By Samridhi Shrimali and Alay Raje


Recent years have seen the rapid escalation of complex commercial investments, transactions, and volatile economic growth at a global level. Accordingly, the efficacy of dispute resolution mechanisms is ever more important. To facilitate this efficacy, however, is challenging when two legislative frameworks intersect, namely the laws of insolvency and arbitration.  To an extent, insolvency law has a centralised, formalistic mechanism and requires consolidation of all the claims and disputes concerning the debtor.[1] In contrast, arbitration advocates for decentralisation by providing minimal to no judicial involvement or oversight. To this end, arbitration can be considered a party autonomy-based body of law promoting confidentiality and privacy.[2] Given the convoluted gamut of approaches however, deciphering the implications of an insolvency-affected arbitration is crucial to the efficacy of the latter.

This article undertakes a critical analysis of the interplay between insolvency dispute resolution processes and arbitral proceedings in five parts: part (I) deals with the basic contours of both regimes and their loggerhead approaches; part (II) considers the arbitrability of Insolvency disputes; part (III) discusses the suspension of Arbitration Proceedings with the initiation of Insolvency proceedings; part (IV) sheds light on various approaches taken across the globe through legislation; and part (V) offers the authors’ concluding remarks.

I. Tussle between Arbitration & Insolvency

In Re United States Lines Inc., the contradiction between insolvency and arbitration was described as “a conflict of near polar extremes: bankruptcy policy exerts an inexorable pull towards centralization while arbitration policy advocates a decentralised approach towards dispute resolution”.[3] Even though both regimes share a common purpose of resolving claims, insolvency legislation is structured to support domestic economics. Insolvency maximises stakeholders’ returns by increasing the value of the corporate debtor and its assets and guaranteeing the highest possible return for each stakeholder.[4] Thus, insolvency caters to the majority of stakeholders by offering a buffet of options for handling defaults.

Stakeholders are more inclined to delay individual enforcement action (e.g., arbitration proceedings), in order to maximise returns via the insolvency route.[5] Notably, the plausible outcomes of an insolvency proceeding are either the re-organisation of the debtor or if the this fails, the liquidation of its assets. The aftermath of the former would lead to an extinguishment of all enforcement and claims arising against the debtor, and for the latter, termination of the corporate debtor’s existence.[6] The result being total extinguishment of claims that could have been resolved through arbitration. When arbitration and insolvency intersect, the insolvency process supersedes a party’s right to contest or defend its claims in accordance with the dispute resolution method chosen by and between the parties, forcing them before an insolvency court established under statute, with no bearing on the specific dispute.[7] Interestingly, the prioritisation of various debts during insolvency proceedings and the possibility of a stay on arbitration, differs from region to region.

A transnational feature exists in international commercial arbitration that seeks to resolve commercial transaction disputes conducted across national boundaries, where the claims and disputes are resolved as an in personam remedy via the parties’ arbitration agreement.[8] Arbitration principles require that disputes within the scope of the arbitration agreement be referred to arbitration only, and the jurisdiction of courts is supplanted.[9] Transitional cross-border insolvencies also grant a stay order on arbitral proceedings on commencement of the insolvency, with a rationale to first, treat all the creditors the same as in rem proceedings and, second, allow relevant courts to exercise exclusive jurisdiction for a uniform execution of the proceeding.[10] Therefore, there exists a “choice of forum” conflict, where parties have decided to submit to the jurisdiction of the arbitrator, but are being forced by the compelling interest of insolvency legislation to submit to the jurisdiction of the Insolvency Court. [11]

The risks faced by parties when simultaneous arbitration and insolvency proceedings collide are demonstrated in a well-known cross-border European dispute, Syska v. Vivendi.[12] Here, the LCIA Tribunal’s ruling was that ongoing arbitration procedures should not be impacted by foreign insolvency proceedings and was upheld by the English Court of Appeal. It was held that these processes are decided in accordance with the laws of the country where the proceedings are being conducted, and the disputes should be properly resolved to safeguard the legitimate expectations of businesspeople.[13]

In the 2009 case of Vivendi v. Elektrim,[14] the Swiss Supreme Court supported the arbitral tribunal’s decision not to exercise its jurisdiction over Elektrim after it was declared insolvent in Poland.[15] The Supreme Court reversed this ruling in 2012, stating that insolvency proceedings had no bearing on the tribunal’s authority.[16] This decision found that the ability to participate in an arbitration presumes the parties have general “legal capacity”, which provides certain rights and obligations.[17] Even after domestic law-based insolvency proceedings have begun, these rights and obligations remain in effect. Thus, the arbitration agreement would not be impacted by insolvency proceedings, thereby granting the arbitrators with broad authority. This approach safeguards the rights of international creditors who may be left without remedy if local insolvency rules are used to override arbitral proceedings.

