Alternative Dispute Resolution Methods for Bankruptcy
Alternative dispute resolution (ADR) refers to different methods by which bankruptcy can be avoided. These are the most common options that allow businesses to solve their financial issues out of court.
MediationMediation is one of the most common methods of solving disputes outside of court. Mediation implies negotiating in the presence of a neutral intermediary who facilitates the discussions and helps the parties reach a mutually beneficial agreement. The mediator has different duties throughout the procedure:
- Evaluates and determines the nature of the issues
- Proposes and analyzes various agreement options
- Explores each case scenario and its consequences
- Talks to each party and help them understand the other party's perspective
A company can resort to mediation at any time, and it is a less expensive and time-consuming method than bankruptcy.
ConciliationThrough conciliation, the parties also try to solve their disputes by appealing to an external party which is called a conciliator. The decisions made by this neutral party don't have a binding role. The conciliator comes forward with different settlement options, and the parties have the freedom to choose the solution they find more appropriate. Conciliation also entails a negotiation and deliberation phase. The purpose of conciliation is to help the parties reach an agreement by themselves; according to the provided solutions. Conciliation offers a lower flexibility degree compared to mediation.
ArbitrationBy arbitration, the parties agree to allow a neutral third-party to solve their disputes. This person is called an arbitrator, and he or she has the authority to impose their decisions. During arbitration, both parties have the chance to be heard. The arbitrator's role is to take into account all the arguments and reach a court-enforceable decision. Arbitration offers a series of benefits:
- It provides faster resolution than bankruptcy procedures
- Unlike court hearings, the arbitral discussions are not publicly disclosed
- The parties have the right to select the arbitrator
- The process is flexible as the parties can establish the procedural rules
Arbitration is more formal than mediation and conciliation, and companies often choose this method when the options above have failed. Arbitration may be the best solution when the parties need someone else to decide for them.
Early Neutral EvaluationEarly Neutral Evaluation (ENE) is available in the first stage of the dispute. Through ENE, the parties choose the procedure that will help them reach an agreement. The parties appoint an external evaluator. This person's role is to evaluate the dispute and provide conclusions that will play an important role later in the negotiations.
ADR methods allow a company to be more involved in the decisions regarding their debts. To know which one of these alternatives could work better for your business, you will need to get in touch with a commercial lawyer who can assess your case and advise you.