Insolvency in International Commercial A

Insolvency in International Commercial Arbitration
Where Two Fields Meet
Master Thesis
University of St.Gallen
22 May, 2017
Author: Fabian A. van de Ven
fabian.vandeven@student.unisg.ch
Supervisor: Prof. Gary B. Born

Preface
I will start with the realization that most students probably have when writing a master thesis; the writing of
this work has not been an easy process. Whereas I had a decent understanding of cross-border insolvency
before starting this project, I had barely read anything about its effects on arbitration. Thus, I had to work
myself into what first seemed to be a small niche of understanding, but what quickly turned out to be an
extremely complex world of debate, overlapping terminology and sometimes general confusion. As such, I
spend the better half of this project struggling to find an understanding myself. The road towards that
understanding was sometimes difficult and filled with late nights or rather early mornings and disappointing
set-backs. However, that made reaching the end-station even more satisfying. One cannot help to feel some
pride when after struggling through hundreds of search results, books and articles, one finally feels that he
has a holistic view of the subject area. The only regret I have at this point is, that there is much more
information that has had to be left out of this thesis due to size restrictions.
As anyone who writes a document like this one knows, it is never just you that goes through the entire
process. As such, I want to thank my loving girlfriend Sonya, who supported me over the last half-year,
especially in those moments where I felt like I had lost all grip on the subject. My parents, although a
country away, also deserve credit on that point. For their support, they have my enduring thanks.
My thesis supervisor, Prof. Born can of course not be left unmentioned. I had the luck to go to a university
where one of the leading scholars in the field of arbitration teaches, albeit only a few days a year. It is hard
to imagine someone better suited to supervise a work on this subject that in all respects can be defined as a
small niche. For his willingness to support someone that aspires to work in his field, he has my thanks.
I also want to thank the University of St.Gallen, for having accepted me. Specifically, I also want to thank my
old Vis Moot team there, my old coaches; Dr. Marco Stacher, Jurij Santschi and Linus Zweifel, first for putting
up with me but more importantly for keeping me interested and engaged in arbitration and building my
skill-set. For similar reasons, the Vis Moot team of the University of Marburg, which I coached myself this
year, deserves a mention as well. This thesis and my involvement in the Vis Moot over the past three years,
have convinced me that I have found the area that I want to work in and further specialize myself towards.
Although I no longer live in Switzerland, this thesis is the real end of my Swiss adventure. I have thoroughly
enjoyed the experience. It has brought me culture shock, sometimes hilarious and sometimes akward
misunderstandings, which all in all have widened my horizon and made me grow as a legal scholar and a
person.
I
Table of Contents
Preface ..................................................................................................................................................... I
Table of Contents .................................................................................................................................... II
List of Abbreviations .............................................................................................................................. VI
1 Introduction .................................................................................................................................... 1
Structure ................................................................................................................................. 2
Terminology and Scope........................................................................................................... 2
Part I The Theoretical Framework .......................................................................................................... 3
2 International Insolvency Theory ..................................................................................................... 3
Insolvency Theory ................................................................................................................... 3
Territorialism........................................................................................................................... 4
Universalism ............................................................................................................................ 4
Practice and the Middle Ground ............................................................................................. 5
Interim Conclusion .................................................................................................................. 6
3 Cross-Border Insolvency Instruments ............................................................................................. 6
The UNCITRAL Model Law on Cross-Border Insolvency ......................................................... 7
European Insolvency Regulation............................................................................................. 7
Interim Conclusion .................................................................................................................. 8
4 Arbitration Theory .......................................................................................................................... 8
The Jurisdictional Theory ........................................................................................................ 9
The Contractual Theory .......................................................................................................... 9
The Hybrid Theory................................................................................................................. 10
The Autonomous Theory ...................................................................................................... 10
Interim Conclusion ................................................................................................................ 11
5 International Commercial Arbitration Instruments ...................................................................... 11
The New York Convention .................................................................................................... 12
The UNCITRAL Model Law on International Commercial Arbitration. ................................. 13
European Union Law ............................................................................................................. 13
Part II The Issues of Interaction ............................................................................................................ 14
6 Recognition of Insolvencies .......................................................................................................... 14
Definition of Recognition ...................................................................................................... 15
Recognition by Courts ........................................................................................................... 16
II
Recognition by Arbitral Tribunals ......................................................................................... 16
Non-Recognition with Reference to Territoriality ........................................................ 17
Recognition Based on Cross-Border Insolvency Law of the Seat .................................. 17
Recognition Based on Mandatory Rules ....................................................................... 18
Recognition as Fact ....................................................................................................... 18
Practice and Theory .............................................................................................................. 18
Recognition and Arbitrability ........................................................................................ 19
Recognition Rules.................................................................................................................. 19
UNCITRAL Model Law on Cross-Border Insolvency and the EIR ................................... 20
7 Applicable Law .............................................................................................................................. 21
Applicable Law in Arbitration................................................................................................ 21
Law Applicable to the Underlying Contract .................................................................. 22
Law Applicable to the Arbitral Proceedings .................................................................. 23
Law Applicable to the Arbitration Agreement .............................................................. 23
Law Applicable in Cross-Border Insolvency .......................................................................... 24
Applicable Law to the Effect of Insolvency in Arbitration..................................................... 25
The Issue of Characterization........................................................................................ 26
The EIR and Arbitration; Vivendi Cases ......................................................................... 27
8 Arbitrability ................................................................................................................................... 29
Doctrine of Arbitrability ........................................................................................................ 29
Objective and Subjective Arbitrability .......................................................................... 30
Arbitrability of Insolvency Disputes ...................................................................................... 30
Nature of the Claims ..................................................................................................... 31
Applicable Law to Arbitrability .............................................................................................. 31
Arbitrability and the Courts .................................................................................................. 33
Arbitrability and Arbitral Tribunals ....................................................................................... 33
9 Effects of Insolvency on Arbitration.............................................................................................. 34
Stay of Proceedings ............................................................................................................... 34
Applicable Law to the Stay of Arbitral Proceedings ...................................................... 35
EIR and the Stay of Arbitral Proceedings ...................................................................... 36
III
UNCITRAL Model Law and the Stay of Arbitral Proceeding .......................................... 36
Effects of Insolvency on the Arbitration Agreement ............................................................ 36
Capacity of the Party and Administrator .............................................................................. 37
Insolvency in Arbitration and Security for Costs ................................................................... 38
Insolvency and the Award ..................................................................................................... 39
Art. V(1) NYC ................................................................................................................. 40
Art. V(2) NYC ................................................................................................................. 41
Part III Insolvency and Arbitration ........................................................................................................ 42
10 United States............................................................................................................................. 42
United States Insolvency Legislation..................................................................................... 42
United States Arbitration Legislation .................................................................................... 42
Recognition of Foreign Insolvencies ..................................................................................... 43
Arbitrability ........................................................................................................................... 43
Effect on the Arbitration Agreement and Locus Standi ........................................................ 44
11 England...................................................................................................................................... 45
English Insolvency Legislation ............................................................................................... 45
English Arbitration Legislation .............................................................................................. 46
Arbitrability of Insolvency Issues .......................................................................................... 46
12 Germany.................................................................................................................................... 48
German Insolvency Legislation ............................................................................................. 48
German Arbitration Legislation............................................................................................. 49
Arbitrability ........................................................................................................................... 49
IV
13 Switzerland................................................................................................................................ 52
Swiss Insolvency Legislation .................................................................................................. 52
Swiss Arbitration Legislation ................................................................................................. 52
Arbitrability ........................................................................................................................... 54
14 Singapore .................................................................................................................................. 56
Singaporean Insolvency Legislation ...................................................................................... 56
Singaporean Arbitration Legislation ..................................................................................... 56
Arbitrability ........................................................................................................................... 57
15 Conclusion and Reflection......................................................................................................... 59
References ............................................................................................................................................ 61
Literature .......................................................................................................................................... 61
Case Law............................................................................................................................................ 68
Awards .............................................................................................................................................. 70
Laws .................................................................................................................................................. 71
Relevant Webpages .......................................................................................................................... 75
Aids.................................................................................................................................................... 76
Appendix 1: Declaration of authorship ................................................................................................. 77
V
List of Abbreviations
para(s). Paragraph(s)
Arb.ML UNCITRAL Model Law on International

Commercial Arbitration
Art(s). Article(s)
a.k.a. Also known as
B.C. Bankruptcy Code (as used in the USA)
Cf. Confer
Ch(s). Chapter(s)
Cl. Clause
CPC Civil Procedure Code (Switzerland)
c.q. casu quo (in this case; Latin)
ECHR European Court for Human Rights
EGInsO Einführungsgesetz zur Insolvenzordnung

(Implementation Law of the Insolvency
Regulation; Germany)
EIR (recast) European Insolvency Regulation; Regulation (EU)

No 2015/848
EIR European Insolvency Regulation; Regulation (EC)

No 1346/2000
EU European Union
e.g. exempli gratia (for example; Latin)
FAA Federal Arbitration Act (United States)
fn. footnote
IA Insolvency Act (England and Wales)
IAA International Arbitration Act (Singapore)
ICC International Chamber of Commerce
InsO Insolvenzordnung (Insolvency Code; Germany)
Ins.ML UNCITRAL Model Law on Cross-Border

Insolvency
i.e. id est (that is; Latin)
jo. juncto (in conjunction with; Latin)
VI
NYC UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards a.k.a.
The New York Convention
PILA Private International Law Act (Switzerland)
P.R.C. People’s Republic of China
SchKG Bundesgesetz über Schuldbetreibung und Konkurs