These cases highlight the breadth of insolvency processes across jurisdictions where varying results can be observed (e.g., Elektrim and Vivendi in 2008 and 2009).

II. Arbitrability of Insolvency Disputes

It is generally acknowledged across all legal systems that it is against public policy for arbitral proceedings to subsist in pursuit of a personal remedy vis-à-vis the concerns of the public at large that have an action in rem.[18] This limits the scope of arbitration proceedings by demarking “core” and “non-core” subject matters, contingent to the ongoing insolvency proceeding.[19] The subject of whether insolvency conflicts can be arbitrated is not novel and has been addressed by different jurisdictions across the globe. It is clear that “core” insolvency disputes entail matters such as those involving the issuing of winding up or liquidation orders and the appointment of administrators, and that these cannot be resolved by arbitration.[20] The “non-core” disputes that are arbitrable generally have nothing to do with these problems, instead they focus on the usual financial claims made against a company.[21]

According to Article V(2)(b) of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”), national courts have the authority to refuse to enforce foreign awards when doing so would be against their public policy.[22] Since the enforcement processes are fundamentally domestic proceedings where Courts are likely to reject enforcement of arbitral awards against an insolvent party, even non-core matters may not be resolved by arbitration, as the Courts can invoke the public policy argument. One of the core pillars of a state’s economic and legal system is its insolvency legislation that fosters market certainty and economic stability and growth.[23] Thus, insolvency legislation may be seen as an element of a country’s public policy.

Interestingly, an Indian court in Cruz City 1 Mauritius Holdings v. Unitech[24] held that the refusal to enforce an arbitral award can only be done if such enforcement is in contravention of the fundamental public policy of Indian law, and against the interests of the nation, justice, and morality. Emphasis was laid on the fact that national policy forms the substratum principles on which laws are constituted.[25] In the case of Parsons & Whittemore,[26] a US court upheld that there exists a difference between public policy and governmental policy, and that the latter cannot stand in the way of the duty to observe international treaty obligations. The award was enforced in this case and the concluding lines of the judgement noted that the enforcement of arbitral awards must not violate the basic norms of a State upon which the notions of morality and fairness thrives.

Insolvency legislation is precise and vivid in imposing a moratorium i.e., a prohibition on the continuation of all proceedings against the insolvent entity and its estate, and having severe punishment for violation of the automatic stay, as it may be deemed to be against the public policy of the State.[27] Thus, an arbitral award in violation of an insolvency statute may be declared void but one that adjudicates upon a more contractual based claim originating from a corporate debtor may be enforced.

III. Reconciliation of Insolvency & Arbitration

Uncertainty and lack of predictability result from the lack of a thorough, coherent, and well-defined framework regarding the intersection of arbitration and insolvency procedures. There is a growing demand for potential solutions. Currently, disputes are handled on a case-by-case basis, leading to an ultimately inconsistent and sometimes contradictory result.

1. The IBA Toolkit

The International Bar Association (IBA) recently published a toolkit on Insolvency and Arbitration to aid the parties, counsels and arbitrators.[28] It provides for identifying the concerns that pose a threat from a legal point, and result from concurrent actions taken against the debtors in domestic and international arbitrations.[29] The solutions this toolkit put forth help reduce future risks and delays vis-a-vis the plight of the counterparty’s bankruptcy, especially from a socioeconomic perspective following the COVID-19 Pandemic.[30] Additionally, the insolvency proceedings may represent public policy considerations and are often seen as required in many jurisdictions and may raise issues during the enforcement phase, rendering the toolkit vital.[31] The toolkit covers issues regarding the constitution of an arbitral tribunal against an insolvent party or restriction in terms of deposits made by the insolvent party, the impact of the insolvency upon the award, enforcement of the same, third-party funding and fee arrangements.[32]

2. The UK Corporate Insolvency and Governance Act, 2020

Under the earlier English Insolvency Act 1986, after the initiation of an insolvency proceeding is entered into by the company, any arbitration cannot be commenced unless consent of the administrator is taken.[33] It is not necessary to obtain the court’s permission to bring legal action against a company that is voluntarily being wound up. However, in the case of a mandatory winding up, no legal action can be taken against a firm without permission.[34] The legal interests of the applicant and those of the other creditors will be balanced by the courts in both scenarios. Thus, the onus is on the creditor to prove that being denied the ability to file a lawsuit would be discriminatory, and leave may be granted if the procedures are not likely to prevent the administration from achieving its goal.[35]

Under the new Corporate Insolvency and Governance Act (2020) (UK), administrators may permit and honour the sanctity of the arbitrable disputes during the pendency, conclusion or initiation of the insolvency proceedings.[36] Therefore, it does not have an impact on contractual rights vis-a-vis arbitration rights that are triggered by other occurrences that also happen to occur at the same time as the pendency of insolvency.

