediator.

Steven Serajeddini and John Luze of Kirkland & Ellis LLP focus on the role that mediation played in driving successful results for the companies in the Chapter 11 cases of Intelsat S.A. and Windstream Holdings Inc. Their article provides an overview of the mediation process in those cases and offers a model that parties to large, complex Chapter 11 proceedings can follow to steer consensus.

Liz Boydston and Trinitee Green of Polsinelli focus on the role of a Subchapter V trustee to facilitate the development of a consensual plan in small business cases. Their article examines the Subchapter V trustee’s primary duty of promoting ongoing discussions to resolve issues that could thwart the debtor’s ability to propose a confirmable plan.

Diana Lyn Curtis McGraw of Fox Rothschild LLP focuses on the emergence of pre-discovery mediation as a tool in bankruptcy cases where a substantial number of adversary proceedings with avoidance claims are filed to claw back funds into the estate. McGraw reviews the mediation procedures implemented in four recent cases.

Cullen Drescher Speckhart

Cullen Drescher Speckhart

Cooley LLP

Cullen Drescher Speckhart is a partner with Cooley and chair of the firm’s Business Restructuring & Reorganization practice group. With deep experience in corporate restructuring and financial litigation, she provides forward-focused advice to clients with respect to business risk management and strategic implementation. Speckhart also provides tactical guidance to corporations in all aspects of solvency strategy, contingency planning, risk mitigation, and portfolio improvement through acquisitions and sales of assets and other distressed transactions.

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