Permitting arbitrations to proceed during insolvency: new developments in Singapore

Common law courts frequently encounter the conflict between arbitration law and insolvency regimes. There remains no international convention on the subject and courts of individual countries are left with a patchwork of developing case-law to determine where the boundaries should lie.

For example, should arbitration proceedings against a respondent subject to insolvency proceedings be permitted? English courts have addressed the question on several occasions over the past 20 years, but there is scope for more definition as to the relevant thresholds to be met. In early 2025, the Court of Appeal in Singapore (SGCA), in Sapura Fabrication Sdn Bhd v GAS [2025] SGCA 13 (Sapura), faced the same question and approved a less open-ended test in a decision which may influence future thinking in the common law world.

It has long been established in England that for the court to permit proceedings to continue, there must be some reason why it would be inequitable to permit a prohibition to apply on proceedings and only in “exceptional” cases will the creditor not be required to participate in such machinery as may be put in place by the administrator or liquidator for determining claims (AES Barry Ltd v TXU Europe Energy Trading (In Administration) [2004] EWHC 1757 (Ch), AES Barry).

AES Barry was cited in Ronelp Marine Ltd v STX Offshore and Shipbuilding Co [2016] EWHC 2228(Ch) (Ronelp), where Norris J expanded on the concept of exceptional cases: 1

“The term “exceptional” is protean: but in this context I think it means that the applicant creditor must demonstrate a circumstance or combination of circumstances of sufficient weight to overcome the strong imperative to have all the claims dealt with in the same way (and in the instant case by the insolvency court). That said, a domestic court, recognising the general desirability of having one insolvency estate under the management of one insolvency court, should not be too ready to find the factors of “sufficient” weight (but, given the nature of the decision, is unlikely to be assisted by the extensive citation of judgments which simply show the assessments made by other judges).”

In Ronelp, the Court did grant permission for Commercial Court proceedings to continue against a Korean company that became the subject of a rehabilitation order, which was granted recognition in England. Norris J approached the question of which of the two potential proceedings would be more appropriate for resolving the dispute. He noted the “strong imperative” to leave matters to the insolvency court. However, his decision turned on reasons including the following:

• the case involved a difficult point of English law on illegality;
• expert evidence indicated that the Korean court would be likely to suspend its proceedings in order to allow the English court to determine that issue: and
• the Commercial Court proceedings were already well advanced and the parties had expended considerable costs on them.

Norris J cited Cosco Bulk Carrier Co Ltd v Armada Shipping SA [2011] EWHC 216 (Ch) (Cosco), where Briggs J had permitted an arbitration to proceed against a Swiss company subject to bankruptcy proceedings in its home jurisdiction. Briggs J relied on the fact that the dispute involved a longstanding question of English law about liens on charterparty sub-hire and on how London arbitrators experienced in shipping law would be well placed to determine that. In doing so, he commented he was approaching the matter as: 2

“one of broad discretion, the question being which route for the resolution of the underlying dispute is likely best to serve the interests of justice, being that which is right and fair in all the circumstances”.

It is clear in English law both that the courts will approach the question as one of comparing the relative procedural advantages of the competing processes and that only in exceptional cases will the courts allow proceedings to override or compete with the insolvency procedure. Ronelp and Cosco provide examples of situations, which will be regarded as sufficiently exceptional cases.

It has also been recognised that while the same approach is applicable for both administration and liquidation, the different statutory purposes of those procedures respectively must be taken into account in the exercise of weighing up the circumstances. The purposes of liquidation are to achieve the orderly liquidation of the insolvent company’s assets for creditors on a pari passu basis, and the minimisation of proceedings, which might disrupt that process or cause unnecessary costs, whereas those of administration are wider, encompassing attempts to rescue the company. The significance of such different purposes has been recognised both in a domestic context (Financial Conduct Authority v Carillion plc (In Liquidation) [2020] EWHC 2146 (Ch)) and in relation to the recognition of foreign insolvency proceedings (Re Pan Ocean Co. Ltd. [2015] EWHC 1500 (Ch), where an arbitration against a Korean company in rehabilitation was permitted to proceed).