(Federal Statute on Debt Enforcement and
Bankruptcy; Switzerland)
Sec(s). Section(s)
TFEU Treaty on the Functioning of the European Union
U.K. United Kingdom
UN United Nations
UNCITRAL United Nations Commission on International

Trade Law
U.S. United States of America
U.S.C. United States Code
U.S.C.A. United States Code Annotated
ZPO Zivilprozessordnung (Law of Civil Procedure;

Switzerland/Germany))
VII
1 Introduction
Comparing the way insolvency law and arbitration laws organize their respective procedures provides for two
quite opposite pictures.1 Insolvency law mainly has a centralized, formalistic approach to dispute resolution.2
Arbitration law, however, owes its existence to a decentralized, contractual and autonomy based approach to
dispute resolution. These features are linked to the fact that insolvency law is often viewed as an integral part
of the function of the state and public courts. Whereas, arbitration is the opposite and provides a system of
adjudication outside of the public system.3
As stated by one court, a dispute involving both arbitration and insolvency; “…presents a conflict of near polar
extremes: Bankruptcy policy exerts an inexorable pull towards centralization while arbitration policy
advocates a decentralized approach towards dispute resolution.”4
The overlap of insolvency and arbitration creates many conflict-of-laws issues. For example, the insolvency
law can proscribe the preliminary suspension of all litigation including arbitration in case of bankruptcy, whilst
the arbitration law does not take insolvency into account and does not recognize such a stay. A multitude of
practical issues also arises, e.g. notification and presentation. When a cross-border factor is added these
problems multiply. It would be too steep a demand to want arbitrators to be experts on all the insolvency codes
that could be involved in the arbitration. Vice versa, it is also unrealistic to expect insolvency judges to be able
to deal with all possible foreign arbitration proceedings. In any case, the judge will have to act within the
confines of his own legal system.
Keeping this in mind, it is interesting to see that arbitration cases which deal with the overlap issues are on the
rise. With developments in the fields of arbitration and the globalization of the world economy, it is likely that
more and more cases will have to deal with both these legal fields.5 Therefore, a solid body of research on the
subject is far from an unnecessary luxury and could help judges, arbitrators and councilors resolve the issues
that are bound to arise, in a more effective manner.
This research aims to deal with the following question; how are the fields of insolvency and arbitration generally
organized, what are the theoretical conflict points between the two when insolvency occurs in international
commercial arbitration and how do practice and law deal with these issues. This threefold question will be dealt
with via two major routes; a theoretical discussion on the subject first and secondly a practical discussion. This
will be preceded by the necessary theoretical framework. Due to limitations to a thesis, a selection of practical
issues and relevant jurisdictions has been made. This is not an extensive review of the insolvency and arbitration
laws of the chosen jurisdictions and not a definite list of all insolvency/arbitration issues. The jurisdictions
1
Kizzy L Jarashow, ‘International Arbitration and Insolvency: What Happens to a Pending International Arbitration
When an Insolvency Proceeding is Filed Abroad?’ (III NextGen Leadership Program, Tokyo, 5 June 2016), 3
<https://www.iiiglobal.org> accessed 02/11/16
2
Alexander J Bělohlávek, ‘The impact of insolvency of a party on pending arbitration proceedings in Czech
Republic, England and Switzerland and other countries’ in Marianne Roth and Michael Geistlinger (eds), Yearbook
on international arbitration. Vol. 1 (DJØF Publishing 2010) 146
3
Doug Jones, ‘Insolvency and arbitration: an arbitral tribunal's perspective’ (2012) 78(2) Arbitration 123 123
4
Société Nationale Algérienne v. Distrigas Corp (1987) 80 B.R. 606 610 (US District Court, D Massachusetts); Re
United States Lines, Inc (1999) 136 F.3d 631 DISCUSSION, III (US Court of Appeals, 2th Circuit); Wolfgang Kühn,
‘Arbitration and Insolvency’ (2011) 5 Disp Resol Int'l 203 203; Samantha J Lord, ‘When Two Polar Extremes Collide:
An Exploration into the Effects of Insolvency on International Arbitration’ (2012) 15 Int'l Trade&Bus L Rev 316 319;
Klaus Sachs, ‘Insolvency Proceedings and International Arbitration’ (2013) 1 Collected Courses of the International
Academy for Arbitration Law, year 2011 1-48 1
5
Sara Nadeau-Séguin, ‘When Bankruptcy and Arbitration Meet: A Look at Recent ICC Practice’ (2011) 5 Disp Resol
Int'l 79 79 just 17 ICC awards on the subject in 1968-2002 and 16 between the years of 2002-2006.
1
selected are Germany, England, Switzerland, the United States and Singapore. These countries have mostly
been chosen for their relevance for international commercial arbitration but also out of interest.
Structure
Following the structure mentioned above, this thesis has three parts consisting out of fifteen chapters. This
introduction being the first chapter. The first part is a theoretical framework of cross-border insolvency and
international commercial arbitration (Part I). The second chapter will discuss relevant theory of international
insolvency law (2). The third chapter will discuss a few important cross-border insolvency instruments (3).
Than a fourth chapter will discuss the theories behind international commercial arbitration (4). Fifth, the most
relevant international instruments in international commercial arbitration will be discussed. (5). Hereafter part
two will start (Part II). This part contains a discussion of relevant issues of insolvency in international
arbitration. The sixth chapter discusses the first of those issues; recognition (6), followed by applicable law in
chapter seven (7), arbitrability in chapter eight (8) and the effects of insolvency on the arbitration in chapter
nine (9). The third part, will move from these theoretical discussions to the practice in the chosen jurisdictions
(Part III); first the United Sates in chapter ten (10), followed by England in chapter eleven (11), Germany in
chapter twelve (12), Switzerland in chapter thirteen (13), and finally Singapore in the final substantial chapter
fourteen (14). Chapter fifteen will be the conclusion (15).
Terminology and Scope

Before starting with the analyses is important to address terminology. Throughout the world, the terms
bankruptcy and insolvency are used differently. In England, bankruptcy refers to proceedings for persons that
become insolvent and insolvency refers only to such proceedings concerning legal entities.6 In Switzerland
bankruptcy refers to the official proceeding, irrespective of the insolvent entity and insolvency to the state of
not being able to pay debts when due.7 This thesis will stick to one of these systems. In general, the term
insolvency will be used to refer to the proceedings of insolvency itself. Other terms will mostly feature in parts
where different proceedings are explicitly discussed.
The term arbitration in this thesis is used to refer solely to commercial arbitration, excluding e.g. investment
arbitration. Administrator will be used throughout to refer to the professional that takes over an estate or the
care thereof from an insolvent.
Within many legal systems, the insolvency regime includes reorganization proceedings, such proceedings are
however not considered within this thesis as they bring a whole new set of issues to the table. This thesis will
be focusing on insolvency proceedings in the narrower sense; proceedings with the aim of general execution of
debts via the liquidation of the estate. General execution refers to proceedings involving all creditors as opposed
to special execution which refers to proceedings commonly involving sole creditors, which will not be further
examined here.
Temporally the focus is on recent work and developments to provide a relevant piece of research.
6
Vesna Lazić, Insolvency proceedings and commercial arbitration (International arbitration law library vol 5, Kluwer
Law International 1998) 17
7
Bürgi Nägali Lawyers, ‘Bankruptcy: Terminology’ para 1 <http://www.bankruptcy.ch/terminology> accessed 22
December 2016
2
Part I The Theoretical Framework
Theories and frameworks underlying insolvency and arbitration
2 International Insolvency Theory

