The Effect of Insolvency on Pending International Arbitration: What is and What Should Not Be
Journal of International Arbitration, Volume 32, Issue 5, pp. 511–542, 2015
Posted: 13 Oct 2015
Date Written: October 2015
Situations in which the respondent in international arbitral proceedings is declared insolvent in its jurisdiction of incorporation while the arbitration is still pending are not uncommon. They raise a number of choice of law issues both in terms of substantive and procedural law. While the roots of arbitration lie in party autonomy, insolvency laws are often comprised of mandatory rules protecting the interests of different classes of stakeholders. This article attempts to devise an abstract model of the various choice of law and characterization problems regarding the cross-border effect of the insolvency and provide reasoned options and solutions for the arbitral tribunal faced with the interaction between insolvency and pending arbitration proceedings. It is suggested that it is part of the arbitrators’ duty to render an enforceable award to consider cautiously the effects of insolvency, especially if there is a risk of a clash with the mandatory framework of insolvency either at the seat of the arbitration or the likely place of enforcement of the award. The arguments are tested against recent case law of various national courts having reviewed the conflicts between arbitration and insolvency.
Keywords: international arbitration, international commercial arbitration, insolvency, bankruptcy, EU Regulation 1346/2000, corporate law, enforcement of arbitral awards, international commercial litigation
JEL Classification: K41, K33, K22
Suggested Citation: Suggested Citation