Linklaters publishes Cross-border Guide on the Impact of Insolvency on International Arbitration

The Covid-19 pandemic is a pressure test for the global interconnected economy. One expected consequence is an uptick in insolvencies. In international contracts, many companies will have concluded arbitration clauses. With the global economy under stress, the insolvency of a contractual partner abroad, while a dispute is already brewing, becomes a real concern: What happens if, for example, a Dutch entity becomes subject to insolvency proceedings while it is entangled in arbitration, seated in Paris, with a contractual partner from Hong Kong? What if that contractual partner is hoping to enforce against the entity’s assets in South Africa? Will the Dutch insolvency be recognised abroad? Can the arbitration continue? Is it worth doing so? What steps can the contractual partner take in order to achieve an enforceable result?

Likewise, insolvency administrators will increasingly have to make choices as to whether to continue ongoing arbitrations, or to start new ones. As courts are still struggling with the practical challenges of the pandemic such as postponed hearings and delayed decision making, the flexibility and speed offered by arbitration is a valuable alternative. Such arbitration may involve a multitude of jurisdictions, in addition to the insolvent entity’s jurisdiction, with different attitudes and approaches to the effects of a foreign insolvency on the ability to arbitrate.

At the heart of the issue is a fundamental difference between the principles of arbitration and insolvency: Arbitration is private and often confidential, while insolvency proceedings are generally transparent and designed to serve the public interest. To help navigate these disaccords, Linklaters, Allens and Webber Wentzel have drafted this global guide on international arbitration and insolvency.