The issues that are discussed in this thesis lay at the cross-roads of two fields with very different background
theories. Add to that, the involvement of cross-border issues and one finds a myriad of competing theories.
Understanding why certain problems occurs and having an intelligent discussion on how to deal with them,
requires a knowledge of these fundamental theories.
It is therefore necessary to spend the first of this thesis discussing the relevant theories in both, the fields of
cross-border insolvency and arbitration. This chapter will start with a general section (2.1), followed by the
relevant theories; a discussion on territorialism (2.2), universalism (2.3) and practice and the middle ground
(2.4). The chapter will end with an interim conclusion (2.5).
Insolvency Theory
Insolvency law, unlike arbitration law, is still heavily dominated by local law and principles.8 Many states view
both, the procedural and material aspects of insolvency as core matters of national jurisdiction. This is also
reflected in the sparsity of effective and binding international treaties upon the subject and the lack of systematic
legal framework.9 On the other side, many international and professional organizations have tried to fill the gap
with conventions, best practices and other mostly non-binding instruments.10 Most notable of those is the United
Nations Commission for International Trade Law (UNCITRAL) and the model laws that it makes, which will
feature later in this thesis.11
The purpose of insolvency law is to provide a legal framework to companies when they can no longer pay their
debts.12 It sees to the prevention, regulation and administration of the discontinuation of a company’s legal
relationships. Its core is the streamlining of the inability to make good on its payment obligations.13
As insolvency law is viewed as a core part of national sovereignty, adding a cross-border element to the
insolvency creates a situation of possible competition between two or more jurisdictions. Legally this presents
questions regarding jurisdiction, the law applicable and the effects of the procedure on foreign creditors.14
8
Simon Vorburger, International arbitration and cross-border insolvency: Comparative perspectives (International
arbitration law library vol 31, Kluwer Law International 2014) 6
9
Nadeau-Séguin (n 5), 80–81; Bob Wessels, International insolvency law (Insolvency law vol 10, 3rd edn, Kluwer
2012) 3
10
Bob Wessels and Gert-Jan Boon, Cross-border insolvency law: International instruments and commentary (2nd
edn, Kluwer Law International 2015) annexes
11
United Nations Commission for International Trade Law, see www.uncitral.org.
12
Kurt Siehr, Das internationale Privatrecht der Schweiz (Schulthess 2002) 688; Hermann Fenger, Insolvenzrecht
(Recht - schnell erfasst, Springer 2005) 6; Wessels (n 9) 1; Vorburger (n 8) 6; Deyan Draguiev, ‘The Effect of
Insolvency on Pending International Arbitration: What Is and What Should Not Be’ (2015) 32(5) Journal of
International Arbitration 511 512–513
13
Wessels (n 9) 1
14
ibid 6-7
3
Explanations of cross-border insolvency often begin with an explanation of the two main competing theories;
territorialism and universalism.15 Most legal systems are put somewhere in between these two extremes and are
described with terms as modified universalism16 or limited cooperation.17
Territorialism
Territorialism is the idea that insolvency and the insolvency system is a national creature, interwoven
intrinsically with the national sovereignty of the relevant country or jurisdiction.18 In this philosophy,
insolvency cannot naturally reach across borders.19 The effect of such a view is that the assets of an insolvent
in a foreign country are not affected by the insolvency in the local jurisdiction.20 Any form of international
effect is solely achieved by cooperation, parallel proceedings or a form of secondary proceedings. Following
this theory, every jurisdiction solely applies the local insolvency system. That includes such internationally
relevant issues as denying or recognizing foreign insolvency measures.21
A presumptive advantage of territorialism is the simple and consistent application of local insolvency law within
the local jurisdiction. This obviates the need for any additional legislation on foreign insolvencies as the local
law will always apply. Local creditors can thus rely on their own insolvency law and the rights and expectations
enshrined therein.22
Disadvantages include that due to purely local effects of an insolvency, a local insolvency does not prevent a
debtor from disposing of foreign assets. It risks a run on foreign assets described under the ‘grab rule’23 or in
German ‘Raubsystem’.24 Insolvency of an international company will lead to multiple insolvency proceedings
across several jurisdictions adhering to different principles and rules. International reorganization procedures
are virtually impossible within such a system. These are just some of the legal issues, but there are also many
practical issues with regards to the location of assets and, for example in the international banking practice
regarding securities for credit.25
Universalism
Universalism can be described as the opposite of territorialism.26 It assumes universal effect of the insolvency
of a debtor. Universal meaning global, as the goal of universalism is to have the insolvency of a debtor
automatically apply in every jurisdiction around the globe without separation. The concept prescribes the
15
Akshaya Kamalnath, ‘Cross-Border Insolvency Protocols: A Succes Story?’ (2013) 2(2) International Journal of
Legal Studies and Research (IJLSR) 172 175; Alla Raykin and Nora Wouters, ‘Corporate Group Cross-Border
Insolvencies between the United States & European Union: Legal & Economics Developments’ (2013) 29 Emory
Bankruptcy Developments Journal 387 I.A; Ven, F. A. van de, ‘The Cross-Border Insolvency Protocol; what is it and
what is in it?: From a European Union Perspective’ (Master Thesis, Leiden University 2015) 15; Wessels (n 9) 7–18
16
Paul H Zumbro, ‘Cross-Border Insolvencies and International Protocols - an Imperfect but Effective Tool’ (2010)
11 Business Law International 157 160
17
Jay L Westbrook, ‘Choice of Avoidance Law in Global Insolvencies’ (1991) 17 Brook JInt'l L 499 et seq. 499
18
Arend J Berends, Insolventie in het internationaal privaatrecht (Amsterdam Univ. Diss. 2005. Recht en praktijk vol
133, Kluwer 2005) 12; Ven, F. A. van de (n 15) 15
19
Wessels (n 9) 11
20
Christoph G Paulus, Insolvenzrecht (2nd edn, Beck 2012) 122; Wessels (n 9) 11; Kamalnath (n 15), 175; Vorburger
(n 8) 9
21
Wessels (n 9) 11–12
22
ibid 12
23
Westbrook, ‘Choice of Avoidance Law in Global Insolvencies’ (n 17) 501
24
Wessels (n 9) 12
25
ibid 12–14
26
Kamalnath (n 15), 175; Raykin and Wouters (n 15), I.A
4
application of the same rules throughout. Practically speaking that means; the application of the insolvency
rules from the jurisdiction in which the debtor is initially found insolvent in every other jurisdiction. In effect,
there would be one single insolvency proceeding governed by one legal system, including all assets and
creditors regardless of their location.27
The advantages of such a system include a single administration of the insolvency and the equal treatment of
all creditors and assets. This creates a predictable and orderly outcome. A more practical but equally important
point is the cost efficiency of this system. In the end, cost efficiency is and should be a major goal of insolvency
proceedings as such costs are generally born by the estate, c.q. the creditors, and a primary goal of insolvency
proceedings is estate maximization.
Drawbacks are that local creditors can be confronted by foreign and unfamiliar insolvency regimes and to a
certain extent; the sheer challenge of creating a truly functional and globally accepted universalistic insolvency
system can be counted as a practical drawback.
Practice and the Middle Ground

Practice neither fully embraces universalism nor territorialism. Legal literature is most often opposed to
territorialism and in favor of universalism whilst practice still often reflects territorialism.28 A primary concern
about territorialism in literature is that it breaches the pari passu or paritas creditorum principle, the equal
treatment of creditors.29
The primary concern against universalism seems to be the reservations of states regarding accepting and
applying foreign insolvencies and law. Although this is often voiced as concerns about procedural fairness and
the application of basic legal principles in foreign jurisdictions and proceedings, these arguments can be
considered as sovereignty-based arguments.
Over the years several alternative theories have been proposed.30 The author LoPucki proposed the concept of
‘Cooperative Territorialism’; essentially an application of territorialism and a dismissal of universalism.
Roughly it describes a system wherein all states control the assets within their borders, applying a territorial
approach. But cooperation should be allowed and facilitated when necessary.31
In the 90’s a concept was developed under the moniker ‘Contractualism’.32 This is concept is close to
universalism as it advocates the uniform application of a singular insolvency regime. The applicable insolvency
regime would for example be ‘contractually’ decided upon at the start of the company’s legal life.33 Within
certain boundaries this choice should then be uniformly accepted and applied.
Besides those theories, there are those who argue that neither universalism nor territorialism should be
universally applied to all legal questions in insolvency. Such a theory is proposed by Von Wilmowsky under
27
Anne-Marie. J van Buchem-Spapens and Th. A Pouw, Faillissement, surseance van betaling en schuldsanering
(Monografieën Privaatrecht vol 2, 9th edn, Kluwer 2013) 115; Vorburger (n 8) 10
28
Wessels (n 9) 15
29
ibid.
30
ibid 17–18
31
Lynn M LoPucki, ‘Unversalism Unravels’ (2005) 79 The American Bankruptcy Law Journal 143 143, 163; Wessels
(n 9) 14–15
32
Alan Schwartz, ‘A Contract Theory Approach to Business Bankruptcy’ (1998) 71 Yale LJ 1807 Ch. II; Royston M
Goode, Principles of corporate insolvency law (4th ed. Sweet & Maxwell 2011) 2–20; Wessels (n 9) 18
33
Schwartz (n 32), 1811
5
the title ‘Neuorientierung’.34 He broadly argues, that some questions should be answered by the lex concursus
of the state of initial opening and other by the local law.
In reality, the system applied by most jurisdiction falls somewhere in between the two extremes.35 This leads
to so-called mixed or modified models.36 This happens, for example, by allowing foreign creditors into local
insolvency proceedings, modifying conditions for opening insolvency proceedings away from pure territorial
approaches or by creating cooperation systems and mechanisms between jurisdictions.37 On the other side,
subordinate proceedings can be allowed as a move away from pure universalism or creating exceptions to the
full application of the law of the opening state, as proposed by Von Wilmowsky.38
The European Insolvency Regulation (EIR) embodies, in a way, modified universalism. It implements the
concept of primary and secondary insolvency proceedings.39 This framework seems to lead to further, not
legally required although encouraged, cooperation.40 An example of such cooperation can be found in the
concept of the international cross-border insolvency protocol.41
Interim Conclusion
The concepts of territorialism and universalism, the terms which have been used to frame the international
insolvency theory discussion, are often described as diagonally opposed to each other. Over the years, many
concepts have been theorized or created by practice, which can often be placed in between these two extremes.
These conflicting ideas in international insolvency theory lead to a struggle over jurisdiction and over the reach
and effect of an insolvency. This struggle should be kept in mind, as it explains or at least provides a background
to some of the issues and seeming contradictions when insolvency meets international arbitration.
The observed practice of adhering to mixed models, can be called a golden middle way. It combines the needs
for coherent cross-border insolvency proceedings to maximize efficiency with the need for procedural
safeguards and checks and balances regarding the foreign insolvency’s effect in the home jurisdiction.
3 Cross-Border Insolvency Instruments

