Debt has been a problem for millennia. The roots of the modern insolvency law are in the “jus mercatorum – merchant law”, which took shape in the North of Italy in the late Middle Ages: in case of financial distress, heavy financial and personal penalties, but also the “fida-safe conduct”, the possibility of setting disputes outside court.
Contemporary international institutions focused ADRs on commercial disputes for decades, only in the last ten years mediation in insolvency cases.
In the late ‘90s many developing countries experienced financial distress. In 1999 the World Bank began to analyse the problem and in 2001developed the “Insolvency and Creditor Rights Standards” (ICR Standards). The focus was on judicial proceedings. The possibility of resorting to mediation was regarded as entirely residual.
The World Bank continued on this path, along with UNCITRAL which -for its turn-, in 2005 developed the “Legislative Guide on Insolvency Law”, entirely focused on court proceeding. Attention was paid to expedited reorganization proceeding, informal voluntary restructuring negotiations, conducted out of court, but always analysed under the court’s supervision.
But international mediation was gaining momentum, a trend perceived by the European Union. Directive on restructuring and insolvency 2019/1023, ”preventive solutions are a growing trend in insolvency law”.
It is since the 2000s, following the 2008 financial, and economic, crisis and the one caused by the Covid pandemic (2020/2021) that insolvency law has also been applied to small and medium-sized enterprises and private individuals.
The same was true for international organizations, whose papers on insolvency proceedings, at the beginning of the century, were generally focused on the financial distress of companies, especially the large ones. But in 2012 and 2014, World Bank papers analysed consumer insolvency, along with the consequences for poverty and inequality in a developing country.
The increasing attention paid to mediation since 2015/2016, proved by the Singapore Convention on mediation (2019), led Uncitral to issue a document on the insolvency of small and medium-sized enterprises and in November 2020 a document on the use of mediation in ISDS-Investor State Dispute Settlement.
Mediation is particularly useful if the insolvency situation is not worsened too much, when there are more chances to save the ailing firm. The EWI – Early Warning Indicators will be particularly useful.
In 2016 specific attention was given to the alert index, as pointed out by the European Central Bank in the guidelines for the management (and prevention) of doubtful loans by banks: “… Banks need to develop a suitable set of EWIs (Early Warning Indicator) ”.
When the EWI – Early Warning Indicator waves the yellow flag, how to move?
A) Complete assessment of the debtor financial situation, inside the legal framework;
B) Creditor / debtor direct negotiation, based on communication and negotiation techniques: contacts, individual at first and collective later, with the various creditors, based on a shared perspective of the situation;
C) cost benefit analysis of the different options, i.e. Batna / Watna;
D) alternative forbearance approach, based on the formulation of alternative solutions and, than, the analysis of the options feasibility according to objective criteria;
E) ADR proceedings;
F) agreement / legal options.
In other words, mediation in bankruptcy.
Mediation, moreover, allows for flexible relationship management with creditors, in a differential manner: trying to reach an agreement with the “relevant” creditors and satisfying the others completely.
Easy to be said, much more difficult to be realized. This way of proceeding implies first of all an understanding of the cultural context, in which one operates; than a change of culture. And “To change a law is one thing, but how to change a culture?”.
In Vietnam, mediation has just been introduced into the legal system. The 2010 Law on Commercial Arbitration allows the parties, during the arbitration proceedings, to negotiate and reach agreement with each other to resolve their disputes. The 2015 Civil Procedure Code added a new chapter regarding the recognition results of out-of-court mediation. The Decree 22, on commercial mediation, came into effect in 2017 The Law on Mediation and Dialogue at Court was approved in 2020. Nevertheless, although the resolution of disputes by mediation gradually becomes a trend because of the awareness of Decree 22, in the legal community the use of ADR mechanism for commercial disputes in Vietnam still faces some difficulties and obstacles.
