Since all insolvency proceedings are premised on there being not enough money to go around, efficient, cost-effective mechanisms for settling claims and resolving disputes would seem to be an obvious good. The proof of claim process for determining creditor claims in bankruptcy is an example of such a mechanism.

Mediation is another such mechanism that the legislature has taken baby steps in facilitating. In the federal Bankruptcy and Insolvency Act, disputes over a bankrupt’s surplus income (s. 68) and over a bankrupt’s discharge from bankrupt (s. 170.1) can be pursued initially through mediation proceedings.

In a recent BC decision under the Companies’ Creditors Arrangement Act, 1057863 B.C. Ltd. (Re), the Honourable Justice Fitzpatrick ordered that the Province of Nova Scotia, a major creditor, enter into mediation proceedings with the petitioner companies regarding the Province’s claims, as well as significant counterclaims asserted by the petitioners against the Province. This order was made over Nova Scotia’s strong objections.

After considering the Province’s objections, the Court ruled that: the CCAA conferred jurisdiction to order mediation proceedings; such mediation would further the statutory and remedial objectives of the CCAA; and would provide the parties an opportunity to attempt to achieve a settlement through a confidential and non-binding process with the assistance of the Mediator. This process has the real potential to assist the Petitioners in a successful restructuring for the benefit of all stakeholders, including Nova Scotia.

Fitzpatrick J. was careful to emphasize that this is a mediation only, and not a binding arbitration. Although Nova Scotia was being forced to participate, the Province was not being forced to accept any settlement or resolution unless it chose to do so.

Mediation, or even the threat of it, has the potential  to alter the landscape of disputes in insolvency, and knowledgeable advice is critical in assessing the applicability of this tool in any particular case.

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