After having discussed the international insolvency theory, two international instruments that are relevant for
this thesis need to be shortly discussed. The insolvency systems and laws of the chosen jurisdictions will be
discussed in Part III, however these instruments deserve prior mentioning, as they will also feature in the
theoretical discussion in Part II, as explanations or examples.
Over the years an impressive amount of international insolvency instruments has been made, with ranging
degrees of success.42 Here, only the UNCITRAL Model Law on Cross-Border Insolvency (3.1) and the
European Insolvency Regulation (3.2) will be discussed, as they are debatably the most successful and most
important instruments. This chapter will end again with an interim conclusion (3.3).
34
Peter von Wilmowsky, ‘Choice of Law in International Insolvencies - A Proposal For Reform’ in Jürgen Basedow
and Toshiyuki Kono (eds), Legal aspects of globalization (Kluwer Law International 2000) 197–212; Wessels (n 9) 21
35
Vorburger (n 8) 14
36
Wessels (n 9) 23
37
ibid.
38
ibid.
39
Vorburger (n 8) 11–12
40
Wessels (n 9) 24–25
41
Ven, F. A. van de (n 15) 16
42
For thorough review and collection of such instruments see Wessels and Boon (n 10)
6
The UNCITRAL Model Law on Cross-Border Insolvency
On the 30th of May 1997, UNCITRAL adopted the Model Law on Cross-Border Insolvency (Ins.ML). This
model aims to function as a template for jurisdictions to create national legislation for cross-border
insolvencies.43 It has not been as popular as the other model law relevant to this thesis, which will be discussed
in chapter five. However, it has been a relative success, as legislation based on the Model Law for Cross-Border
Insolvency has been adopted in 41 countries including the United States and the United Kingdom, many of
which as recently as 2015 and with Singapore joining their ranks this year.44 Broadly speaking, both model laws
aim to smoothen out legal issues which arise in a globalized world with a fractured legal landscape. This Model
Law does so in the field of cross-border insolvency. 45
The core principles employed this model law employs are access, recognition, relief and cooperation.46
However, it specifically does not create substantive unification of national insolvency laws. It merely aims to
reconcile and respect national differences.47 It does not replace national insolvency regulations but merely
supplements them and operates as a part of existing national laws.48
Access means that representatives of, and creditors in, insolvency procedures should have access to procedures
in other jurisdictions. Recognition means that foreign insolvency proceedings should be recognized. The Model
Law provides a framework for this. It provides for recognition as either main or non-main proceedings, as in
the European Insolvency Regulation. Main proceedings being proceedings, where the debtor has its center of
main of interest (COMI). Non-main proceedings being there, where the debtor merely has an establishment.
Further definitions of those terms can be found in case law. Relief is achieved by this Model Law in the form
of the possibility to request and receive relieve in foreign insolvency proceedings. Cooperation and
Communication points at the express possibility and authority created by the Model Law for courts to cooperate
and communicate with foreign courts to fulfill the goals of the Model Law.49
European Insolvency Regulation

The new European Insolvency Regulation50 itself is interesting to look at.51 The new regulation will replace the
regulation from 200052 and is similarly directly applicable in the member states, as per the Treaty on the
Functioning of the European Union (TFEU). The Regulation does not as such prescribe a coherent insolvency
procedure, but mainly facilitates recognition and coordination.53 The aim of the procedure is to create an
43
Wessels (n 9) 143
44
Vorburger (n 8) 11; UNCITRAL, ‘Status: UNCITRAL Model Law on Cross-Border Insolvency (1997)’ (2017)
<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html> accessed 11 January
2017
45
UNCITRAL, ‘UNCITRAL Model Law on Cross-Border Insolvency (1997)’ (2017) Part II, Sec I.A.
<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html> accessed 11 January 2017
46
Wessels (n 9) 148; UNCITRAL (n 45) Part II Sec. IV
47
Wessels (n 9) 143
48
UNCITRAL, ‘UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation’
(2014) 25 <http://www.uncitral.org/pdf/english/texts/insolven/1997-Model-Law-Insol-2013-Guide-Enactment-
e.pdf> accessed 11 January 2017
49
UNCITRAL (n 45) Ch. IV
50
REGULATION (EU) 2015/848 on insolvency proceedings 20 May 2015, EIR (recast) (European Parliament and
Council)
51
Although the 2015 regulation mostly enters into force mid-2017, regarding the European insolvency legislation
this regulation will be used primarily for further discussion as the old EIR will soon be outdated.
52
COUNCIL REGULATION (EC) No 1346/2000 on insolvency proceedings 29 May 2000, EIR (Council of the European
Union)
53
Wessels (n 9) 347–349
7
effective and efficient framework for insolvencies that involve multiple EU states and put a stop to internal
forum shopping.54 Important to note is that it does not attempt to regulate insolvency between EU states and
extra-EU states, but merely within the EU.55
The EIR operates as an overarching framework, which functions to a large extent as a set of conflict-of-laws
rules.56 However, it introduces some very interesting tools that go beyond that role such as the legal basis for
inter-court cooperation and communication and the concept of main and secondary insolvency procedures.
In the country where the previously mentioned COMI or Center of Main Interests is located, main proceedings
can be opened.57 If there is a presence that does not amount to the COMI but is merely an establishment, one
can only open so-called territorial proceedings, which in case of an existing main proceeding are referred to as
secondary proceedings.58 In terms of the application within one jurisdiction, the distinction between main and
secondary proceedings has little to no effect. However, within the framework of the EU and the EIR it has
several consequences as to what effect the proceedings has outside of the borders of the opening jurisdiction.
The presumption under EU law is general and direct recognition of a main proceeding. Initially, the law of the
opening state is applicable EU-wide. All debtors and assets are to be included in this main proceeding.59 This
can be described as a form of internal universalism. Territorial proceedings are also recognized in the other
member states, but they do not have cross-border effect and merely open a local insolvency proceedings
involving local assets and debtors.60 Although, that could be described as a cross-border effect from the
perspective of a main proceeding, as it removes the local assets from the grasp of the foreign main proceeding.
When a main proceeding is opened, all running territorial proceedings, which involve the same debtor, become
secondary proceedings. This creates certain obligations towards the main proceeding, mostly centered on the
sharing of information, but also importantly involving asset location and allocation. Territorial proceedings can
still be opened after the opening of main proceeding but only in the form of secondary proceedings. 61
Interim Conclusion
Apart from the EIR, most cross-border insolvency instruments have no binding power of their own. The
UNCITRAL Model Law remains a model law. As such it needs to be adopted. Therefore, the measure of success
of such a model law is the amount and the specific countries in which it has found adherence. The Model Law
has found more and more following in the recent years, with a score of countries adopting it in 2015 and
Singapore set to do so this year. It can be expected and hoped that the Model Law will gain even more adherence
and thus create more clarity and consistency on a global scale regarding cross-border insolvencies.
4 Arbitration Theory
Whilst the insolvency theory debate seems centered around the previously mentioned struggle for jurisdiction
and ideas on state sovereignty, arbitration theory follows a more private law, internationalist trend. A different
view on the role and nature of arbitration can lead to diagonally opposed results regarding core issues of
54
ibid 346–347
55
ibid 356
56
ibid 348–349
57
ibid 365
58
ibid.
59
ibid 366–368
60
ibid 368
61
ibid 370-371
8
arbitration. The arbitration agreement, in one theory, is considered a procedural agreement, in some theories it
is regarded as a regular contract and yet another views it as a unique part of the system of legal remedies.62
Due to the decentralized nature of international arbitration, there is no authoritative description. However,
arbitration is generally described as a consensual means by which parties submit disputes to a non-governmental
decision-maker selected by the parties, to receive binding dispute resolution. In this process, a neutral
adjudicatory procedure is used which should afford both parties the opportunity to present their case.63
Different theories about international arbitration lead to fundamentally different answers to questions on the
intersection of the two legal fields.64 It is therefore important to discuss the leading theories regarding
international commercial arbitration. For this purpose, the jurisdictional theory (4.1), the contractual theory
(4.2), the middle ground or so-called hybrid theory (4.3) and finally the autonomous theory (4.4), will be
discussed. A short interim conclusion will follow (4.5).
The Jurisdictional Theory

The jurisdictional theory is a classical theory, which can be viewed as the arbitration equivalent of the territorial
theory as it lays the focus on the sovereignty of jurisdictions. It views arbitration as part of the state’s function
to adjudicate legal disputes. In this view, an arbitrator is a private judge65 and their authority can only reach as
far as what is bestowed upon them by the local legal system. As a result, arbitrators are fully bound to local
law, as far as it cannot be contracted out of.66 As the arbitrators are integrated in the local adjudication system,
their awards are as well. Those awards are provided with a status similar to that of court judgments.67
Although this theory does not deny that the foundation of arbitration lies in the parties’ contract, the focus is
lain on the supervisory task of states, mainly the ‘forum state’.68 One of the paramount differences between this
theory and the contractual theory is what one considers the main source of the arbitrator’s power and authority;
the state’s public law or the arbitration agreement. Within the jurisdictional theory that source is primarily the
state’s legal system; its arbitration law, procedural laws and so on. Thus, the lex fori in many ways plays the
main role in this theory.69 For example, following this theory arbitrators will be bound to the choice-of-law and
conflict-of-laws rules in the same way as local judges when determining the applicable substantive law.70
The Contractual Theory

