Compelled to arbitrate in respect of a clear cut debt?

As we know, the Court has a discretionary power to wind up a company based on its inability to pay its debts, as conferred by section 122(1)(f) of the Insolvency Act 1986.

However, in the recent matter of Salford Estates (No.2) Ltd v Altomart Ltd [2014] EWCA 1575 Civ (8 December 2014), the Court of Appeal has held that, where the creditor’s petition relies on a debt which is subject to a contractual arbitration clause, it was appropriate for the Court to exercise its discretion consistently with the spirit of the Arbitration Act 1996. Accordingly, the Court dismissed the Petition and compelled the parties to resolve their dispute by their chosen method of dispute resolution.

In reaching its decision, the CoA followed Halki Shipping v Sopex Oils [1997] EWCA Civ 3062 as to whether sufficient “dispute” exists for the purposes of the Arbitration Act 1996 where the company had not in fact admitted the debt but (in the petitioner’s clear view) had very limited prospects of success. For those interested in the details, in coming to the pragmatic decision above, the CoA held that the mandatory stay of proceedings imposed by section 9 of the AA 1996 does not apply to a winding up petition, where the creditor’s petition relies on a disputed debt which is subject to a contractual arbitration clause.

In this case, the petitioner will be regretting the existence of an arbitration clause, which ultimately prevented the petitioner from relying upon a winding up petition in respect of a clear cut debt.

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