In Tunisia, the legislator adopted mediation as a peaceful method to prevent litigation in many conflicts. Several universities provide the alternative dispute methods as a specific teaching and many professionals discuss its legal aspect. However, the practice is not as developed as it should be in times of crisis. In various regulations, mediation and other conciliation methods prevent harmful situations; however, litigation covers the whole spectrum and is the sole solution for disputants. Anyway, according to the insolvency law, a conciliator can have an important role to provide an amicable settlement in case of economic difficulties; the scope of conciliation here is to reach an agreement to reschedule debts and prevent bankruptcy.
In general, can mediation help, and how? and what is the main driver of success? and there is a particularly helpful kind of mediation proceeding? Mediation can be useful to prevent / manage insolvency disputes. But in developing countries it seems there still is a long way to go.
P.S. - The EBRD - European Bank of Reconstruction and Development issued the “Insolvency Assessment on Reorganisation Procedures” report in 2022. It provides a comprehensive cross-jurisdictional analysis of business reorganisation tools and stakeholders' perceptions on business reorganisation in 38 emerging economies, that are part of the EBRD regions, while exploring recent insolvency trends and practices in more advanced markets such as France, Germany, England and Wales, and the United States. Attention is paid to the hybrid procedures at pages 25 and 120, proceedings that “combine the features of both private workouts and formal reorganisation procedures. … the restructuring arrangement is negotiated privately with creditors and is then submitted to the court for its confirmation”.
ENDNOTES
Article in the book “Compromiso con los Objetivos de Desarollo Sostenibile”
(Commitment to the SDGs - sustainable development goals).
Editorial Bosch. Rosa Pérez Martell, Director. December, 2021
Aditi Aggarwal, “An overview of mediation and its future in insolvency proceedings” 9.10.2021
https://blog.ipleaders.in/an-overview-of-mediation-and-its-future-in-insolvency-proceedings/
E. Altman, “Financial ratios, discriminant analysis and the prediction of corporate bankruptcy”, in Journal of Finance, 1968,
W.H. Beacer, “Financial ratios as predictors of failure”, in Journal of accounting research, 1966
Salma Ben Ayed, “The Revival of Mediation in Central North African Countries”, in Asian Pacific Mediation journal.19 /3/2020
Leslie A. Berkoff (and others) “Bankruptcy mediation”, American Bankruptcy Institute, 2016
André Boraine and Melanie Roestoff, “The Treatment of Insolvency of Natural Persons in South African Law, An Appeal for a Balanced and Integrated Approach” , The World Bank Legal Review, Volume 5: Fostering Development through Opportunity, Inclusion, and Equity, 2014, page 91
Giovanni Italo Cassandro, “Le rappresaglie ed il fallimento a Venezia nei secoli XIII – XVI”, Lattes & C. Editori, Torino, 1938, pag.150
Dat Phan Trong, “An overview of commercial arbitration in Vietnam”, accessed on October 26, 2021 https://www.viac.vn/images/Resources/Legal-Research-and-Study/200722
European Bank of Reconstruction and Development, “Insolvency Assessment on Reorganisation Procedures Preliminary assessment report”, April 2021
https://www.ebrd-restructuring.com/storage/uploads/documents/94228029cc1b26d88b75222c6a9d0df0.pdf
European Bank of Reconstruction and Development, “Commercial Laws of Tunisia, an assessment by the EBRD”, March 2013
European Central Bank, in “Draft guidance to banks on non-performing loans. Early warning mechanisms” (page 34), 12.9.2016
https://www.bankingsupervision.europa.eu/legalframework/publiccons/html/index.en.html
https://www.bankingsupervision.europa.eu/legalframework/publiccons/pdf/npl/npl_guidance.en.pdf
European Union - Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32019L1023&from=IT
David Graeber, “Debt: The First 5,000 Years”, Melville House, 2011
