Arbitrability of insolvency-related claims denied

The Court of Appeal of Singapore recently upheld a High Court decision that insolvency-related avoidance claims are not arbitrable, as they relate to a type of dispute that only the courts can resolve.

Regarding the arbitrability of claims by, or against, an insolvent company, the court drew a distinction between:

• claims that arise only upon the onset of insolvency, due to the operation of the insolvency regime; and
• those that stem from a company's pre-insolvency rights and obligations.

The court considered that insolvency/bankruptcy law is an area replete with public policy considerations that are too important to be settled by parties privately through arbitration. Accordingly, it held that courts should treat disputes arising from the operation of the insolvency regime as non-arbitrable, even if the parties have expressly included them in the scope of the arbitration agreement.

Similarly, a liquidator will not be bound by an arbitration agreement where that agreement affects the rights of other creditors. However, a company in liquidation is able to resolve a dispute by way of arbitration where that dispute arose before the liquidation, and relates to a private dispute between the company and another party.

To read more about this case, go to the Allens website.