This theory focuses on the private and the consensual nature of arbitration.71 Its views arbitration as based
purely on the private contract; established by the mutual consent of the parties.72 The arbitrators, in this view,
62
Gary Born, International Commercial Arbitration (Second edition, 2014) 215
63
Gary Born, International Arbitration: Law and practice (Second edition, Kluwer Law International 2016) 2
64
Vorburger (n 8) 4
65
Born, International Commercial Arbitration (n 62) 214
66
Vorburger (n 8) 5
67
Hong-lin Yu, ‘A Theoretical Overview of the Foundations of International Commercial Arbitration’ [2008]
Contemp Asia Arb J 255, 262
68
´Forum state’ is a problematic term in arbitration, as it is argued that arbitration is detached from any forum
state. However, following the jurisdictional theory naturally leads to a denial of such a detachment.
69
ibid 258
70
ibid 263
71
ibid 265
72
Born, International Commercial Arbitration (n 62) 213; Frédéric-Edouard Klein, Considérations sur l'arbitrage en
droit international privé, précédées d'une étude de législation, de doctrine et de jurisprudence comparées en la
matière (Bâle Helbing & Lichtenhahn 1955) § 106; Julian D M Lew, Loukas A Mistelis and Stefan Kröll, Comparative
international commercial arbitration (Kluwer Law International 2003) §§ 5.18, 5.3
9
are not considered as judges and do not perform a public role.73 As such the state is not thought to have any role
in the arbitral process,74 except in as far as the state has a role in the enforcement of any contractual obligation
between the parties. That contractual enforcement can be sought at any stage in the arbitral process, including
the enforcement of arbitral awards.75 Complying with the awards is to be seen as complying with the contractual
agreement to submit disputes to binding arbitration. Logically, within this theory, the arbitral award also enjoys
no higher or lower status than that of a contract.76
The contractual theory is the basis for the idea that arbitration is without any home jurisdiction or ‘location’,
hence the term delocalized. This means that arbitration should be viewed as separate from any specific
jurisdiction. The parties’ intent and autonomy should be afforded the maximum weight. Only the restrictions
of regular contractual validity and the restrictions of the chosen law or lex contractus, should apply.77
The Hybrid Theory

As in insolvency theory, arbitration theory also has a hybrid theory that stands between the two extremes. This
theory to an extent reflects reality better than the two previously discussed theories.78 The hybrid theory
combines aspects from the contractual theory and the jurisdictional theory.79
In line with the contractual theory, in the hybrid theory the arbitration agreement itself, including the choice of
arbitrators, is fully determined by the parties.80 The framework in which arbitration operates is controlled by
the state, which reflects an aspect of the jurisdictional theory. Some authors do not see a clear dominance of
one theory or the other.81 However, it appears that the contractual theory dominates. This follows from the
observation that in the hybrid theory, intervention is seen as the exception and a check on the party autonomy.
Whereas party autonomy is considered the corner stone of arbitration82 and thus plays the dominant role in this
theory.83 As party autonomy is the holy grail of the contractual theory, it would appear that this theory has the
overhand within the hybrid theory.
It has become clear that the hybrid theory, similarly as with the insolvency theories, has become the dominant
approach. Both the actual legal framework provided in arbitration laws, the relevant court decision and arbitral
awards reflect the hybrid theory.84
The Autonomous Theory

Finally, there are authors who place arbitration outside of the scope of any of these theories. Rubellin-Devichi
argues that to achieve maximum effect, arbitration must be viewed as an autonomous system outside of the
73
74
Lew, Mistelis and Kröll (n 72) § 5.18
75
Julian D M Lew, Applicable law in international commercial arbitration: A study in commercial arbitration awards
(Oceana Publications 1978) para 56
76
Yu (n 67), 271
77
Andrew Barraclough and Jeff Waincymer, ‘Mandatory Rules of Law in International Commercial Arbitration’
[2005] MJIL 205 et seq. II <http://www.austlii.edu.au/au/journals/MelbJIL/2005/9.html>; Vorburger (n 8) 5
78
Yu (n 67), 274
79
Vorburger (n 8) 5
80
Yu (n 67), 277
81
Barraclough and Waincymer (n 77), II; Vorburger (n 8) 5
82
Alan Redfern, Hunter, Martin, Blackaby, Nigel and Constantine Partasides, Law and practice of international
commercial arbitration (4th edn, Sweet & Maxwell 2004) 315; Sunday A Fagbemi, ‘The doctrine of party autonomy
in international commercial arbitration: Myth or reality?’ (2016) 6(1) JSDLP 202 245
83
84
Lew (n 75) § 57; Lew, Mistelis and Kröll (n 72) § 5.26
10
confines of other areas of law.85 In her opinion, both the contractual and jurisdictional theory fail to correspond
with reality. The hybrid theory was disregarded as the scope of its application is viewed as too undefined.86
In reality, the supra-national nature of arbitration should be recognized. Part of this view is that one should stop
trying to recognize contractual and jurisdictional aspects within the arbitration practice, which within this view
is meritless exercise in any case.87
Arbitration and arbitrators should be regarded as having an autonomous nature in which the necessary authority
flows from its own purpose and necessity.88 This autonomous system would be more flexible, closer to reality
and more able to fulfill ever changing needs.
Following from this, would be the conclusion that an arbitral award would neither carry the status of a judgment
nor that of a contractual obligation, but be in a category of its own. As the proponents of an autonomous system
follow a delocalized approach to arbitration, the arbitration being separate from any legal system, the
supervisory role of the lex fori is denied. They argue that a new system must be founded to fulfill this
supervisory role, free from the contractual and jurisdictional ideas.89
Interim Conclusion
Similar to the situation in cross-border insolvency theory, the several different theories within arbitration theory
create different legal frameworks for arbitration and can lead to vastly different answers to important legal
questions.
Whereas one theory views arbitration as part of the state’s adjudication system, the opposing view sees it as a
contractual system defined by private law. Practice seems to have chosen a hybrid form that does not fully
conform with either theory. The author tends more towards the contractual theory, as in the end is only by grace
of arbitration agreements that arbitration exists. However, the autonomous theory is worth considering as often
the pull and push between the two main theories is productive nor effective.
The issues of insolvency in international arbitration should be considered whilst keeping in mind the competing
views in both insolvency and arbitration theory. This provides the issues with a theoretical foundation. These
fundamental issues in turn should be the starting point for any answer to the specific questions that come up.
5 International Commercial Arbitration Instruments

After having discussed the theories underlying international arbitration it is relevant to discuss some of the most
important international instruments on the subject. The arbitration laws of the relevant jurisdictions will be
discussed in part III, however, for an understanding of the discussion in part II, the international instruments
mentioned below deserve a prior mention here.
In an international discussion on arbitration one cannot get around the so-called New York Convention (NYC),
which will together with UNCITRAL Model Law on Arbitration (Arb.ML), be discussed first and second (5.1,
85
Jacqueline Rubellin-Devichi, L'Arbitrage: Nature juridique, droit interne et droit international privé (Librairie
générale de droit et de jurisprudence 1965) 365
86
Yu (n 67), 278
87
ibid.
88
Adam Samuel and Marie-Françoise Currat, Jurisdictional problems in international commercial arbitration: A
study of Belgian, Dutch, English, French, Swedish, Swiss, U.S. and West German law (Publications of the Swiss
Institute of Comparative Law vol 11, Schulthess 1989) 59
89
Samuel and Currat (n 88) 60; Yu (n 67), 279–280
11
5.2). This will shortly be followed by a discussion of the effect of EU law on international commercial
arbitration (5.3). Followed by an interim conclusion (5.4).90
The New York Convention

Officially called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, it is more
commonly known as the New York Convention.91 It is a relatively small international treaty which forms the
bases of international commercial arbitration in a 156 member states and counting. The New York Convention
is not a full-fledged arbitration legislation. However, it is the framework in which international commercial
arbitration operates and without the New York Convention international arbitration as known today would not
exist or function.92 Anyone wanting to have an international award or arbitration agreement recognized or
enforced in any of the 156 member states will base such a request on the New York Convention. This
recognition and enforcement is also the nominal goal of the New York Convention. 93 More widely, the New
York Convention intended to promote international arbitration. Both goals seem to have been achieved, with
the large amount of member states and a constant growth in quantity and importance of arbitration.
The New York Convention as such functions on what can described as a higher level than the national
legislations; as treaties and conventions are often seen as higher or above national legislation. Thus, the New
York Convention forms a framework together with the national arbitration legislation. Again on a ‘lower level’,
these two parts of the framework, determined by the chosen jurisdiction, are supplemented by the arbitration
agreement itself and the institutional rules often incorporated therein. Together and it the ordered mentioned
they form the layered framework in which international commercial arbitration operates.94
The convention was adopted in 1958 and entered into force the next year. As stated in Art. VII(2) NYC, the
New York Convention replaced the Geneva Protocol of 1923 and Convention of 1927, which provided for
respectively, referral to arbitration and recognition and enforcement of arbitral awards.95
In most of the contracting states, the convention has been implemented via national law.96 The danger therein
is that national courts can interpret their own implementation of the convention differently than their courts in
other jurisdictions. Whilst a body of case law on the implementation acts has arisen in practice, diverging case
law has not become a major problem as courts increasingly often cite international sources and make their
decisions more widely accessible than in the past.97
The convention has a mere 16 articles, of which only a hand full is relevant in practice. Article I, identifies the
scope of application as applying to arbitral awards of an international nature, sometimes interpreted as meaning
outside of the relevant jurisdiction, but more often and correctly viewed as meaning awards that have an
international nature.98 Art. II NYC provides the legal requirements of an arbitration agreement. The convention
goes on to provide a very broad duty (Art. III NYC) to enforce such awards. A description of what needs to be
handed in to request enforcement can be found in Art. IV NYC. The relatively narrow grounds on which awards
can be unenforceable are in Art. V. It is important to note the use of the word ‘can’ as opposed to ‘must’. Art.
90
A list of other international instruments can be found here Lew, Mistelis and Kröll (n 72) 817-826 however, in
general and specifically for this thesis the instruments discussed here are the most relevant.
91
Born, International Arbitration (n 63) 18
92
Lazić, Insolvency proceedings and commercial arbitration (n 6) 58; Born 16, 19
93
94
ibid 17
95
ibid 17–18
96
This relates to jurisdictions either having a monist or dualist system regarding international law c.q. treaties.
97
Lazić, Insolvency proceedings and commercial arbitration (n 6) 61; Born, International Arbitration (n 63) 20
98
12
V NYC does not create a duty to find the award unenforceable, it merely provides the possibility. Art. VI NYC
contains the last substantial rule; providing for the possibility of security or adjournment in case of an ongoing
setting aside procedure. Art. VII NYC states that the convention does not prejudge the applicability of other
treaties or conventions. The remaining articles are filled with treaty technical arrangements.
The UNCITRAL Model Law on International Commercial Arbitration.

