Non-bankruptcy cases usually have a different priority than bankruptcy cases: namely painting a picture v. maximizing value.
In non-bankruptcy cases, an event or series of events occur, and the focus is, typically, on (i) painting a clear picture of what happened, and (ii) assigning or absolving liability accordingly.
In non-bankruptcy cases, the picture to be painted might be:
–What happened when a collision occurred at the intersection of Main and 38th Streets?
–What happened when an invasive cervical cancer diagnosis is preceded by five consecutive years of negative Pap test results?
–What happened when a single-engine plane crashes in a cornfield?
There is no particular urgency in non-bankruptcy cases to paint the picture quickly. A leisurely-timed painting process is usually sufficient. So, discovery takes a long time. And mediation often happens as discovery winds down.
In business bankruptcy cases, by contrast, painting an accurate picture is certainly important. But the primary aim is something different: it’s to preserve and maximize value of the business and its assets.
If value is lost or destroyed, the bankruptcy case is a failure.
Here’s an example of bankruptcy failure:
–A production facility requires $120 million financing to construct and begin production
–The facility then runs out of cash, shuts down and files bankruptcy–at bankruptcy filing, the debtor represents its total debts to be in excess of $138 million
–DIP financing cannot be obtained, so a § 363 auction occurs without a stalking horse bid—professionals assure everyone that bidding will be “robust”
–The highest cash bid at auction is $12.75 million; and the sale is made to the only other bid–the first lienholder’s $36 million credit bid.
–The facility remains idle for a couple years thereafter.
This case is an unmitigated disaster for nearly everyone. Forget what pictures might thereafter be painted. Value has not been preserved or maximized. It’s the worst-possible result: a dirt-cheap sale and an idle facility.
A one-and-done mediation session at the end of discovery may be an adequate model for non-bankruptcy cases, but it is totally non-responsive to the value preservation and maximization needs of business bankruptcy cases.
Action Item. An urgency and an immediacy exist in business bankruptcy cases to preserve and maximize value—otherwise there will be nothing for creditors to fight over. Mediation plans, strategies and models must provide immediate help in these urgent situations.
This is the final post in a series of six articles explaining how and why bankruptcy mediation needs a different model from the one-and-done session commonly used in non-bankruptcy cases.