Vol 14 (2017) - Issue 2

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International Arbitration and Insolvency: 'A Conflict of Near Polar Extremes'

The phrase in this title has been trotted out in articles too numerous to mention. It neatly encapsulates the tension between insolvency law, which exerts an exorable pull towards the centre, and arbitration law, which focuses on the autonomous and decentralised choice of the parties.
Until recently this conflict was more theoretical than real. Insolvency rarely crossed the path of arbitration. However, as commerce has become more international and arbitration has become more pervasive the conflict is increasingly taking centre stage. This article addresses the main areas where the tension between the two systems is most manifest. It also highlights some inconsistencies which are difficult to justify in circumstances where they appear to to benefit recalcitrant debtors at the expense of creditors.

Applications to wind up companies
An obvious starting point is the commencement of winding up proceedings. In Salford Estates (No 2) Ltd v Altomart the English Court of Appeal held that a winding up petition based on a debt which was the subject of an arbitration clause would be dismissed or stayed in favour of arbitration even though the debt was not bona fide disputed on substantial grounds. The court approached the issue by applying the reasoning of Halki Shipping Corp v Sopex Oils Ltd, where, in the wake of the passage of the Arbitration Act 1996, the Court of Appeal held that a 'dispute' in connection with an arbitration clause meant any claim that the other party refused to admit or did not pay whether or not there was any answer to the claim in fact or law. Post 1996, therefore, it was no longer open to a party to bypass an arbitration agreement by applying for summary judgment even where there was no real prospect of the defendant successfully defending the claim. In Salford Estates the Court of Appeal accepted the proposition that a winding up petition was in the nature of a class action pursued in the public interest and not a claim for payment. It therefore accepted that s.9 of the Arbitration Act 1996 did not apply. Nevertheless, the Court of Appeal went on to hold that where there was an arbitration agreement which encompassed the dispute the Companies Court, in exercising its discretion whether to make a winding-up order under s.122(1)(f) of the Insolvency Act 1986 ('IA'), could exercise that discretion in only one way which was against making a winding-up order even where the dispute amounted to no more than the company asserting that the debt was disputed. The court did refer to wholly exceptional circumstances where a winding-up order might be made but went on to say that it found it difficult to envisage any such circumstances.