In such circumstances, should the petition be stayed in favour of arbitration, either as a matter of course or subject to the court’s discretion, and/or should the court consider the underlying dispute and its adequacy as a basis for winding up before deciding whether or not to proceed?

In the recent decision of Salford Estates (No.2) Ltd v Altomart Ltd [2014] EWCA 1575 Civ, the English Court of Appeal held that the mandatory stay provisions imposed by section 9 of the English Arbitration Act 1996 (Arbitration Act) do not apply to a winding up petition based on a company’s inability to pay its debt, even where the creditor’s petition relies on a disputed debt which is subject to an arbitration clause.

However, the agreement to arbitrate is not irrelevant. The Court of Appeal stressed that the courts have discretion to wind up a company under section 122(1)(f) of the Insolvency Act 1986 (Insolvency Act) and in circumstances where a disputed debt falls within the scope of an agreement to arbitrate, it would be only in wholly exceptional circumstances that the court would not stay or dismiss the petition.

This decision represents an interesting departure from earlier English decisions, where the court had held that in such circumstances, themandatory stay provisions in section 9 of the Arbitration Act are engaged, and also the trend established by the courts of the Cayman Islands and the British Virgin Isles (BVI) to retain the power to decide whether there is a genuine and substantial dispute (the test for determining whether to strike out the petition), even though the courts would not go on to resolve such dispute. The conflicting approaches raise interesting public policy issues, and there is clearly a tension between the court upholding the primacy of an agreement to arbitrate and the court’s exclusive statutory jurisdiction to determine winding up petitions.

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Insight

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Cayman Islands

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