The UNCITRAL Model Law on International Commercial Arbitration is a model law made by the UN
Commission on International Trade Law. In an arbitration context, it is commonly referred to as the
UNCITRAL Model Law or even just the Model Law. However, the commission has made several model laws
including for example the UNCITRAL Model Law on Cross-Border Insolvency discussed in chapter three.
First adopted on the 21st of June 1985 by UNCITRAL, the Model Law represents the most relevant ‘statute’ in
the international commercial arbitration. As a model law, is does not have legislative power by itself. But is has
been adopted by a significant number of jurisdiction and in others it has served as a basis for the local arbitration
law. According to UNCITRAL, 75 states have currently adopted legislation based on the Model Law.99 Thus,
it has achieved a significant level of success in view of its goal of harmonization of arbitration law.
The Model Law, thus, operates on the second level of the framework mentioned in the previous section; under
the New York Convention, as part of national arbitration legislation.100 It contains 36 articles, which unlike the
New York Convention represent a comprehensive international arbitration legislation. It contains articles on
the appointment of arbitrators, jurisdiction, provisional measures, the procedure, evidence taking, applicable
law, awards and challenging and enforcement such awards. Notably, it has a clear pro-arbitration bias, enforcing
arbitration agreements, minimalizing judicial intervention and presuming the validity of arbitral awards.101
European Union Law

The European Union as such does not have an arbitration regulation equivalent of the EIR. The EU does have
a large body of investment arbitration. It was long believed that EU law and the EU legal system have nothing
to do with the legal order in which international commercial arbitration exist.102
However, on certain points EU law and the legal framework of arbitration can interact with each other or fail
to do so when necessary. The question regarding preliminary rulings is one of those points. Courts within the
union can ask the Court of Justice of the European Union (CJEU) for preliminary rulings on questions
interpreting EU law, see art. 267 TFEU. This possibility is, however, not open to arbitral tribunals,103 though
tribunals can also be asked to deal with questions of European law. As not having a preliminary ruling will
typically not fall under a non-enforcement ground, courts will generally enforce these awards even though they
might have misinterpreted EU law.104 Since international arbitration encountering insolvency in an EU context
99
UNCITRAL, ‘Status: UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as
adopted in 2006’ (2017) Header
<http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html> accessed 11
January 2017
100
101
ibid 23–24
102
Tony Cole and others, ‘Legal Instruments and Practice of Arbitration in the EU: Study’ (Brussels 2014) 186
<http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf> accessed
12 November 2017
103
ibid.
104
ibid.
13
will deal with the EIR, this is a severe disadvantage for arbitral tribunals finding themselves confronted with
interpretation questions.105
Another problem is created by the exclusion of arbitration from the scope of Brussels-I, or the Council
Regulation on Jurisdiction, Recognition and Enforcement of Judgments in Civil and Commercial Matters. 106
Brussels-I works on a principle of mutual trusts between courts in the member states. In short, it comes down
to a system wherein every court should rule on their own jurisdiction and no anti-suit injunctions extended to
other states can be rendered. This exclusion creates an issue for arbitration as this creates the danger of parallel
proceedings, leading to all kinds of practical issues.107
Outside of the EU, but still in a European context; the European Court for Human Rights (ECHR) in case law
has stated that arbitration and the exclusion of the state court is not a violation of the right to access to a court
or the right to a fair trial.108 Which is a favorable outcome for arbitration as the opposite outcome would have
seriously endangered arbitration in any jurisdiction subscribing to the ECHR.
Interim Conclusion
International commercial arbitration would not be what it is today without the New York Convention. It is the
cornerstone of its global development. Together with the UNCITRAL Model Law on International Commercial
Arbitration, they form a roadmap for international commercial arbitration. The Model Law is quite successful.
Its adoption rate is comparatively very high and more importantly the adopting countries represent major trading
and international commercial arbitration countries. As such, it can be concluding some hopefulness, that this
foundation will keep setting the stage for further growth of international commercial arbitration.
However, one can wonder if the time has not come for a new convention. The Geneva conventions were
replaced after little over thirty years, whereas the NYC has been in operation for almost seventy years. Although
what is in the New York Convention mostly operates in an effective and generally acceptable way, it more
relevant to think about all those subjects that are not in the convention. Issues that could be included and could
support a new leap forward in the efficiency of International Commercial Arbitration. On the other hand, the
negotiation history of the Model Law on International Commercial Arbitration shows that on many of the
subjects that one could contemplate adding to the Convention there still is major disagreement, e.g. arbitrability.
As can be gleamed from the discussion about EU law above, international commercial arbitration never operates
in a vacuum. Local law or perhaps regional law in the EU context, should always be considered as it can and
will in practice affect arbitration. Even from a delocalized perspective, one should not think that only that part
of local law that pertains to arbitration will be relevant in practice.
Part II The Issues of Interaction

The legal questions that arise when arbitration meets insolvency on a theoretical level .
6 Recognition of Insolvencies
After the basic insolvency and arbitration theories, it is time to move to the first problem that occurs in case of
insolvency in international arbitration.
105
ibid 189
106
Jurisdiction, recognition and enforcement of judgments in civil and commercial matters (Brussels I) 20
December 2000, (EC) No 44/2001 (European Council)
107
Cole and others (n 102) 189–193
108
Osmo Suovaniemi and others v. Finland (1999) Application no. 31737/96 para 4 under The Law (European Court
of Human Rights); X v. Germany (1962) Application no. 1197/196 para 6 En Droit (European Court of Human Rights)
14
At the intersection of arbitration and insolvency, many legal problems and questions come into being. The order
of the following chapters is based on a loose understanding of the order in which the questions will need to be
answered by a professional confronted with an insolvency during an international arbitration. The first question
one needs to ask is if the insolvency will legally play a role, in other words, will it be recognized in a way that
it can and will be taken into account.
Some systems do not recognize foreign insolvencies at all, some require a recognition proceeding, some only
give a possibility to open a secondary proceeding if there are local assets, e.g. Switzerland. Others automatically
recognize foreign insolvencies or at least do not require recognition by a court, e.g. Germany and the EIR-
system. Recognition is the first step in uncovering the effects of an insolvency on the arbitration proceeding.
First, the relevant definitions of recognition will be discussed (6.1). Then, theories and practices of recognition
of insolvencies are discussed as pertaining to courts (6.2). Third, recognition and arbitral tribunals will be
discussed (6.3). Fourth, the practices will be reflected upon from a theoretical point of view (6.4). Fifth, a short
abstract discussion on how the question of recognition is answered by the Model Law for Cross-Border
Insolvency and the EIR (6.5). This chapter will end with an interim conclusion (6.6).
Definition of Recognition
Recognition can be used in different contexts and as such refer to different things. Within international civil
procedure law, it means to recognize a foreign judgment and extend its effects to the territory of the forum state.
This recognition thus, can by extending those effects, create, change or even end legal relationships.109 Within
private law such official recognition is not available, as private law acts are not made in the capacity of a judge
or other official role. However, the substantive effects of such acts can be recognized, as opposed to the
procedural recognition within international civil procedure law. Substantive recognition is regulated by the
conflict-of-laws rules of the forum state.110
For this thesis, the most important concept of recognition is however, the concept of recognition in cross-border
insolvency. No singular substantive concept of recognition within cross-border insolvency law exists, meaning
that procedures and effects vary significantly between jurisdictions. Recognition can refer to the recognition of
an insolvency judgment, the proceedings or merely the substantive effects of the procedure. The concept of
comity is often referenced as well; the idea that states should do their best to give effect to foreign legislative,
executive or judicial acts as a matter of necessity, but also goodwill towards each other.111
In practice, the recognition of an insolvency judgment or ruling and the insolvency proceedings are equal or at
least have the same effect. Both, see to the recognition of rulings affecting the insolvency proceedings.112 Thus
recognition here, similar as in the international civil procedure, is the recognition of the judicial decision. This
recognition is based upon the order meeting certain formal criteria or the criteria of comity. Courts in most
regimes are not allowed to substantively recheck the ruling although rules of due process can often be
considered. Ch. III of the Model Law on Cross-Border Insolvency, dealing with recognition, however does not
mention any such grounds. All in all, the recognition of an insolvency ruling is a quite similar procedure as the
general recognition of civil procedural ruling. However, insolvency often has its own specific conflict-of-laws
systems, including recognition rules, e.g. the EIR and the Model Law on Cross-Border Insolvency.
109
Vorburger (n 8) 17
110
ibid.
111
Hilton v. Guyot (1895) 159 U.S. 113 163–164 (US Supreme Court)
112
Vorburger (n 8) 18
15
This however does not provide much guidance upon the effect of this potential recognition. This will remain a
further question to be answered. The answer will mainly depend on the conflict-of-laws rules of the recognizing
state113 or those applied by the tribunal, used to determine the applicable insolvency laws. Per issue the
applicable law can differ, as can for example be seen in Art. 7 EIR.
Recognition by Courts
Recognition is often not as straightforward as described above. National courts in the jurisdiction in which the
insolvency ruling has been made have a straightforward situation. In such cases, insolvency effects are mostly
considered ex officio and the relevant law is the national insolvency law.
When it comes to recognition of foreign insolvencies the previously mentioned conflict-of-laws rules of the
forum state need to be used. Many jurisdictions have specific conflict-of-laws rules for insolvencies. Such rules
are often found in treaties, e.g. in a way the EIR, or national law, e.g. national laws based on the Model Law
for Cross-Border Insolvency. Where such special rules exist, recognition based on normal civil procedural
recognition is generally rejected.114
Furthermore, the effects of the insolvency can be recognized. This is not a recognition of the insolvency itself,
but merely a recognition of its substantive effects as described in the foreign insolvency law. For example, a
court might, for practical reasons, recognize that the regular representatives can no longer represent the
company or recognize the termination of legal relationships. Such substantive effects, as opposed insolvency
specific effects, can be recognized based on international private law rules.115
Finally, there is ‘recognition’ without any actual recognition. The contradiction being that no rules of
recognition are applied but certain effects are taken into account as facts. For example, the ability of an
insolvency administrator to represent a company in court. This approach is purely based on the need to avoid
unnecessary and illogical practical issues which would frustrate proceedings.116
Recognition of an insolvency within ongoing court proceedings can run into problems, as a number or
jurisdictions require separate recognition proceedings, sometimes before specific courts. This leads to the
situation that a foreign insolvency occurring whilst a separate civil procedure is ongoing, cannot be recognized
in by the judge in that proceeding, which can lead to unwanted results. For the recognition of facts or substance
as discussed above, this is of course not a problem as these are not truly recognitions of the insolvency itself.117
Recognition by Arbitral Tribunals

