Common Ground - February 2000
Mediation provides flexibility and opportunity for informal communication which is effective in resolving difficult situations.
on Debtor - Creditor Mediation
Personal or business insolvency situations are difficult times for the debtors and the creditors. Innovative use of mediation allows all parties to participate in the decision-making process and seek a solution which benefits everyone involved.
Mediation provides flexibility and opportunity for informal communication which is effective in resolving difficult situations. If the mediation process does not bring a full resolution the parties retain their access to the court system for a decision by a judge. By using the mediation process they may have a lot to gain and yet nothing to lose.
The debtor and creditors can agree to use mediation to resolve conflicts between them. Using mediation early in the process is most effective. Before communication between the parties has broken down it is easier to discuss issues in an atmosphere of trust. A key component of mediations by agreement of the parties and formal mediation programs is the requirement for strict confidentiality.
Mediation programs are widely used for bankruptcy cases in the United States. Canada also has implemented formal mediation programs between debtors and creditors. Two Canadian examples of formal programs are the program for insolvent farmers under the Farm Debt Mediation Act and mediation for bankrupt consumers under the Bankruptcy and Insolvency Act.
Mediation for insolvent farmers
The Farm Debt Mediation Service is a program of the government of Canada which provides insolvent farmers and their creditors with mediation services. In the 1998-99 fiscal year about 66% of cases that went to mediation under the program resulted in an arrangement between the farmer and the creditors. About nine months into the 1999-2000 year the number of cases is proportionately ahead of last year and at the same time the percentage of mediations resulting in an arrangement has increased to about 80%.
To qualify, the applicant farmers must be producing commodities for commercial sale rather than personal use of their families. To be considered insolvent the farmer must be unable to meet their obligations as they come due, have ceased to pay their obligations in the ordinary course, or the value of their property if sold would not cover payment of outstanding obligations.
the Farm Debt Mediation Service in Ontario at:
The farmer can apply before getting a formal demand for payment. If the farmer receives notice of legal proceedings or a Notice of Intent to Realize on Security there is a time limit of 15 business days to respond. Depending on the situation there are two application processes. Both include a financial review and mediation. The key difference is whether a stay of proceedings is part of the process.
When the farmer applies for a stay a Notice of Stay of Proceedings is sent to all creditors. The creditors have the right to appeal the stay. The maximum duration of a stay of proceedings is a total of 120 days.
The Farm Debt Mediation Service hires financial experts to provide financial reviews as the first phase of the assistance to farmers. The expert may also help the farmer prepare a recovery plan or the farmer may hire their own financial consultant to prepare a recovery plan.
For the next step, the Farm Debt Mediation Service hires a qualified mediator to meet with the farmer and the creditors. In 1999-2000 there is a roster of eight private mediators for Ontario.
In most cases, the farmer and the creditors are able to reach a settlement or "arrangement" with the assistance of the mediator. Arrangements signed in 1998-99 included restructuring the debt in almost 50% of cases. In about 25% of cases, disposing of some assets was part of the terms of the arrangement.
Mediation for bankrupt consumers
Beginning in the spring of 1998 the Bankruptcy and Insolvency Act brought in a program of mediation for disputes between the bankrupt, the trustee and the creditors. Mediation can be used in two situations: where there is disagreement as to the amount of surplus income or where there is opposition to the discharge of the bankrupt. In surplus income cases the bankrupt or the creditors may ask for mediation. For discharge mediation the request can be made by the trustee, the bankrupt or the creditors. Discharge mediation is available only to a first-time bankrupt; surplus income mediation is available to any bankrupt.
The only mediators appointed under the Act are government employees who have other duties in addition to their role as mediators. The Superintendent of Bankruptcy has power to appoint mediators outside of government but so far has not done so.
If parties agree they sign a "mediation settlement agreement". If the parties cannot agree the trustee applies to court according to the formal procedure.