IV. Conclusion

A ray of hope has been the creation of UNITRAL Model Law on Cross Border Insolvency and Arbitration. However, it has failed to recalibrate the consistencies in terms of the interrelationship between legislation. The existence of different approaches in different countries, even on the same issue, highlights the lack of coherency and uniformity in the two legal systems. This leaves room for judicial discretion that can be stifled only by legislative coordination.

Lastly, the onus also falls on stakeholders to urge for a comprehensive set of applicable laws to form a smooth and successful conduction between both laws, and ensure that the objectives of those laws are not easily defeated.


[1] Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2011] SGCA 21.

[2] Buhring-Uhle, ‘A Survey on Arbitration and Settlement in International Business Disputes: Advantages of Arbitration’ in Christopher Drahozal and Richard Naimark (eds), Towards a Science of Arbitration: Collected Empirical Research (Kluwer Law International 2005).

[3] In re United States Lines Inc. 197 F.3d 631 (2d Cir. 1999).

[4] Hamish Anderson, ‘Sources of English Corporate Insolvency Law’, The Framework of Corporate Insolvency Law (2017) 34.

[5] Alchemist Asset Reconstruction Company Ltd v Hotel Gaudayan Pvt Ltd AIR 2017 SC 5124.

[6] Zimmerman v Continental Airlines, Inc. 712 F.2d 55. (3rd Cir. 1983).

[7] Hays & Co. v Merrill Lynch, Pierce, Fenner & Smith, Inc. 885 F.2d 1149, 1161 (3d Cir.1989).

[8] Alan Redfern, Martin Hunter, Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration (4th ed, Sweet and Maxwell 2004).

[9] Bharat Aluminium Company v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[10] Bishwajit Dubey, Radhika Bishwajit Dubey and Prafful Goyal, ‘Arbitration and Insolvency: A Conflict of Near Polar Extremes: Contrary Perspective’ in Ishaan Madaan and Christian Campbell (eds), Crossroads of Insolvency and Arbitration (Wolters Kluwer 2022).

[11] Paul Kirgis, ‘Arbitration, Bankruptcy and Public Policy: A Contractarian Analysis’ (2009) Faculty Law Review Article 125 <> accessed 13 November 2022.

[12] Syska v Vivendi Universal SA & Ors [2009] EWCA Civ 677.

[13] Ibid.

[14] Vivendi et al. v. 4A_428/2008.

[15]The Law on Bankruptcy and Reorganization 2003, art 142.

[16] X._____ Lda. v Y._____ Ltf. 4A_50/2012. (Party names redacted)

[17] Ibid.

[18] Alan Redfern, Martin Hunter, Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration (4th edn, Sweet and Maxwell 2004).

[19] Gary Born, International Commercial Arbitration (3rd edn, Wolters Kluwer).

[20] Hays & Co. v Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1161 (3d Cir.1989).

[21] Ibid.

[22] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, art. V(2)(b).

[23] UNCITRAL Legislative Guide on Insolvency Law, Part One and Part Two 2004.

[24] Ishaan Madaan, ‘Insolvency and International Arbitration: An Alternate Perspective’ (Kluwer Arbitration Blog, 15 June 2020) <> accessed 13 November.

[25] Ibid.

[26] Parsons & Whittemore Overseas Co. v Societe Generale de L’Industrie du Papier (RAKTA) 508 F.2d 969 (2d Cir. 1974).

[27] Vigintas Višinskis, Remigijus Jokubauskas and Mykolas Kirkutis, ‘Effectiveness of Corporate Insolvency Proceedings and Commercial Arbitration’ in Ishaan Madaan and Christian Campbell (eds), Crossroads of Insolvency and Arbitration (Wolters Kluwer 2022).

[28] IBA Arbitration Committee, ‘IBA Toolkit on Insolvency and Arbitration’ (2021).

[29] Ibid.

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] Insolvency Act 1986 (c 45).

[34] Ibid.

[35] Ibid.

[36] The Corporate Insolvency and Governance Act 2020 (c 12).