Vol 19 (2022) - Issue 2

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The Next Stage of the Insolvency-Mediation Paradigm: Mandatory Referral Powers as a Restructuring Tool

Synopsis
Jurisdictions globally are now transitioning from the interim fiscal support and temporary insolvency relief measures for businesses that applied during the peak period of COVID-19 towards enduring insolvency law reform measures which simplify insolvency processes and provide more flexible restructuring options for viable businesses.
A number of jurisdictions have already implemented new formal processes targeted towards restructuring – for example, the new small business restructuring ('SBR') process in Australia which has applied since 1 January 2021, the similar simplified insolvency program in Singapore which is currently the subject of an 18 month trial ending in July 2022, the new Subchapter V of Chapter 11 for small businesses in the United States and the new Part A1 moratorium and restructuring plan introduced in the United Kingdom in June 2020.
Those improved formal frameworks have been very beneficial developments. Indeed, having in place effective, flexible formal insolvency alternatives specifically for micro, small and medium-sized enterprises ('MSMEs') is recommended in the World Bank's Principles for Effective Insolvency and Creditor/Debtor Regimes ('World Bank Principles'), the revised edition of which was released in April 2021. This is also recommended in the Legislative Recommendations on Insolvency of Micro and Small Enterprises, developed by Working Group V and approved by UNCITRAL in July 2021 ('UNCITRAL Recommendations') to serve as a framework to guide the design and implementation of MSME formal insolvency alternatives across the globe.
Nevertheless, aside from formal insolvency alternatives, there has also been a growing focus on how restructuring and corporate and business rescue may be promoted by alternative dispute resolution ('ADR') processes such as mediation. The benefit of mediation in this context is also recognised in the World Bank Principles, as well as in the UNCITRAL Recommendations.