{"id":2417,"date":"2024-07-05T12:52:42","date_gmt":"2024-07-05T12:52:42","guid":{"rendered":"https:\/\/blog.nicarb.org\/?p=2417"},"modified":"2024-07-05T14:46:36","modified_gmt":"2024-07-05T14:46:36","slug":"sian-participation-revisiting-the-boundary-between-insolvency-and-arbitration-under-english-law","status":"publish","type":"post","link":"https:\/\/blog.nicarb.org\/index.php\/2024\/07\/05\/sian-participation-revisiting-the-boundary-between-insolvency-and-arbitration-under-english-law\/","title":{"rendered":"Sian Participation – revisiting the boundary between Insolvency and Arbitration under English Law"},"content":{"rendered":"\n

United Kingdom \/ July 4 2024<\/p>\n\n\n\n

Freshfields Bruckhaus Deringer<\/strong> \u2013\u00a0Billy Liu<\/a>,\u00a0Craig Montgomery<\/a>,\u00a0Neil Golding<\/a>\u00a0and\u00a0John Choong<\/a><\/p>\n\n\n\n

In the recent decision\u00a0Sian Participation v Halimeda\u00a0<\/em>(Sian<\/em><\/strong>), the Judicial Committee of the Privy Council (the\u00a0Privy Council<\/em><\/strong>) held on a BVI appeal that a winding-up petition should not be stayed or dismissed merely because the underlying debt is subject to a generally-worded arbitration agreement. Although\u00a0Sian<\/em>\u00a0is not binding on English courts, the Privy Council exercised the power conferred under\u00a0Willers v Joyce (No.2)<\/em>\u00a0to declare the previous leading English authority (Salford Estates (No.2<\/em>)) as wrongly decided; and that its instant decision now represents the position under the law of England and Wales. The English courts are expected to follow the law pronounced by the Privy Council. This means a winding-up petition would not be stayed or dismissed where the underlying debt is subject to a generally-worded arbitration agreement, unless the debt is genuinely disputed on substantial grounds.<\/p>\n\n\n\n

In\u00a0Salford Estates (No.2)<\/em>, the English Court of Appeal had held that courts were expected to exercise their discretion in favour of a stay when the underlying debt of a winding-up petition was subject to an arbitration agreement. This was considered necessary, because the courts should consider various legislative policies underpinning the Arbitration Act 1996, before deciding whether to exercise their discretion to wind up companies under section 122(1) Insolvency Act 1986. Following\u00a0Salford Estates (No.2)<\/em>, it was the usual practice of the English courts to grant stays, even if the debt was not shown to be genuinely disputed.<\/p>\n\n\n\n

The Privy Council in\u00a0Sian<\/em>\u00a0considered that to be wrong because it assumes that parties intended to include winding-up petitions within the scope of their arbitration agreement, in the absence of clear language to that effect. The Privy Council held that a generally-worded arbitration agreement, both in terms of its ordinary meaning and the parties\u2019 objective intention, is unable to encompass winding-up petitions. To hold otherwise would lead to an infringement of parties\u2019 autonomy, because creditors are held to a negative obligation (i.e., not to present a winding up petition), which they did not agree to in the first place. If the winding-up petition is not a matter that falls within the scope of the arbitration agreement, various public policy considerations in support of arbitration (e.g., party autonomy and the principle of holding parties to their agreements) are not relevant in the instant context. Courts are thus not required to exercise their discretion to stay or dismiss a winding up petition, merely because the underlying debt is subject to a generally-worded arbitration agreement.<\/p>\n\n\n\n

Comment<\/strong><\/p>\n\n\n\n

The Privy Council\u2019s judgment exemplifies the complex public policy considerations underpinning insolvency and arbitration law. From insolvency law\u2019s perspective, the decision would enable creditors to wind up an insolvent company without undue delay, which allows creditors to realise the company\u2019s assets as soon as practical. Creditors would in turn have more chance to maximise their recoveries before re-deploying their capital to more economic efficient uses. This flexibility is especially important to creditors when there are many zombie companies in the economy.<\/p>\n\n\n\n

From arbitration law\u2019s perspective, despite possible perceptions to the contrary, the decision is consistent with the English courts\u2019 \u2018pro-arbitration\u2019 stance over the past few decades. Three aspects of the Privy Council\u2019s judgment in particular illustrate the English courts\u2019 consistent support of arbitration:<\/p>\n\n\n\n