In 2014, the English Court of Appeal in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 ("Salford Estates ") held that a winding up petition brought based on a disputed debt subject to an arbitration agreement ought to be stayed or dismissed, save in "wholly exceptional circumstances " (the "Salford Approach"). Since then, the leading arbitration jurisdictions in the common law world have grappled with the question:
When should a winding up petition based on a disputed debt subject to an arbitration agreement be stayed or dismissed?
The question arises from the seemingly conflicting areas of public polices underpinning the insolvency and arbitration regimes. On the one hand, it is in the public interest that there should be a relatively straightforward means of placing an insolvent co mpany into liquidation. On the other hand, it is also public policy that parties who have agreed to resolve their disputes by arbitration should be held to their agreement.
In Singapore, the question was apparently answered in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 ("AnAn v VTB"). The Singapore Court of Appeal ("SGCA") largely followed Salford Estates and held that the Singapore courts will apply a prima facie standard of review when determining whether to stay or dismiss a winding up petition brought based on a disputed debt subject to an arbitration agreement.
In the recent judgment of the Judicial Committee of the Privy Council in Sian Participation Corp (in liquidation) v Halimeda International Ltd [2020] UKPC 16 ("Sian v Halimeda "), the Privy Council concluded that Salford Estates was wrongly decided. Instead, the Privy Council found that a winding up petition brought based on a disputed debt subject to an arbitration agreement ought to be stayed or dismissed only when the debt is disputed on genuine and substantial grounds.
Halimeda claimed that it was a creditor of Sian for approximately US$226 million (the "Debt") due under a facility agreement (the "Facility Agreement"), pursuant to which Halimeda had advanced a term loan to Sian. Sian disputed that the Debt was due and payable on the basis of a cross-claim and/or set-off. The Facility Agreement included a generally worded arbitration agreement that provided that any dispute between parties was to be referred to arbitration.
Halimeda applied to place Sian into liquidation on the basis that it was both cash flow and balance sheet insolvent. At first instance, the Judge held that Sian had failed to show that the Debt was disputed on genuine and substantial grounds or that there were other reasons why the winding up petition ought to be dismissed or stayed. He thus ordered Sian to be put into liquidation. Sian's appeal against the Judge's decision was dismissed by the ECCA.
On the facts of the case, the Privy Council held that Sian had failed to show that the Debt was disputed on genuine and substantial grounds, and no question of remission back to the ECCA arose.
The Privy Council set out the following key reasons for its conclusion:
The Privy Council's findings in Sian v Halimeda also applied in relation to exclusive jurisdiction clauses. The presence of an applicable exclusive jurisdiction clause should thus not lead to the stay or dismissal of a winding up petition unless the petitioner's debt is genuinely disputed on substantial grounds.
The decision in AnAn v VTB
In AAG v VTB, the issue before the SGCA was whether the "triable issue" or prima facie standard of review applied when determining whether to stay or dismiss a winding up petition based on a disputed debt subject to an arbitration agreement.
Under the narrower "triable issue" standard, the insolvency court would stay or dismiss a winding up petition if the debtor company proved that the dispute as to the debt was raised in good faith and on substantial grounds.
of disputed debts in the context of winding up proceedings. The SGCA's key reasons for doing so were as follows:
Following AnAn v VTB, the Court of Appeal provided further clarification as to the applicability of the AnAn test in Founder Group (Hong Kong) Ltd (in liquidation) v Singapore JHC Co Pte Ltd [2023] 2 SLR 554 ("Founder"). In Founder, the SGCA broadly divided winding up petitions where there is a dispute as to indebtedness into 2 categories:
On the facts in Founder, the SGCA held that the AnAn test was not applicable, and the "triable issue" standard of review applied. This was because the debtor company disputed liability for the petitioner's debt on the basis that the contracts from which the debts arose were sham contracts that were null and void. In light of the debtor company's own position, it was precluded from relying on the arbitration agreements in the contracts to seek a stay or dismissal of the petition.
The future of the AnAn test
The insolvency and arbitration regimes in Singapore are largely similar to those in the BVI and UK. The decision of the Privy Council in Sian v Halimeda thus raises doubt as to whether the AnAn test and the reasons for it remain correct when:
The SGCA has yet to have the opportunity to consider and address Sian v Halimeda. As such, it remains to be seen whether the AnAn test will remain good law, or whether the Singapore courts will adopt a different test.
If the AnAn test is to be replaced, the way forward may be to return to the "triable issue" standard of review. It is arguable that doing so would provide petitioners and debtor companies with certainty as to the applicable test when a winding up petition is brought based on a disputed debt subject to an arbitration agreement.
Following the decision in Founder there appears to be some uncertainty as to when the AnAn test applies. In particular, it appears that the insolvency court must first consider whether a debtor company's position in resisting the winding up petition precludes it from invoking the AnAn test. Such confusion may perhaps be avoided if the "triable issue" standard of review is the singular test which applies regardless of whether the disputed debt is subject to an arbitration agreement.