https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
Thomas G. Giglione, Tran Van Nam, Fabien Lambert, “Decree 22 on Commercial Mediation and the Dispute Resolution Process under EVFTA”, in Vietnam Law and Legal Forum; Issue 24 (279-280); pp 31-34, 2017
Alessandro Grillone, The Historical Foundation of Bankruptcy European Law: Restructuring and Second Chance Policy”, 2021
Mohamed Taieb Hamadi, Sami El Omari, Wafa Khlif « Le manager face au juge lors du redressement judiciare d’entreprise: un risque de Manipulartion à travers l’expert comptable judiciaire» EMS Editions | « Question(s) de management » 2016/3 n° 14 | pages 27 à 40
https://www.cairn.info/revue-questions-de-management-2016-3-page-27.htm
Koran, Surah Al Baqara
International Finance Corporation, “Alternative Dispute Resolution Platform. Pilot Project Management Manual for Court-Referred Mediation”, 2005
https://www.cicr-icrc.ca/images/articles/adr_manual.pdf
Esher Jacob A. , “Alternative dispute resolution in U.S. bankruptcy practice”, Boston 2009
http://www.mwi.org/images/publications/esher_adrbankruptcy.pdf
Esher Jacob A., “Recent use of mediation for effective management of large scale insolvencies”, 2015
European Union, Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32019L1023&from=IT
Joseph Johnston, Solon's Reform of Weights and Measures, Cambridge University Press, 23 December 2013
Jason J. Kilborn, “Determinants of Failure ... and Success in Personal Debt Mediation” - Transnational Dispute Management 4 (2017) “Comparative and International Perspectives on Mediation in Insolvency Matters”
http://www.transnational-dispute-management.com/journal-browse-issues-toc.asp?key=74
Pawel Klos - “Mediation in the Legal System of the United Nations” 12.10.2021
https://www.academia.edu/52454028/Mediation_in_the_Legal_System_of_the_United_Nations
R. Libby, “Accounting ratios and the prediction of failure: some empirical evidence”, in Journal of accounting research, 1975
Claudia Maffetone, “110 Years of Mediation: Principles, Opportunities, and Challenges”, Mediate.com, 2016, http://www.mediate.com/articles/MaffetoneC1.cfm
Giovanni Matteucci - “Insolvenza e negoziazione in Italia: uno sguardo al passato per comprendere il presente e, forse, prevedere un po’ del futuro”, in “Il Fallimentarista”, 21.2.2013
http://www.ilfallimentarista.it/insolvenza_negoziazione_sguardo_storico
Giovanni Matteucci, “Festina lente in NPL management in Italy” – Roberto Romagnoli, former S.G.A. leader, in Eurofenix Autumn 2017, page 32
Giovanni Matteucci, “Non-Performing Loans Prevention in Italy: Early Warning Indicator and Negotiation - Mediation in Bankruptcy”, 27.11.2017
www.transnational-dispute-management.com/article.asp?key=2501
Giovanni Matteucci, “Enforceability of international commercial mediation agreement, the Singapore Convention” in Asia Pacific Mediation Journal Vol. 2, No. 1, March 2020, page 11 at
http://www.mediate.or.kr/base/data/APMJ.php
Giovanni Matteucci, “Mediation and business crisis in Italy, 2021. Where’s the training?” in Mediate.com, October 2021 https://www.mediate.com/articles/mattecucci-mediation-italy.cfm
Rajiv Mani, “Mediation in insolvency matters”, 2020
https://ibbi.gov.in/uploads/resources/1acc8439aab101c013221a481fe108a6.pdf
Randy Newsome, “Mediation disputes arising out of troubled companies. Do it sooner than later”, 2011
http://www.adrmaremma.it/english/newsome01.pdf
OECD, “Dispute Settlement Provisions in International Investment Agreements: A Large Sample Survey” 5,9 (2012), http://www.oecd.org/investment/internationalinvestmentagreements/50291678.pdf
BJ Orzechowski and Peter Lyster , “Impairment testing: Effectively using the qualitative assessment” 2012 http://www.journalofaccountancy.com/issues/2012/dec/20126497.html#sthash.Hf3Z7Jpl.dpuf
L. Carballo Pineiro and K. Fach Gomez, “Comparative and International Perspectives on Mediation in Insolvency matters: An Overwiew” TDM Special Issue 4.2017, 28.11.2017
https://www.transnational-dispute-management.com/journal-browse-issues-toc.asp?key=74
