(Mis)Using Arbitration Clauses In Winding-up: Till Death Do Us Apart?

• Published date: 26 January 2021
• Law Firm: Blackstone & Gold
• Author: Mr Baldev Bhinder and Ramandeep Kaur

Non-payment defaults, whether arising from Covid-19 or otherwise have skyrocketed prompting governments across the world to put in place temporary relief legislation to prevent an unprecedented spiral of insolvencies. These measures will eventually come to an end, as it has in Singapore where on 20 October 2020, certain protective measures against commencing insolvency or winding-up proceedings against companies in Singapore were lifted. With insolvency proceedings at their door, debtors will desperately try to hold on to their companies with their fingernails, raising all manner of disputes which can only be adjudicated by the arbitration clause contained in their contracts - a clause they say, binds them and their creditor, till death do them apart. Can a winding-up petition be derailed by raising disputes, even trivial or manufactured ones, that are nonetheless subject to arbitration?

The starting point is that parties are bound to resolve their disputes by the arbitration clause contained in their contracts. But a dispute and a debt are not the same - the latter is more often associated with liquidity issues rather than an actual quarrel over performance. The most common form of debt claim arises from a loan or financing arrangement where repayment liability is unconditional. When a debtor is unable to pay for an extended period, debt enforcement may require winding-up the debtor on the basis that it is insolvent. If there is no arbitration clause in the contracts, a debtor facing a winding-up petition has to demonstrate there is a...