Privy Council changes English law on the intersection of insolvency and arbitration

A recent Privy Council decision has established the test for the English court to apply in determining whether a company should be wound up where the debt on which the winding up application is based is subject to an arbitration agreement, or an exclusive jurisdiction clause in favour of a foreign court, and is said to be disputed and/or subject to a cross-claim: Sian Participation Corporation (In Liquidation) v Halimeda International Ltd [2024] UKPC 16.

The Privy Council held that the test in either case is whether the debt is disputed on genuine and substantial grounds. In doing so, it found that the English Court of Appeal decision in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575, which was the leading authority on the intersection of insolvency and arbitration up until now, was wrongly decided and should no longer be followed (see here for a summary of the Salford Estates decision).

The decision adopts a pragmatic approach to situations where parties dispute debts in the context of liquidation proceedings. It clarifies that it is for the court to decide whether a debt is genuinely disputed on substantive grounds and, if it is not, a creditor should be able to obtain a winding up order without having to first arbitrate (or litigate) the issue. This decision should be of reassurance to creditors that their choice of dispute resolution forum will not impact their ability to engage the insolvency process where appropriate.

For more information, see this post on our Arbitration Notes blog.