01 Sep 2021
Ciarb Thailand Branch and the THAC held a discussion entitled “The Interplay Between Insolvency Proceedings and International Arbitration”.
The discussion tackled the following areas:
The panel was composed of Mr Anthony Houghton SC FCIArb, C.Arb (former Ciarb trustee and founder of Ciarb Thailand Branch), Dr Mariel Dimsey MCIArb (Partner at CMS Hong Kong), Mr Pisut Attakamol (Partner at Baker McKenzie Thailand), and Ms Noppramart Thammateeradaycho MCIArb (Counsel at Tilleke & Gibbins Thailand). Mr Jay Patrick Santiago MCIArb (Chair of Ciarb YMG Philippine Chapter) moderated the panel discussion. Dr Vanina Sucharitkul FCIArb (Chair of Ciarb Thailand Branch) gave the opening remarks.
The effect of a court-issued stay order in a pending arbitration
Mr Houghton SC highlighted that court-issued stay orders will impact arbitral proceedings at least to some extent. The broader questions are first, whether and when courts may make such orders, and second, what the impact may be. The questions may raise aspects of arbitrability. For instance, one may inquire, if the debt in which the insolvency is based is disputed, is that dispute arbitral, or reserved to the state court?
It was discussed that insolvency proceedings may arise in the same jurisdiction as the arbitration or may arise elsewhere. Potentially, different considerations may arise in such situations. Also, different considerations may apply depending on the timing of the issuance of the stay-order, e.g., whether the insolvency proceedings arose early in the arbitration process or late in the day.
The panel agreed that an arbitral tribunal may likely pay more attention to the liquidation proceedings if the arbitrators can potentially be sanctioned by the court. In any event, the arbitrators should always consider the parties’ comments prior to making a decision.
How the commencement of insolvency proceedings may affect the legal personality of a party to an arbitration agreement
Dr Dimsey discussed the likely effects of insolvency proceedings to the legal personality of an arbitration party. Generally, a party’s capacity to arbitrate depends primarily on the applicable law of the contract, insolvency proceedings, or seat of arbitration. Different considerations would also apply depending on whether the insolvent party is a claimant or a respondent. Issues that are relevant to insolvent claimants include standing to commence or continue the arbitral process and privity of the arbitration agreement. Those that are relevant to insolvent respondents relate to the interaction of national laws or rules with the arbitration agreement, and practical concerns including recovery as there can be legal difficulties when enforcing an arbitral award against an insolvent company (e.g., enforcement against a non-existent company or the enforcement being construed to be against public policy).
The panel discussed strategies for dealing with an insolvent counterparty to a contract. These include considering commencing the appropriate insolvency proceedings (e.g. liquidation or rehabilitation) against the insolvent company as one’s choice may or may not affect the insolvent debtor’s legal personality, and considering other modes of dispute resolution, e.g. mediation, although the risk of a claw back must be taken into account should the company eventually enter into formal insolvency.
The commencement or continuation of an insolvency court-sanctioned arbitration
Ms Thammateeradaycho discussed the insolvency regime in Thailand. She mentioned, among others, that a stay order from a Thai court would proscribe the commencement or continuation of arbitral proceedings in Thailand. During the panel discussion, it was mentioned that should arbitral awards be rendered from a foreign seat, the same must still undergo recognition proceedings before they can be enforced by their submission to the insolvency court.
The cross-border recognition of insolvency proceedings.
Mr Attakamol discussed some relevant issues that can be considered in cross-border insolvency proceedings, including the ability to preserve the assets of an insolvent company and the application of the UNCITRAL Model Law on Cross-Border Insolvency (1997) (Model Law). For instance, Thai insolvency proceedings only has effect on the debtor’s property in Thailand. Conversely, foreign insolvency proceedings have no effect on the debtor’s property in Thailand. It is therefore crucial to understand the binding effects of insolvency proceedings in foreign countries by considering the local laws of each country (i.e., whether the Model Law has been adopted) and determining whether and to what extent the local laws will recognize foreign insolvency proceedings.
The panel discussed the possible necessity to seek the recognition of the foreign insolvency proceedings in places where the insolvent company’s assets are located. Practical considerations may be considered, e.g., where a worldwide stay-order issued by a US bankruptcy court may apply to a creditor with some presence in the US. In those instances, the threat of sanctions from a US court may dispense the need for recognition proceedings to bind such creditor.
The panel discussion concluded with Mr Santiago summarising the main points discussed and thanking the panellists for their helpful insights.
By Jay Patrick Santiago MCIArb
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