In Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16, the Privy Council has clarified the correct approach for the court to follow when considering a creditor’s winding-up petition based on a disputed debt which is subject to an arbitration agreement.

This issue engages the competing public policy considerations of: (i) ensuring insolvency proceedings can progress without undue delay; and (ii) upholding parties’ agreement to arbitrate disputes.  

The Privy Council has held that a debt must be the subject of a genuine dispute on substantial grounds for the court to stay or dismiss a creditor’s winding-up petition in favour of arbitration. It is not enough for a respondent to the petition to raise an insubstantial dispute and require the creditor to go through arbitration as a prelude to seeking a liquidation – to do so would add delay, trouble and expense for no good purpose. 

Conversely, where there is a genuine dispute on substantial grounds, the creditor will first have to establish its claim in arbitration before pursuing the liquidation route. 

The previous position under English law was set out in the Court of Appeal case of Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575 which has been largely followed by the insolvency courts of Malaysia and Singapore.  In Salford Estates, it was held that where a debt in not admitted and is subject to an arbitration agreement, the court should use its discretion to stay or dismiss a creditor’s winding-up petition save in wholly exceptional circumstances. 

The Privy Council held that Salford Estates was wrongly decided. Non-admission of the debt is not enough – the debt must be disputed on genuine and substantial grounds. The Privy Council went on to give a Willers v Joyce direction that its decision in Sian Participation Corp now represents the law of England and Wales. 

You can watch the Judgment summary here.