Outstanding Debt? Mediation may make your Debtors pay up
As businesses are attempting to regain their previous position in the market following the restrictions and limitations brought about by the pandemic, many are facing a situation where they have outstanding invoices which considerably exceed their terms of business. Normally most companies would seek a legal option and take a firm stance towards their debtors but the current circumstances are unique and require resourceful strategies to overcome the issues.
The debtors’ failure to pay invoices in the aftermath of the present crisis is almost certainly as a result of the limitations and trading difficulties of the past 18 months rather than the usual reasons of avoidance.
The lawyers in Giambrone & Partners’ commercial debt collection team are fully aware that adequate cash flow is absolutely vital for the majority of businesses. Therefore, particularly in the case of cross-border debt, imperative to obtain swift and cost-effective settlement of outstanding debts needs to be considered carefully.
Khizar Arif, a partner, comments “litigation is usually the recommended course of action; however, considering the fragile position of many defaulting companies such action may result in driving your debtor into an insolvent position and the claimant loses any hope of recovery.” He further pointed out “it may be better to try alternative dispute resolution (ADR) as the first course of action and attempt to obtain a satisfactory settlement by negotiation”
There are several types of ADR, some procedures are less formal than others. Unfortunately, many longstanding business relationships have now been marred by outstanding debt and ADR, mediation in particular may go some way in preserving a trading relationship in the future. Mediation also generally achieves faster resolution than a court action and also, whilst a mediator charges for their services, the procedure can considerably reduce the cost. Another advantage is that the matter is conducted privately and not in a court open to the public.
Mediation is a comparatively informal process involving a mediator, a trained impartial third party, who assists in resolving conflict by means of specialised negotiation techniques aimed at keeping the discussions calm and focussed, especially when feelings are running high. It is a structured process and the mediator will make every effort to keep all parties determined to resolve the conflict in a calm measured manner through the use of positive communication. A mediator can be drawn from all disciplines but in the case of a legal dispute it would be preferable if the mediator is experienced in the relevant area of law related to the dispute. The lawyers in Giambrone & Partners’ commercial debt collection team urge our clients to consider mediation before going forward with litigation as the courts prefer disputing parties to attempt to resolve their differences themselves and in some cases, the party that refuses mediation may be ordered by the court to bear part of the costs of the opposing party.
Before embarking on mediation you should take legal advice to understand all the potential implications of a settlement and help to guide you as to what would be a reasonable expectation.
A mediation often takes place at a neutral venue, however, hire costs can be significant. It is possible to mediate remotely, especially where cross-border debt is this issue. All participants involved in the mediation are encouraged to actively participate to ensure that the mediator has a complete understanding of the issue. Mediators frequently invite the parties to participate in a ‘plenary session’ where all parties come together, this is not obligatory but under the eye of the mediator it will enable a calm discussion to take place and result in an acceptable resolution.
Our lawyers have extensive experience of negotiated settlements in challenging situations, which rebuild the fractured business relationship and enable all parties to restore successful and profitable trading. When a mediation involves a cross-border matter our lawyers’ legal expertise in a range of jurisdictions coupled with their cultural knowledge and language capabilities assists considerably in clarifying the process for our clients as well as ensuring that their debtors also are fully informed.