Sub V Task Force Report In A Nutshell: Part 6—Subchapter V Trustee As Mediator?

By: Donald L Swanson

On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the sixth in a series summarizing and condensing the Task Force’s Final Report into “a nutshell.”  The subject of this article is:

• whether a Subchapter V trustee should act as a mediator.[Fn. 1]

Recommendation

The Subchapter V trustee should not mediate a dispute in the same Subchapter V case without an order detailing the scope of the Subchapter V trustee’s role as mediator.

Analysis

The Subchapter V trustee has a duty to “facilitate the development of a consensual plan of reorganization.”  This duty is unique to Subchapter V trustees. Trustees in other bankruptcy chapters have a more adversarial posture toward the debtor. 

The facilitation duty can look like a mediator role, because the Subchapter V trustee helps others reach agreement on a plan.

However, mediator and facilitator have different meanings:

• a mediator is a neutral person who helps disputing parties reach agreement, has a heavy duty of confidentiality to the parties, must not have any other involvement in the underlying case, and cannot take any substantive position before the court on any issue being mediated; but
• a facilitator helps people engage in discussions or work together but is not necessarily neutral—i.e., might have an interest in the dispute being facilitated, might need to take a substantive position before the court on an issue being facilitated, and might want to use information gained during facilitation in fulfilling another duty.    

Subchapter V trustees are facilitators and cannot be true mediators because of neutrality problems.  Subchapter V trustees:

• have statutory duties that give them an interest in Subchapter V disputes and require them to take substantive positions before the court on multiple types of issues; and
• cannot satisfy the classic mediation requirements of neutrality and confidentiality. 

The Subchapter V trustee cannot assure mediation confidentiality because of conflicting statutory duties, such as:  

• furnishing information about the bankruptcy as requested by a party in interest;
• expressing positions before the court on various issues;
• objecting to creditor claims; and
• objecting to debtor’s discharge.

One Subchapter V trustee explained the confidentiality problem to the Task Force like this:

• “I conducted a formal mediation in one of my subchapter V cases, with the normal sort of confidentiality provisions . . . resulted in an impasse . . . confirmation was denied and the case got dismissed”;
• “the confidentiality provision in the mediation agreement limited my ability to ‘appear and be heard’ in the hearings in the case”;
• “When I did pipe up at the hearings, one or more lawyers got annoyed and suggested that I might be breaching mediation confidentiality”; and
• “I’m never doing it again.”

Sometimes, the parties want the Subchapter V trustee to be appointed as mediator, and they are willing to waive any potential conflict. 

Conclusion

The Task Force offers the following guidance when the parties want a formal mediator:  

• if formal mediation is appropriate, the Subchapter V trustee does not need to be the mediator; but
• if everyone wants the Subchapter V trustee to formally mediate:
  • caution is urged; and
  • a mediation order is needed to clarify neutrality and confidentiality concerns in light of the trustee’s other statutory duties. 

————————–

Footnote 1.  Discussion of this subject is on pages 33 to 38 of the Final Report.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.