Court-ordered mediation in restructuring proceedings: the next reform?

By Ashok Kumar (BlackOak) and Koh Wei Lun (BlackOak)

The Singapore court has promoted insolvency mediation as a tool with tremendous utility and has encouraged parties to undergo insolvency mediation. Nevertheless, as far as the authors are aware, there has not been a restructuring in Singapore where parties have taken up the court’s encouragement to undergo mediation.

The Singapore court’s approach, which is similar to Hong Kong and England, is to encourage, but not compel, parties in restructuring proceedings to mediate, and this stems from the principle that alternative dispute resolution (ADR) should be voluntary.

However, Australia adopts a different approach where statutory provisions empower the courts to compel parties to enter mediation but not arbitration. In doing so, the Australia parliament acknowledges that in mediation, unlike arbitration, although parties are compelled to come to the table, either party is free to step away from the mediation at any point of time without any consequences to its ongoing court process and with its substantive rights intact.

Therefore, when weighed against the reasons below, the authors believe that it is time to consider whether Singapore should pass legislation that expressly empower the Singapore court with the ability to compel parties in restructuring proceedings to attend a non-binding mediation.

First, it has been widely acknowledged that insolvency mediation can be an invaluable tool. Secondly, although the Singapore court may impose adverse costs order for any unreasonable refusal to engage in alternative dispute resolution, this stick is, with respect, ineffective in and unsuitable for restructuring proceedings. Thirdly, just as in family law proceedings where the Singapore court is empowered to compel parties to mediate, the Singapore court has adopted a shift from the traditional adversarial approach towards a more facilitative and collaborative one in restructuring proceedings. Lastly, since any delay in a restructuring is likely to be value destructive, there is a need to ensure that the moratorium period is utilised fruitfully and efficiently, which may be achieved through insolvency mediation.

Naturally, should the Singapore court be empowered to compel parties in a restructuring proceeding to mediate, this power ought to be subject to the court’s discretion, and procedural and substantive safeguards.

(*) This post is a summary of an article published by the authors in SAL-Practitioner.