Virtual preference: bankruptcy wants to stay remote

November 2021  |  FEATURE | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

November 2021 Issue

The bankruptcy and restructuring industry has, of course, not been immune to the widespread changes brough on by the coronavirus (COVID-19) pandemic. Public health concerns necessitated the migration of bankruptcy and restructuring practitioners to remote working. Like many others, they have adopted virtual platforms such as videoconferencing and collaborative technology for client meetings, negotiations and official proceedings. Courts have drafted their own working rules in relation to processes during the pandemic. Documents are being prepared, shared, signed and delivered electronically. Overall, benefits have included less travel, less downtime and reduced fees and expenses.

But as we begin to emerge from the pandemic, the industry finds itself at a crossroads. Changes introduced in response to COVID-19 were thought to be temporary, but there is a growing sentiment that many measures should become permanent in the post-pandemic era.

According to Bloomberg Law’s ‘Remote Practice 2021 Survey’, bankruptcy practitioners seem more open to a virtual future than those in other practice areas. Whereas fewer than half of all non-bankruptcy respondents said they want remote options to continue for uncontested hearings and status or discovery conferences, 71 percent of bankruptcy lawyers said they would like to see those tasks remain available through remote work, even after social distancing restrictions are lifted.

Nearly two-thirds of bankruptcy practice groups are expanding in 2021, with many recruiting new members from other practice groups, according to Bloomberg Law. The flexibility offered by remote working may assist with this recruitment drive. Going forward, practitioners may need to craft policies and reshape work culture to accommodate those working in the office as well as those working from home, to allow for seamless collaboration and participation. According to Stanford economist Nicholas Bloom, there are many benefits to working from home, including higher productivity and a lower attrition rate. Screen-to-screen interaction can still be highly personal and effective.

There are, however, challenges surrounding virtual hearings. From a practical and security perspective, for example, it can be difficult to completely control the process. Who is physically present in a room, who might be listening, and who might be recording audio can be troubling questions.

Evidentiary and technical issues also come into the equation. Interactions that run smoothly in person must be reimagined for a virtual setting. Certain practical issues, such as a timetable for the hearing process, need to be agreed upon. Further challenges include selecting an appropriate videoconferencing platform (taking into account security and confidentiality), determining a method of sharing information, documents and evidence, and arranging for real-time transcriptions.

Practitioners and courts have had to be innovative and flexible to meet the changing demands caused by the pandemic. They will need to maintain this approach as government support expires, leading to a potential avalanche of corporate insolvencies in the coming months.

At the onset of the crisis, the World Bank urged countries to allow e-filings, virtual court hearings and out-of-court solutions in insolvency cases, and this is likely to continue, with efforts to promote digital communication enduring for the foreseeable future.

In the short term at least, virtual hearings can help to ease congestion and keep cases progressing. Further down the road, however, it is reasonable to expect that some in-person hearings will return, with virtual hearings continuing to play a part.

While it is still too early to make any definitive statements regarding the future of processes in the post-COVID-19 landscape, there is enthusiasm within the insolvency industry to persist with virtual solutions, at least in some form. A hybrid approach may be the most likely outcome.

Though there is no ‘one size fits all’ solution to the question of remote working and virtual hearings, there is a growing desire to leverage technology and retain certain practices embraced out of necessity in the last couple of years. According to Thomson Reuters, 86 percent of UK lawyers would like to change the way they work in future to increased remote working, compared to the global average of 77 percent, and on average they would prefer to work remotely at least two days a week.

Accordingly, as we take tentative steps toward a post-COVID-19 future, remote working and virtual hearings look set to remain a part of the insolvency industry. While a universal solution may prove elusive, a hybrid of physical and virtual interactions may benefit the majority.

© Financier Worldwide

BY

Richard Summerfield