Introduction

On June 19, 2024, the Judicial Committee of the Privy Council delivered a significant judgment in Sian Participation Corp (In Liquidation) v Halimeda International Ltd.

The core issue was whether insolvency proceedings should be stayed in cases where the relevant debt was covered by an arbitration agreement.

Background

Pursuant to a Facility Agreement dated 7 December 2012 (“the Facility Agreement”), the respondent advanced a term loan of USD 140m to the appellant

The Facility Agreement includes at clause 14.1 an arbitration agreement which provides that “any claim, dispute or difference of whatever nature arising under, out of or in connection with this Agreement” shall be referred to arbitration at the London Court of International Arbitration or LCIA (“the Arbitration Agreement”).

The loan has not been repaid. On 12 February 2020, the respondent sent a letter to the appellant demanding payment of the debt (“the Debt”)

On 29 September 2020, the respondent applied to have liquidators appointed in respect of the appellant on the basis that it was both cash flow and balance sheet insolvent (“the liquidation application”).

The Appellant opposed, arguing for a stay or dismissal based on an arbitration clause favouring the London Court of International Arbitration (LCIA). This argument relied on the precedent set by the Court of Appeal in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575; [2015] Ch 589.

The judge ruled that the appellant failed to show that the debt was genuinely disputed or that there were valid reasons to dismiss or stay the liquidation.

Consequently, the Court appointed liquidators and ordered the appellant's liquidation.

After an unsuccessful appeal to the Eastern Caribbean Court of Appeal, the Appellant sought leave to appeal to the Privy Council, which was granted on the basis that the case raised an arguable point of law of great general or public importance.

Privy Council’s Decision

The Privy Council rejected the Salford Estates approach, determining that the presence of an arbitration clause does not automatically prevent insolvency proceedings.

They emphasized that insolvency proceedings are designed to benefit all creditors and ensure a fair distribution of assets, which would be undermined by delays due to arbitration.

Key Points from the Privy Council’s Judgment

1. Discretion of the Court: The court retains discretion to proceed with winding up proceedings if the debt is not genuinely disputed on substantial grounds.
2. Efficiency in Insolvency: Allowing arbitration to delay insolvency proceedings would contradict the objectives of insolvency law.
3. Consistency with Common Law Jurisdictions: This judgment aligns with other common law jurisdictions, promoting consistency and predictability.

Implications

The judgment underscores the primacy of insolvency proceedings in cases where the debtor's inability to pay is not meaningfully contested.

It balances the enforcement of arbitration agreements with the necessity of efficient insolvency proceedings, thus protecting the collective rights of creditors.