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Mediation, a different approach to court-ordered liquidations

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Seeking the best possible compromise through mediation

par Isabelle DIDIER
Chairman of GRIP 21

For more than ten years, I have exercised a difficult yet fascinating profession that is often very poorly perceived by the public: that of the court-appointed liquidator. The images that go with the job are merciless: a struggling company hounded by creditors, laid-off employees, depressed executives, assets auctioned to the advantage of unscrupulous merchants… and into the fray steps the court-appointed liquidator to settle the human and economic disaster with a few expedient administrative procedures! Needless to say, the truth lies elsewhere and is more complex. Men and companies are all unique, and the economic realities that go with each bankruptcy case are, too, whether the company to be liquidated is a one-man show or has sales of two, ten or fifty million euros. The reasons for bankruptcy range from simple management error to the economic climate to deliberate wrongdoing with far-reaching penal implications. The court-appointed liquidator, under the judge’s supervision, has to adapt to all of these complex situations and, in an atmosphere of crisis, find suitable solutions that obviously suit no one in the end. The rigidity of the administrative and judicial mechanisms set in motion and the length of the proceedings, which can take as many as ten years before they are completed, are frustrating all around and leave everyone with the feeling that they have been wronged. Not to mention the disastrous human consequences of the legal mechanisms, once deployed: lost jobs for the employees, broken spirits for the former executives, whose sense of failure is reinforced by the brutality of the law. And then there are the legal expenses. It has to be said that court-ordered liquidation never ends happily, though one might add that my profession often bears the symbolic weight of an economic and human disaster that began well before the justice system got involved.

Finding a way for the parties to compromise

Can such economic and human loss be avoided? No, not if one adheres to the profession’s routine procedures without wondering how the potential inherent in each case could be managed better. Yes, if one insists on an alternate approach to the profession, an approach based on sustainability and mediation, as I do and have been working to create for years. I start with the principle that it is preferable to find a way for the various parties to compromise before embarking on a legal liquidation process with uncertain results. A compassionate way that tries to preserve human talent yet strives for pragmatism and economic efficiency. When everything is going wrong, when the conflicts among people seem insurmountable, when the company’s losses continue to mount, there is a kind of negative inertia that seems to drag everyone down… At such times, the problems must be reviewed from the bottom up with unwavering determination and a single-minded effort to listen to all sides. Attention must be focused on the ailing company’s unutilized potential, on its economic and human resources. The first goal is to step back from a situation that has veered towards the irrational so that dialogue may begin anew among the parties. No more heads rolling, no more entrenched positions on each other’s failings. Who cares if the executive or the creditor is unlikable, it’s the situation at hand that is important. The settling of accounts is set aside, as is the issue of fault (which would be punished in any event if a major offence were involved). The time for moralizing is past and the time has come to find realistic economic solutions and do whatever is possible to avoid the court system. Is it really necessary to go through ten years of legal action to prove that one of the parties was at fault if in the meantime the company has been dissolved, the men and women who worked there broken, and the creditors poorer by thousands of euros in legal expenses with little to show for it ? Not to mention the ruinous image that the case projects to the media. Sometimes, it’s better to step back in order to proceed, to be adult and open-minded, whether executive, creditor or attorney. And that is what I do as a mediator. I am “actively neutral”. That is, my job is to bring the parties together in a spirit of trust and good faith while retaining my own neutrality. This gives the parties the sense that they are acting in their best interests by participating in an attempt to save the company rather than dismantling it piece by piece. The court appointee’s role is perceived entirely differently in such circumstances. Where a liquidator is all too often perceived as nothing more than an administrator who has come to settle a bankruptcy without a second thought, a “mediator” occupies a strongly symbolic position in which he/she has a valuable role to play that mends the social and economic fabric.

Reappraising the customary practice of court-ordered liquidation

Subscribing to sustainable development means questioning oneself about one’s profession and finding the best way to practice it. In my experience as an officer of the court, I have seen how the routine, the rigidity of administrative mechanisms block the way to more useful and especially more efficient approaches for everyone. What could be more splintered or more insensitive to reform than the legal bankruptcy environment? Yet there are alternatives. The French legal system permits them and sometimes encourages their use. As an officer of the court, one must have the willpower to recommend them and the patience to explain them to each of the parties. Being persuasive can be a challenge as well as a necessity.

Having lived through ten years of conventional bankruptcy lawsuits, I found only advantages to building alternative solutions. The quality of the interaction with people allowed me to go beyond the legal and administrative mindset to find human and economic solutions that were much more acceptable to everyone. The economic results were there, too. I have seen mediation yield good results in situations that appeared to be hopeless at first glance. I am thinking in particular of a case in which liabilities of more than one billion euros burdened 21 units of the company, 350 investors and 1,000 creditors. Though the financial risks were enormous, the image risks were even greater because the company’s clients consisted of influential people in the fields of medicine, sports, journalism and the arts. After negotiating long and hard and working to rebuild trust, 95% of the creditors effectively agreed on the principle of a new settlement. This is the very essence of mediation: to create new approaches to resolving differences and to allow the most suitable solution for all parties to emerge. Legitimized by the case judge, the bankruptcy court judge, the attorney general and the appeals court, the positive outcome of the negotiations was possible only because everyone pulled together to lay the groundwork for the settlement in their respective areas of specialization, including administrative law, tax law, economics, finance, human resources and sociology. Though they spoke different languages, they succeeded in finding a path forward together without losing sight of the ultimate objective, which was to satisfy as many parties as possible by dealing with their concerns while treating each one as an equal partner.

On a personal level, and setting aside this one case, I must admit that I find it enormously satisfying to redefine my profession in ethical terms and to free it from the chokehold of habit. I could never again just follow procedure in my job, even though I recognize that miraculous solutions do not exist. Let’s not forget that the purpose of alternative methods of dispute resolution is to get the most out of a situation that is more often than not a drastic one. Considering that there is no hope left in 95% of the cases when conventional legal action is undertaken, an intermediate solution must be accepted. Balzac seems to have learned that lesson in his Code for Honest People and is an early advocate of mediation: “Let our first principle be”, he says, “that the worst settlement is better than the best lawsuit, better even than a successful lawsuit.” Provocative though his prose may be, it reminds us that entering into dialogue with one’s “adversary” and finding common ground is one of the mind’s greatest accomplishments.

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