Recognition by arbitral tribunals presents its own problems and is different than that of state courts. This is due
to arbitral tribunals being based on private law, whereas the state courts are based upon public law.118 Thus, not
all the methods discussed previously will be available to an arbitral tribunal.
113
ibid 19
114
ibid 22
115
ibid.
116
ibid.
117
ibid 24
118
Fomento de Construcciones y Contratas S.A. v. Colon Container Terminal S.A. (2001) BGE 127 III 279 2(c)(aa)
(Swiss Federal Supreme Court)
16
As previously discussed under leading theory, arbitral proceedings should be considered delocalized. But, in
case of recognition case law clearly shows a difference being made between insolvencies in the arbitral seat
and ‘foreign’ insolvencies.119
Insolvencies in the arbitral seat are often automatically taken into account, or in that sense recognized,
insolvency. This is done in a way similar as in court proceedings, often without any reasoning by the tribunal
as to why they do so. The effect of the insolvency is in these cases the main discussion point.120
Whilst it is legally questionable to not reason this recognition, failing to recognize an insolvency in the arbitral
seat could severally endanger the award rendered. Insolvency law or aspects thereof are often considered part
of public policy of the state.121 Hence, ignoring the insolvency in the seat risks setting aside under adoptions of
Art. 34(2)(b)(ii) Arb.ML or similar provision in national laws.122
However, recognition of insolvencies outside the seat of arbitration seem to be more problematic. 123 Arbitral
Tribunals have adopted several methods of either recognizing the insolvency or dealing with it and its effects
in a different way. Below, the various ways arbitral tribunals deal with insolvencies outside the country of the
seat will be discussed.
Non-Recognition with Reference to Territoriality

Many tribunals, particularly in older cases, look at the territorial effects of the insolvency.124 They either
reference the active territoriality of the lex fori concursus or the passive territoriality of the law of the seat,
thereby denying the insolvency effect in the seat jurisdiction and thus in the arbitration.125
Recognition Based on Cross-Border Insolvency Law of the Seat

Other tribunals rely on the cross-border insolvency regime in the law of the seat. They either rely on recognition
proceedings in the seat jurisdiction or make an autonomous recognition.126
Tribunals that rely upon recognition in the seat jurisdiction by the courts, will disregard the insolvency in case
there is no such recognition decision. Tribunals that assume the authority to use the cross-border insolvency
regime of the seat jurisdiction autonomously, are not affected by the lack of such a recognition decision but will
decide by themselves if the insolvency can be recognized in the seat jurisdiction. 127 But questions as to the
119
(1991) ICC Award No. 8133 unpublished cited in; Domitille Baizeau, ‘Arbitration and insolvency: issues of
applicable law’ in Christoph Müller and Antonio Rigozzi (eds), New Developments in International Commercial
Arbitration (Schulthess 2009) 103; [1993] ICC Award No. 7205, [1995] Clunet 1031 et seq. 1033 et seq; Baizeau (n
119) 100, 103
120
(n 119) 1033 et seq; Fernando Mantilla-Serrano, ‘International Arbitration and Insolvency Proceedings’ (1995)
11(1) Arbitration International 51 56 regarding the Italian Award; [2002] Procedural Order No. 14, [2005] 23
ASA Bull 108 et seq. 109–110, 116
121
Baizeau (n 119) 100
122
ibid.France for example considers at least parts of its insolvency law as public policy see (2009) No. 08‐10.281
(French Supreme Court)
123
Cf.Baizeau (n 119) 105–106
124
[1991] ICC Award No. 6057, [1993] Clunet 1016 et seq. 1017 et seq; F. Ferrari and S. Kröll (eds), Conflict of Laws
in International Arbitration (no. 1, sellier european law publishers 2011) 238
125
Baizeau (n 119) 104; Vorburger (n 8) 36
126
(1991) ICC Award No. 5954 unpublished; Vorburger (n 8) 37–38 referring to what e.g. the LCIA did in an Interim
Award for the Vivendi Cases
127
Baizeau (n 119) 106–107 citing an unpublished ICC Award from 2009 seated in France dealing with a 'foreign'
insolvency.
17
authority of a tribunal to do so, will come up as national laws often create specific authority for a designated
court to recognize foreign insolvencies, e.g. the EIR or Ins.ML.128
Recognition Based on Mandatory Rules

This method is again not a recognition of the insolvency as such. Some tribunals look at the insolvency
regulation of the lex fori concursus to decide which rules can be qualified as mandatory rules of law and then
take those rules into account.129 Presumably, such approaches consider both, the enforceability and possible
setting aside of awards, as a violation of mandatory rules and public policy can lead to a violation of clauses
such as Art. V(2)(b) NYC or Arts 34(2)(b)(ii), 36(1)(b)(ii) Arb.ML. The concept of what constitutes a
mandatory rule or public policy is complex, often vague and ranges per jurisdiction, suffice it to state here that
in certain aspects of insolvency law are regularly qualified as such rules, e.g. the equality of creditors.130
Recognition as Fact
Recognizing the insolvency as a fact is again not an actual recognition of the insolvency. In several instances,
a tribunal will simply ignore the question of recognition, accept the insolvency or certain facts thereof and skip
forward to discuss the effects that insolvency will have on the case.131
Practice and Theory

Most of the practices described above seem to defy the concept of delocalized arbitration, as they take guidance
from the cross-border insolvency rules of the seat of arbitration. Sticking to a pure concept of delocalized
arbitration would not allow the tribunal to fall back on the cross-border rules of the seat, as it would have no
basis to do so. Classifying (part of) these rules as mandatory rules or public policy rules circumvents that
criticism.132 When these rules are thus qualified, the tribunal can base their application on rules of the arbitration
law or NYC, which mandate regard for international public policy and mandatory rules. The question if such
rules are to be qualified as public policy rules depends entirely upon the laws of the relevant jurisdiction.133
Case law on the EIR in the cases of Vivendi134 argue in favor of classifying the intra-EU recognition rules of
the EIR as public policy.135 These rules call for automatic recognition of insolvencies between EU member
states and thus importantly do not create a singular authority for recognition by a designated court.136 Therefore,
a tribunal seated in an EU member state would violate the public policy of the seat if it ignores an insolvency
in another member state, resulting in an award that can be set aside or that becomes non-enforceable.137
The question then remains, when fully applying the delocalization theory and assuming that many insolvency
rules do not reach the level of mandatory rules; which law should a tribunal revert to for recognition of the
128
Cf. Philipp Wagner, ‘When Insolvency Law Meets International Arbitration’ (2009) 3(1) Disp Resol Int'l 56 61. See
also the discussion further on regarding the Model Law on Cross-Border Insolvency
129
[2001] ICC Award No. 9163, [2003] Revue de L'Arbitrage 227 et seq; Vorburger (n 8) 38–39 referring to an
unpublished award [2002] ICC Award No. 11028
130
IBA Subcommittee on Recognition and Enforcement of Arbitral Awards, ‘Report on the Public Policy Exception in
the New York Convention’ (London October 2015) 16 <http://www.ibanet.org/> accessed 16 May 2017
131
[1996] ICC Award No. 7337, [2003] 1996-2000 Collection of ICC Awards 308 et seq; [2004] ICC Award No. 11714,
[2009] ICC ICArb Bull 74 et seq.both as referenced in ; Vorburger (n 8) 40
132
Baizeau (n 119) 100–101, 105
133
ibid 105
134
Syska v. Vivendi Universal [2008] EWHC 2155 (Comm), [2009] CLC 459 et seq. (England and Wales High Court
(Commercial Court)); Elektrim v. Vivendi Universal [2009] EWCA Civ. 677, [2010] IILR 39 (Court of Appeal London)
135
Baizeau (n 119) 108
136
Wagner, ‘When Insolvency Law Meets International Arbitration’ (n 128) 61
137
ibid 65
18
insolvency and the authority to even deal with the issue of recognition? The answer to that question remains
unclear. One could argue in favor of the chosen procedural law. Although it is widely supported that the chosen
procedural law refers only to the part of the legal system governing arbitration, c.q. the (international) arbitration
law, of the chosen jurisdiction and not to other rules of civil procedure.138 Thus, even though the chosen
procedural law is often connected to the choice of seat, directly applying the recognition rules of the seat without
further reasoning is theoretically problematic. The author, considers that one might fall back to international
principles to determine an applicable law, which would correspond with a delocalized view of arbitration.
However, practice shows that the delocalized theory is not implemented ‘fully’ and that the laws of the seat of
arbitration have and continue to play a large role in arbitration. As discussed in Sec. 4.1 of the thesis, the hybrid
theory seems to find the most practical adherence. This would explain the seemingly contradictive concept of
an arbitration in which the law of the seat plays a big role but which does not have an official lex fori.
Many awards do not even discuss recognition or recognition rules, skipping directly to the effects of the
insolvency.139 However, it seems clear that the question of recognition needs to be answered before the question
of effects can be answered. The fact that recognition is most often only discussed in cases in which recognition
is denied seems to support a conclusion that recognition even in cases where is not overtly discussed is an
implied first step.140
Recognition and Arbitrability

