Arbitration and Insolvency in Legal Intersection

Arbitration and Insolvency in Legal Intersection Presented by: ILO Nepal Date: January 28, 2023 Starting Point - 'A conflict of near polar extremes' (2nd Cir. US Court of Appeals) - Arbitration v Insolvency Arbitration Individual Confidential Out-of-court Enforcement Paid justice Insolvency Collective Public Judicial Moratorium Lack of funds / Impecuniosity Scenarios - Insolvency → Arbitration → ? - Arbitration → Insolvency → ? - Arbitration → Award → Insolvency Arbitration & Insolvency: Issues Of Jurisdiction - - Does the tribunal have (or preserve) jurisdiction to decide the dispute? • Is the arbitration agreement valid and operative? • Is the dispute arbitrable? (avoidance actions, transactions at undervalue, etc.) • Does the insolvent party retain capacity to arbitrate? Scope of the tribunal's jurisdiction • Does the dispute fall within the scope of the arbitration agreement? • Type of relief (condemnatory v declaratory) [compensation of credits?] • Re-assess ordered interim measures (and consider future request) How Do Arbitrators Approach Insolvency? - Business as usual? → Procedural adaptations • Participation of the insolvency practitioner [locus standi] • Temporary suspension of the ongoing arbitration [due process] (repetition?) • Check conflict of interests with insolvency practitioners • Redefine limits of confidentiality? • Security for costs Arbitration And Insolvency - The Civil Law Perspective Impact Of The Opening Of The Insolvency Proceedings - A matter of jurisdiction? • the exclusive jurisdiction of the syndic judge making the arbitration agreement inoperable; Under which law?  law applicable to the arbitration agreement ?  law applicable to the insolvent party? - A matter of subjective arbitrability? • the matter is no longer arbitrable as the insolvent party is no longer in full capacity, therefore the arbitration agreement in inoperable. Under which law?  law applicable to the arbitration agreement ?  law applicable to the arbitration proceedings?  law applicable to the insolvent party? - A matter of lack legal standing? • the insolvent company loses its legal standing in arbitration, as it is restricted by under which law?  law applicable to the arbitration proceedings?  law applicable to the insolvent party? - Before the arbitration is initiated • creditor may be pushed by tight deadlines to file the claim in the insolvency, losing the effects of the arbitration agreement • - objection of lack of jurisdiction/in arbitrability/lack of legal standing During the arbitration • stay/ continuation of the arbitration proceedings ? • creditor may choose to file the claim in the insolvency, in parallel with or terminate arbitration. English Insolvency → Impact On Arbitration - Automatic → Stay • Sec 130(2) IA 1986: a moratorium applies immediately upon the court making a winding-up order against the company. • Schedule B1, para 43 IA 1986: a moratorium applies immediately upon the company entering into administration. • No automatic moratorium for MVL, CVL, CVA and Restructuring Plans under Part 26A CA 2006 Foreign Insolvency → Impact On English Arbitration - Is the foreign insolvency recognized? 2006 (UNCITRAL) CBI Regs - [Post-Brexit, no automatic recognition of EU insolvencies] - YES: Automatic stay (arts. 20/21) + possibility to lift - NO: Arbitration may continue. Even Antisuit injunction against insolvency forum • Nori Holding Ltd & Ors v Public Joint-Stock Company 'Bank Otkritie Financial Corporation' (Rev 1) [2018] EWHC 1343 (Comm) [transaction at undervalue] • Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company) [2020] EWHC 2483 (Comm) [(avoidance claim] [But contracts Larsen Oil and Gas Pte Ltd v. Petropod Ltd [2011] SGCA 21] Where Is The Money? Impecunious Parties In English Arbitration - Claimant → The AAG remains "capable of being performed" • Haendler & Natermann GmbH v Janos Paczy, 1 Lloyd's LR 302 (CoA 1980). • Amr Amin Hamza El Nasharty v. J Sainsbury Plc, [2007] EWHC 2618 (Comm). • BUT Trustee of Property of Alan Andrews v Brock Buildings (Kessingland) Ltd, [1996] EWCA Civ 1023: If impecuniosity is due to defendant's conduct (e.g., breach of contract) stay may be refused - Respondent → The AAG remains "capable of being performed" • Faker v. Taylor Woodrow Construction [1973] QB 436) Some Future Problems In The Context Of The Blockchain Technology - Platform frication of contractual relationship • - Speed of transactions may grow exponentially Tokenization of rights • Anonymity of transactions - how the status of an insolvent party may be identified? - • Due process in case of anonymity of the parties? • Multiparty - the number of parties may grow exponentially Smart contracts: • Automated enforcement - how can it be suspended pending insolvency? • Arbitration may adapt quicker than the court proceedings and respond needs!