Stefania Pacchi, Le misure urgenti in materia di crisi d’impresa e risanamento aziendale ovvero i cambi di cultura sono sempre difficili, in Ristrutturazioni aziendali, 9.8.2021
https://ristrutturazioniaziendali.ilcaso.it/Articolo/50
Phan Trong Dat, “An overview of commercial arbitration in Vietnam”. Accessed on October 26, 2021 https://www.viac.vn/images/Resources/Legal-Research-and-Study/200722
Plutarco, Vita di Solone, 13-22 (Plutarch, Life of Solon)
Giulia Pusterla, “To change a law is one thing, but how to change a culture?” Insol Europe, Inside Story, Italy, 2014 https://www.insol-europe.org/download/inside_story/8075
Roman Law, Twelve Tables
https://archive.org/stream/thetwelvetables14783gut/14783.txt
Sacra Bibbia – CEI, L’Antico Testamento, Pentateuco, Deuteronomio
https://www.maranatha.it/Bibbia/1-Pentateuco/05-DeuteronomioPage.htm
James South,”Global Mediation Development”, Cedr, 28.6.2016
https://www.cedr.com/articles/?item=Global-Mediation-Development
S.I. Strong, “Beyond International Commercial Arbitration? The Promise of International Commercial Mediation”, University of Missouri School of Law, Legal Studies Research Paper Series no.2013-21
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2363149
Mohamed Taieb Hamadi, Sami El Omari, Wafa Khlif, « Le manager face au juge lors du redressement judiciare d’entreprise: un risque de Manipulartion à travers l’expert comptable judiciaire» EMS Editions | « Question(s) de management » 2016/3 n° 14 | pages 27 à 40
https://www.cairn.info/revue-questions-de-management-2016-3-page-27.htm
Tunisian Court of Accounts,“Financing the economy and development”, 31st annual report, 26.12.2018, page 217 http://www.courdescomptes.nat.tn
Nam Tran Van, “Arbitration offers a more painless way for enterprises to resolve disputes”, in Vietnam Law and Legal Forum; Issue 163 pp 10, 2009
Tran Van Nam, “How Law Faculties in Vietnam can Promote Mediation and Negotiation Skills”, in 8th Asia Pacific Mediation Forum, Vietnam, Accessed on October 30, 2021 at https://apmf2017.mediation.vn/speakers/mediation-education-training-standards-accreditation/
UNCITRAL, “Legislative Guide on Insolvency Law” – 2005
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf
UNCITRAL, The Use of Mediation in ISDS, 2021
https://2021-uncitral-wg-iii-intersessional.net/
UNCITRAL, “Legislative Guide on Insolvency Law, part 5 - Legislative Recommendations on Insolvency of Micro and Small Enterprises” 2021
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/part_5_en.pdf
United Nations, “Guidance for Effective Mediation”, September 2012
https://www.c-r.org/resource/united-nations-guidance-effective-mediation
Rosa Marìa Rojas Vèrtiz, “Insolvency Proceedings for Natural Persons: Why is Latin America innovating” 2018, the Norton Journal of Bankruptcy Law and Practice
World Bank, “Principles and Guidelines for effective Insolvency and Creditor Rights Systems”, Introduction and executive summary, page 2, April 2001
World Bank, “Alternative Dispute resolution Guidelines”, 2011
World Bank, “Alternative Dispute Resolution Center Manual: A Guide for Practitioners on Establishing and Managing ADR Centers”, 2011
World Bank, Insolvency and creditor/Debtor Regimes Task Force - Working Group on the Treatment of the Insolvency of natural Persons – “Report on the Treatment of the Insolvency of Natural Persons”, 2012
World Bank, “Insolvency and debt resolution”, 1.2.2021
https://www.worldbank.org/en/topic/financialsector/brief/insolvency-and-debt-resolution
Guest contributors
SALMA BEN AYED is assistant professor in private law, Tunis University. She is involved in the academic activity in economic law and criminology. She wrote papers in economic law and shared workshops and webinars in mediation.
TRAN VAN NAM, Ph.D., Associate Professor, currently Dean at the National Economics University (NEU) Hanoi, Vietnam. He participated in the Vietnam International Arbitration Centre (VIAC) as an arbitrator and a mediator, practicing trade law and intellectual property law.