SINGAPORE ACADEMY OF LAW DISTINGUISHED SPEAKER LECTURE 2019 — “PLAN MEDIATION AS AN EFFECTIVE RESTRUCTURING TOOL”

• Author: The Honourable James M PECK Retired US Bankruptcy Judge, Southern District of New York; Senior of Counsel, Morrison & Foerster LLP.
• Published date: 01 December 2020
• Date: 01 December 2020
• Citation: (2020) 32 SAcLJ 23

1 Justice Ramesh, thank you for your very wonderful and overly flattering introduction.

2 I am delighted to be with you this afternoon and to have this opportunity to tell you about my experiences as a mediator in multiparty plan negotiations and insolvency related commercial disputes. I am a very lucky man to do work that I love and to have been invited to speak with you about an alternative dispute resolution (“ADR”) process that has taken hold and is being used successfully in the US. Mediation of reorganisation issues tends to promote compromise, save time, minimise costs and yield more favourable consensual outcomes. As you will see shortly, I am an unapologetic enthusiast when it comes to mediation. Mediation works well in practice and advances the reorganisation purposes of chapter 11.1

3 I look forward to explaining some of my experiences with mediation, both as a judge and a private mediator, and to helping you understand how this innovation in insolvency practice is being utilised with increasing frequency and success in the US. It is a great honour for me to return to Singapore as a guest of the Singapore Academy of Law to discuss this subject that I consider a forward-looking development that I think should be embraced here and in other jurisdictions.

4 Before getting into the main focus of my remarks — the use of mediation to promote the reorganisation objectives of chapter 11 and the possible adoption of these mediation techniques by other insolvency regimes (including Singapore, of course), I will mention a few things about my own background and how I became involved in mediation. It happened by accident, really, and has evolved to the point of becoming a defining characteristic of my current resume.

5 I started out as a lawyer in private practice more than 40 years ago and have had the good fortune of a varied career in restructuring and

commercial litigation that has included roles as a practitioner and more recently as a federal bankruptcy judge in a number of very significant cases. Like so many pivotal and transformative occurrences in life, I fell into bankruptcy law and restructuring by chance; in my case that happened a long while ago in 1977. I have been doing stimulating work ever since. It never gets old, and I still find problem-solving in the restructuring field to be enormously stimulating and rewarding; the more complex and convoluted the assignment, the better. I find tremendous satisfaction in counselling parties and helping them find solutions to complicated and politically challenging restructuring problems. Reaching consensus releases endorphins and gives me a terrific feeling of accomplishment. For some people, running does that — but for me, it's mediation.

6 Good luck and hard work are central to every successful career, and mine is no exception. I was fortunate from the outset to have world-class colleagues and mentors who cared enough about me and my place in the profession to give me pointers on negotiating strategy and the art of the possible in relation to dispute resolution.

7 There are masters of every craft, and I have been inspired by some great and enduring role models including the late Harvey Miller. I have come to recognise that the key to success in restructuring is not found in course materials or in lectures — including this one. The negotiating dynamic of a restructuring needs to be observed firsthand and experienced with a discerning eye. Successful restructurings do not come easily. Often they involve false starts, twists and turns, and then fresh starts. Seeing opportunity in one of those unexpected twists is an important part of the art.

8 Getting to yes in any restructuring calls for intensive and sustained dedication to the often elusive goal of building consensus. Achieving global resolution among multiple parties competing for present and future value is an iterative process that benefits from persistence, patience and diplomacy, and adherence to the rule of law. In the US, this occurs within a well-developed network of specialised courts, sophisticated professionals and commercially motivated parties in interest. The rules of engagement are well understood and include strategies, statutory regimes and codified rules of procedure designed to promote agreement among parties with adverse claims, interests and points of view. The adversarial nature of bankruptcy and the uncertainty as to how a court will rule on unsettled issues often will promote resolution of disputes by agreement rather than by judicial decree. The incentives favour compromise and are designed to encourage parties to settle.

9 The centerpiece of US insolvency practice is chapter 11 of the Bankruptcy Code and its systematic approach to claim classification and treatment. Plan formulation frequently is the product of protracted negotiations that take place with awareness that confirmation can occur over the objection of certain classes but also with the knowledge that the objective in almost all instances is a consensual outcome. The so-called cram down plan is often threatened but rarely accomplished. Objectors, more often than not, eventually fall into line.

10 Typically, the main architect of a restructuring plan is an experienced practitioner for the debtor or a chief restructuring officer. The debtor has the exclusive right to propose a plan for a period of time that can be extended, and often is, for cause. Negotiations regarding the treatment of creditor claims take place with the aid of experienced legal counsel, financial advisers and investment bankers. It is an exercise in the equitable allocation of enterprise value and the resolution of disputes regarding legal entitlement. Quite often disagreements will arise as to the valuation of the enterprise in question or the proper treatment and classification of claims.

11 With increasing frequency neutral parties have been brought on board to assist with plan negotiations when parties are unable to resolve such disagreements on their own. These neutrals are judges and former judges like me or respected senior practitioners that are invited by the parties themselves or by the court to become participants in the negotiations. Mediators function as facilitators for building consensus and avoiding potentially costly and uncertain litigation, as intermediaries to improve communications and as sources of independent insight on relative risk and reward.

12 The US insolvency regime depends on a rich ecosystem of specialised lawyers, financial advisers, investment bankers, turnaround consultants and distressed investors. Lately, mediators have been introduced into this ecosystem as a new invasive species. The mediator has become an effective force for promoting compromise in plan negotiations and has served as a catalyst to successful restructurings in a number of large and visible cases. In fact, 91% of all bankruptcy judges who responded to a survey a few years ago reported having some experience with mediation in chapter 11 cases. And in the US Bankruptcy Court for the Southern District of New York, which is where I used to work, 25 of the 73...