In principle, there is no clear difference of approach where the competing procedure is one of arbitration rather than court proceedings. Particular features of the arbitration, however, may be a factor weighed in the balance, such as the specific expertise of the arbitrators.

Similarly, the Singapore courts recognise the inherent tension between two competing legal principles: the enforcement of arbitration agreements and the collective nature of insolvency proceedings in serving the interests of creditors and/or to give debtor-companies ‘breathing room’ to restructure.

In Sapura, the SGCA clarified that the policy of enforcing arbitration agreements does not invariably trump the policy objectives of the insolvency regime in all circumstances. The SGCA reaffirmed that the court has the discretion to allow claims to be “carved out” from moratoriums arising from restructuring proceedings. The SGCA, however, diverged from the English approach by rejecting the focus on "exceptional circumstances" as the test for determining whether a claim should proceed through insolvency mechanisms or arbitration.

The SGCA in Sapura distinguished between the objectives of restructuring and liquidation. It noted that a moratorium in restructuring gives the debtor "breathing space" to formulate a viable proposal while liquidation focuses on achieving a fair and orderly process to maximise the value that may be realised from the assets of the estate. 3   The SGCA held that this distinction must inform the court’s approach to carve-out applications. Specifically: 4

“In the court’s evaluation of the circumstances of the case, more weight may be given to considerations that directly touch on the rationale for moratoria in restructuring proceedings, i.e., to give a debtor breathing room to put forward a proposal. This allows the court to give effect to the purpose of the moratorium while preserving the court’s flexibility to assess carve-out applications on a case-by-case basis.”

Importantly, the SGCA considered, but ultimately rejected the "exceptional circumstances" test, finding no compelling justification to adopt this approach in Singapore. 5  It criticised the formulation set out in Re Top Builders Capital Bhd & Ors [2021] 10 MLJ 327, which adopted the Ronelp approach, holding: 6

“With respect, the test set out in Top Builders is vague and does not assist the court in determining when and how a creditor may satisfy the threshold of “exceptional circumstances”. The wording of the test simply connotes, without more, a broad balancing exercise between two sets of interests, albeit one weighted against a particular outcome.”

The SGCA affirmed that the starting point is that restructuring proceedings are a unitary process for the resolution of the rights involved. Singapore courts, however, may still exercise their discretion to allow particular claims to be carved out. This discretion was to remain guided by the factors identified in Wang Aifeng v Sunmax Global Capital Fund 1 Pte Ltd [2023] 3 SLR 1604, which are specific, non-exhaustive markers to balance the various considerations and interests at stake: 7

• The timing of the application for a carve-out;
• The nature of the claim;
• The existing remedies;
• The merits of the claim;
• The existence of prejudice to creditors or the orderly administration of the restructuring proceedings; and
• Other miscellaneous factors such as the potential avalanche of litigation, proportionality of costs, and the views of the majority creditors.

Significantly, the SGCA in Sapura also held that Singapore courts do not have a mandatory obligation to grant carve-outs to moratoriums in restructuring proceedings to allow claimants to pursue arbitration claims. The SGCA disagreed with the lower court’s finding that a carve-out had to be ordered where the arbitration agreement remained valid and where the dispute fell within its scope, in view of the Singapore court’s mandatory obligation to enforce arbitration agreements. 8

The SGCA noted that accepting the lower court’s finding would significantly reduce the effectiveness of a moratorium in restructuring contexts, the purpose of which is to afford a company “breathing room” to put forward a proposal. In the SGCA’s view, this purpose would be severely compromised: 9

“[I]f it could be easily circumvented by the invocation of a prima facie valid arbitration agreement automatically overruling the policy considerations of the insolvency proceeding.”

With the SCGA rejecting “exceptional circumstances” as a sufficient test, the question arises as to whether the two approaches are really that different. While the English approach to dealing with arbitration claims in insolvency is firmly based on the “exceptional circumstances” test, the Singapore courts adopt a more defined but flexible approach, focusing on various factors for granting carve-outs to allow creditors to pursue arbitration. There is, nevertheless, a common thread in that both jurisdictions share an emphasis on conducting a context-specific inquiry that considers the purpose of the specific insolvency regime before permitting arbitration claims to proceed.