The Social Licence to Operate in the Face of Insolvency

[Music] thank you very much Rachel for your introductory words I also would um like to acknowledge and thank his Excell Excellency Abdullah B Salon bin Ahmed Al noi for his opening address and his Visionary comments this morning I was honored to be invited to give this short address and I wish to thank Miss Linda fitzallen the remarkable and insightful Chief Executive Officer of the adgm Courts for her vision in creating such an interesting agenda I hope that my address lends Credence to the vision of this conference namely to push the boundaries of conventional thinking and shape the next era of transformation and growth for the global legal Community well if you look at the topic um like me it gets you thinking and I asked myself what forces have shifted in 20 years that now should make us think than in a major corporate reconstruction probably cross border that we could or should be deploying new skills to achieve more certain beneficial outcomes is there a need for a paradigm shift or is the status quo just fine let me take you back to my early days as a practicing lawyer acting for domestic and foreign Banks chasing debtors into insolvency the typical scenario was relatively simple Banks lent money a borrower defaulted the banks were secured and exercised their rights under their security documents and unsecured creditors well they just did and just hoped for the best no one really cared about the implication on bank's reputations the impact on staff and customers the impact on communities other third parties governments stood by because no one really expected them then to step in there were casualties everywhere perhaps starting 20 years ago that began to change Banks were less keen on new unilaterally exercising creditor rights they understood that the media was not always sympathetic to their cause in agriculture they backed away from selling up farmers in consumer areas they sense shifting winds new legislation was introduced to protect the vulnerable class actions were looming and public interest advocacy centers were carefully scrutinizing contractual documentation for disclosure and fees concurrently The Regulators recognized they had powers and muscle and they decided to use them Parliament realized they could Empower Regulators more and hey there's no votes to be lost in Bank bashing particularly when interest rates are high and the citizens are unhappy with cost of living pressures and as some jurisdictions hauling Bankers before Parliament to answer questions was and continues to be pure theater in the face of those challenges banks have variously tightened lending standards sold down debt or work through in more constructive ways how to deal with borrowers financial distress and impairments specialist insolvency firms such as those represented here today have emerged in more recent years there's also been a growing expectation that in various insolvency scenarios the government needs to step up perhaps that's just a reflection of the role they increasingly play in society from dealing with pandemics to climate so at least in Australia we've seen in recent months governments this year step in to save parts of an airline business so it could continue to service Regional communities walking side by side with these developments has been the emerging school of thought relating to a company's social license to operate sometimes abbreviated to SLO it's not a New Concept and some academics suggest that it had its Inception in the mining industry in the 1990s before being taken up in other contexts now there's quite a deal of controversy in legal circles as to the meaning and scope of the description I'm not here today to debate that aspect but it's a terrific topic for another day rather I wanted to spend the remaining few minutes discussing how it operates and why it might be relevant to us today first of all what do we mean by it it may not surprise you but but there is no clear definition much depends on the debate as to whether companies exist to serve the interests of their shareholders or are obliged sometimes legally and I would say always reputationally to take account of stakeholder and societal interests what seems to be a common element of the principle is a recognition of the relationship between the corporation and a community of stakeholders one of the speakers here this week and you may have seen him yesterday on video Larry thinkink writing in 2018 so that companies that lack a sense of purpose will lose the license to operate from Key stakeholders so quite a shift when I was at law school there was a real real focus and I'm sure for those of you who are as old as I am um we all focused on shareholders and I think there been a transformational change in that regard in the last last 15 20 years so my question is with the shift in societal expectations how does or should that play out in a complex corporate insolvency reconstruction does it really matter and if so in what way colleagues with whom I speak and who practice exclusively in this field will confirm that to effect a broad ranging complex and often crossborder insolvency re reorganization does require in from many many stakeholders in dispute resolution typically associated with adversarial contests in domestic courts or arbitration we're now all accustomed to the role of mediation the independent appointment of a person to facilitate discussions explore options test with parties the strength of their case and potentially bring about a settlement of the adversarial contest in the world of energy transition and resources my own discussions with global corporations has elicited a real interest in an independent neutral person facilitating the restructuring of current unviable long-term commercial arrangements so for example a mining joint venture in let's say Africa may have been established a decade ago since then operating costs of the mine have risen risen exponentially the cost of C capital is increased market prices and volumes for the mine product may have been flat or declining governments want increased taxes and you will have seen what happened in Marley in the last few weeks there in respect of taxation by the government and imprisonment of of of officers of mining companies and environment environmentalists are often opposed to expansion of any mine facilities conceptually there should be a real interest in having an independent neutral person facilitat discussions with all the relevant stakeholders and indeed a global minor said to me a few months ago you know it's very difficult for us to be the one driving this multi-party negotiation walking into a room with baseball cap on and the company logo and trying to lead the discussion there is an opportunity for an independent neutral person to drive this and so in an insolvency reconstruction there are I suggest strong similarities there are lenders not generally all Parry pursue customers employees suppliers contractors governments governments ofen off often at different levels trade unions environmentalists and Pension funds as we will discuss shortly we are seeing creditors exercise violence on violence against other creditors in liability management exercises and I'm know you can't wait to hear about that um overarchingly all parties have their own discreet interest but will recognize the fragility of the situation time is usually of the essence in those circumstances or ahead of their crystallization there may be an opportunity to craft a deal with all relevant parties but to do so will require the usual negotiating tug-of war and typically concessions by all parties of their own commercial interests and I suggest a recognition that they have they are faced with their own discrete social license to operate the negotiators will have to coales Divergent views of many but a negotiation led by one party with a tangible commercial interest may be problematic other parti participants are likely to be suspicious aware of bias or conflict and the upshot may be the Reconstruction fails when it should not have it is in that context that I think the parties might or should at least consider a different negotiating process through an independent neutral facilitator where greater buy might deliver a successful outcome the mechanics of an independently cheered facilitation will be bespoke to the situation but using a mediation agreement as the Cornerstone will be helpful particularly as it deals with the structure of the meetings on a without prejudice BAS basis with confidentiality obligations and agreements and nothing can be said nothing said can be used later in court against others it also permits all relevant stakeholders to come to the table and discuss their needs and objectives finding a solution that all relevant parties buy into whether fully satisfied or not will likely lead to a comprehensive and long-term resolution a much better result than having an adjudicator make a determination based solely on the law leaving many stakeholders in the cold so my parting thoughts for all of us here today as advisors to any of the stakeholders I have referenced when Market forces turn against your clients and financial adversity strikes think of the opportunity to appoint an independent neutral facilitator to work with the key stakeholders stakeholders to exp explore constructively and in a timely way the Avenues for resolution for law reformers my message is to consider the simple but effective amendments to legislation to provide a platform for key stakeholders to be invited to consider a potential resolution under an independent chair within a reasonable time frame thank you [Music] oh