ALTERNATIVE DISPUTE RESOLUTION IN INSOLVENCY DISPUTES

Abstract

The prevailing insolvency dispute resolution mechanism is adjudication, which has significant shortcomings: the irresolvable common pool problem, disruption of business, and high litigation costs. The question is therefore whether insolvency disputes can be settled without (some extent of) adjudication. Namely, through alternative dispute resolution (ADR), which has become a counterweight to adjudication in insolvency disputes. In contrast to adjudication, ADR makes it possible to avoid the intrinsic shortcomings of adjudication. Firstly, it aims to reach a peaceful settlement resulting in an agreement between the debtor and the creditors; secondly, it aims to reconcile the principle interests in insolvency cases (continuation of the debtor’s business and satisfying the creditors’ claims); and thirdly, the dispute is not resolved in public. The major pro-debtor countries (the United States of America, France) have introduced ADR mechanisms for insolvency disputes which will serve as the foundation for the development of ADR in insolvency disputes in other countries.