Taking a Cue from Mediation in Insolvency of Lehman Brothers

Author: Mrinalini Srivastava

Legal Consultant, CUTS Institute for Regulation & Competition

The insolvency of Lehman Brothers in 2008 was a watershed moment in global financial history, causing far-reaching economic repercussions and prompting a reevaluation of insolvency procedures worldwide. In the aftermath of this significant event, the mediation mechanism used in the insolvency proceedings of Lehman Brothers presented a unique opportunity to understand the leverage of mediation compared to another form of dispute resolution.

In September 2008, Lehman Brothers initiated bankruptcy proceedings. One of Lehman Brothers' group companies, involved in derivatives trading, was a counterparty to approximately 1.2 million derivative transactions with over 6,500 different entities. In September 2009, the court-mandated compulsory mediation to address the derivative contract disputes arising from this bankruptcy. During the ensuing years, a total of 110 mediations were conducted, resulting in $333 million being recovered from Lehman Brothers' estate. This experience demonstrates the effectiveness of mediation in complex insolvency disputes. Mediation proved to be a valuable mechanism for parties to find mutually acceptable resolutions, maximising recoveries and bringing closure to the multitude of claims arising from international insolvencies.

Mediation in the insolvency resolution process is another door to reaching a settlement without undergoing the long formal adjudication process. The insolvency resolution process takes an ample amount of time and money. Including ‘mediation’ as a dispute resolution mechanism can leverage the economics of time and the cost associated with it. However, before incorporating ‘mediation’ in Insolvency Resolution Process, we must weigh it on these grounds: legality, impartiality and confidentiality. Generally, ‘mediation’ is not legally enforceable; it is based on trust and is informal in nature.

Keeping in mind that a win-win mediation in insolvency dispute resolution can help resolve a dispute promptly to mutual satisfaction, avoid adjudication costs and end the dispute peacefully. There should be guidelines for conducting ‘mediation’ as pre-insolvency dispute resolution. Some legality should be accorded to mediation agreements to avoid a multiplicity of procedures. The guidelines should bring ‘trust’ in terms of ‘confidentiality’ and ‘impartiality’ in mediation procedures.

Mediation provides equitable relief against the inherent procedural impediments of Insolvency Adjudication while keeping the business as a ‘going concern’. In Indian Legal System, section 442 of the Companies Act 2013 provides for referring company disputes to ‘Mediation’ by the National Company Law Tribunal (NCLT) and Appellate Tribunal read with the Companies (Mediation and Conciliation) Rules, 2016. Also, section 12A of the Commercial Courts Act 2015 provides for Pre-Institution Mediation in commercial disputes. Although, as of now, ‘mediation’ has not found its place for resolving insolvency disputes.

Integrating Online Dispute Resolution (ODR) platforms into the insolvency resolution process presents a transformative approach to streamline and expedite conflicts in insolvency cases. By leveraging digital communication tools and neutral third-party mediators, ODR offers accessible, cost-effective, and efficient solutions. It allows stakeholders to engage remotely, breaking geographical barriers and ensuring convenience. Moreover, ODR enhances data security and confidentiality, addressing concerns related to sensitive financial information. While challenges like technological adaptation and cross-jurisdiction enforcement may exist, the benefits of speedy resolutions, reduced costs, and improved accessibility make ODR an invaluable addition to the insolvency resolution process.

The instance of mediation in the insolvency of Lehman Brothers provides a significant case that highlights the potential benefits of integrating mediation principles and techniques into insolvency proceedings. By adopting an approach that prioritises effective communication, cooperative problem-solving, relationship preservation, and confidentiality, the resolution of complex insolvency cases could be expedited, and outcomes could better align with the interests of all stakeholders involved. Mediation in insolvency matters offers an opportunity to enhance the effectiveness and efficiency of future insolvency proceedings, ultimately contributing to more successful resolutions and the restoration of economic stability.

Redefining Legal Professions on the Anvil of Tech Transformation

Author: Mrinalini Srivastava

Legal Consultant, CUTS Institute for Regulation & Competition

In the realm of legal professions, technological advancements are poised to bring about transformative changes through incremental transformation. As outlined in "The Future of the Professions" by Richard Susskind and Daniel Susskind, this incremental transformation refers to the gradual replacement of certain aspects of legal work by technology, leading to a redefined role for legal experts.

One area where technology is already making significant strides is legal research. Traditional legal research involved extensive manual analysis of cases and legal precedents, a time-consuming task. However, with the advent of AI-powered systems, legal experts can now leverage sophisticated algorithms to streamline the research process. These systems can efficiently scan vast databases, identify relevant cases, and extract key information, saving substantial time and effort.

Moreover, technology is enabling the automation of routine legal tasks. For instance, document review, contract drafting, and due diligence processes are being revolutionised by machine learning algorithms and natural language processing. These technologies can quickly analyse and categorise large volumes of documents, identify potential risks, and suggest appropriate legal actions. By automating these repetitive tasks, legal professionals can allocate more time to complex and strategic aspects of their work.

Another facet of incremental transformation in the legal field is the emergence of online dispute resolution platforms. These platforms facilitate the resolution of legal disputes through virtual mediation and arbitration, reducing the need for in-person court proceedings. Such platforms not only improve access to justice but also expedite the resolution process, making it more cost-effective and efficient.

Despite the potential benefits, there are challenges to consider in the integration of technology into legal practice. Ethical implications surrounding data privacy, security, and the responsible use of AI systems must be carefully addressed. Additionally, the impact of automation on job roles and the need for legal professionals to adapt their skill sets to collaborate effectively with technology must be taken into account.

Incremental transformation driven by technology is reshaping the work of legal experts. From legal research to document automation and online dispute resolution, AI-powered systems are revolutionising the legal profession. As legal professionals navigate this transformation, embracing these technological advancements and developing the necessary skills to work alongside intelligent systems will be crucial for maintaining relevance and enhancing the quality of legal services.