When discussing the authority of a tribunal to recognize an insolvency, the discussion is in fact a discussion on
arbitrability; is the recognition question capable of being settled by arbitration? Arbitral tribunals can only
decide on issues capable of being settled by arbitration, see e.g. Art. V(2)(a) NYC and Arts. 1(5), 34(2)(b)(i)
Arb.ML.141 Arbitrability is, similar to public policy, determined by the jurisdiction itself and its laws. Taking
setting aside of the award as the primary concern of tribunals, the concept of arbitrability of the seat of
arbitration will be guiding. It is important to note that the weight of authority does not support a duty to provide
enforceable awards.142 Thus, a tribunal has no duty to take note of the objective arbitrability rules of the
jurisdiction in which the award will likely be enforced.143 Whereas tribunals must consider the arbitrability rules
of the seat to prevent their award from being subsequently set aside.
It should be kept in mind that in many jurisdictions issues surrounding insolvency are non-arbitrable, especially
so-called ‘core’ insolvency issues.144 These are sometimes defined as claims stemming directly from insolvency
law or issues on which (insolvency) court have exclusive jurisdiction. Under that definition recognition based
on insolvency specific rules can be considered non-arbitrable, see Ch. 8 and the third sections in part III.
Recognition Rules
Arbitration laws do not deal with recognition of foreign insolvencies, such issues are resolved by cross-border
insolvency laws in whatever form they are incorporated into national legislations. This means that in
jurisdictions strictly applying the Model Law on International Commercial Arbitration, these recognition rules
138
Born, International Arbitration (n 63) 118–119
139
[2005] ICC Award No. 12421, [2008] 33 Yearbook Commercial Arbitration 102; e.g.[2011] ICC Award No. 16369,
[2014] 39 Yearbook Commercial Arbitration 169
140
Baizeau (n 119) 106; Vorburger (n 8) 45
141
142
e.g. Alan Redfern, Law and Practice of International Commercial Arbitration (Sweet & Maxwell 2004) 10-06
although the ICC Rules under what is now Art. 42 (old Art. 26 ICC Rules) provide a general best efforts rule of
providing enforceable awards.
143
Jones (n 3), 138
144
Born, International Commercial Arbitration (n 62) 995–1008; Born, International Arbitration (n 63) 88
19
should only be relevant in light of the public policy exception. However, tribunals seem to take guidance from
the law of the seat on recognition matters regardless of them being public policy or not. Furthermore, some
important jurisdictions have provided for other setting aside grounds which could force a tribunal to consider
the national recognition rules of the seat. Most important in that regard is probably ‘manifestly disregarding
national law’, which can be found in e.g. the United States and England.
UNCITRAL Model Law on Cross-Border Insolvency and the EIR

Chapter III of the Model Law deals with recognition and relief. Art. 15(1) Ins.ML permits the insolvency
administrator to request recognition of the insolvency in the model law jurisdiction. This means that recognition
within Model Law jurisdictions is not ipso jure, or automatic by law.
Art. 17 Ins.ML provides the basis for the court’s decision to recognize a foreign insolvency proceeding. The
effects of such recognition are discussed in the following article, Art. 18 Ins.ML. Proceedings can be recognized
as main or non-main proceedings as discussed previously in this thesis.
If a request for recognition has been made and granted at the seat of arbitration, an arbitral tribunal will have a
court decision to rely on and will not have to decide autonomously. The more interesting question is if the
arbitral tribunal could autonomously apply the rules of Arts. 15, 17 Ins.ML.
In the heavily discussed Syska v. Vivendi case, a tribunal seated in London directly applied the rules of the
EIR.145 The decision of the tribunal to do this was later sanctioned by the courts in England. Drawing a parallel,
one could argue that tribunals should also be allowed to directly apply the Model Law’s recognition rules.
However, one important difference has to be noted; recognition under the EIR is automatic by law under Art.
16 EIR and does not require application to a court.146 As stated, under the Model Law such recognition needs
to be requested. At this points the question of objective arbitrability comes up again; can a tribunal decide such
matters? It could be argued that the term court should be widely interpreted in art. 15 Ins.ML to extend to an
arbitral tribunal. However, this seems both theoretically and practically unlikely. Most jurisdictions will in their
legislation point to special insolvency courts for recognition as part of the implementation of Art. 4 Ins.ML
which explicitly requires the appointment of competent court of authority,147 thereby excluding a wide
interpretation of their version of Art. 15 Ins.ML. This is for example the situation in the United States, which
apply an adaptation of the Model Law in their Ch. 15 procedures and refers recognition to the U.S. Bankruptcy
Courts, see Secs. 11 U.S.C. 1501-1515.148 In England, under Art. 4 Schedule 1 of the Cross-Border Regulations
2006 (CBIR), this authority is reserved for the High Court of London and in Scotland at the Court of Session
in Edinburgh.149
145
Syska v. Vivendi Universal (n 134) [41]; for examples of the many discussions in literature see Vesna Lazić, ‘Part I:
International Commercial Arbitration, Chapter 18: Cross-Border Insolvency and Arbitration: Which Consequences
of Insolvency Proceedings Should be Given Effect in Arbitration’ in Stefan M Kröll and others (eds), International
arbitration and international commercial law: Synergy, convergence and evolution (Wolters Kluwer Law & Business
2011); Marta Tsvengrosh, Arbitration and insolvency - conflict of laws issues: Conflict of laws in international
arbitration: cross-border insolvency cases (LAP LAMBERT Academic Pub 2011) 11–13
146
Philipp Wagner, ‘Insolvency and Arbitration: A Pleading for International Insolvency Law’ (2011) 5 Disp Resol
Int'l 189 193
147
Cf. Wessels (n 9) 186–188
148
Leif M Clark and Daniel M Glosband, Ancillary and other cross-border insolvency cases under Chapter 15 of the
Bankruptcy Code (LexisNexis; Matthew Bender 2008) 35; Wagner, ‘When Insolvency Law Meets International
Arbitration’ (n 128) 61
149
Wessels (n 9) 18741
20
It follows that in Model Cross-Border Insolvency Law jurisdictions, there is little room for arbitral tribunals to
recognize insolvencies autonomously.
Interim Conclusion
Recognition should theoretically be the first step when an arbitral tribunal deals with the insolvency of one of
the parties involved, but the discussion is often skipped. Tribunals also use several forms of indirect or de facto
recognition to take the facts of insolvency into account. In those cases where recognition is discussed, the law
of the seat of arbitration plays an outsized role. Tribunals also treat ‘foreign’ insolvencies and insolvencies in
the state of the seat of arbitration differently. Both observations support a conclusion that regarding recognition
of insolvency the theory of delocalization is not applied and the hybrid theory is followed.
Whilst the second observation, that a hybrid theory is preferred, is not surprising and arguably the best way to
deal with practical realities, the first observation is highly problematic. If tribunals skip the first practical step
towards answering interaction questions, the whole conclusion, c.q. the award becomes questionable. Although,
often one finds that the final answer is likely correct or at least practical, tribunals are bound to provide reasoned
awards or risk setting aside and non-enforcement. Thus, in the opinion of the author, tribunals should never
skip this fundamental question. One possible reason why the tribunals tend to skip this question is that they do
not want to deal, or perhaps even are unfamiliar, with the theoretical fundamentals that lay behind this question.
7 Applicable Law
After having determined if the insolvency can be taken into account, c.q. recognized in one form or another in
the arbitration, the question rises; what effects does the insolvency have? To determine those effects one first
needs to find out which law is applicable.
The question of applicable law is a multilayered and often problematic question in international cases. Adding
the complication of two competing fields of law does not help to make it less problematic.
Within arbitration applicable law can refer to several different things, as different laws can apply to different
aspects of the arbitration. In cross-border insolvency, different aspects can also be governed by different laws.
For every aspect one must apply conflict-of-laws rules to find the applicable law.
To give an overview of the applicable law questions involved, first the different aspects of arbitration and cross-
border insolvency will be discussed in relation to their conflict-of-laws systems (7.1, 7.2). Then, the question
of how the arbitral tribunal can determine the applicable law regarding the effects of the insolvency will be
discussed (7.3). After which an interim conclusion will follow (7.4).
Applicable Law in Arbitration

When it comes to determining the applicable law within arbitration, three different main aspects can be
identified, which can all have different applicable laws. These three different areas are; the law applicable to
arbitration agreement, the law applicable to the underlying contract and the law governing the arbitral
proceedings.150 Many more specific questions regarding applicable law can be asked. One could ask for example
what the law applicable to the authority to conclude and conduct arbitration (agreements) is. However, these
three aspects can be considered as the most relevant, especially for the purpose of creating an overview.151
150
Born, International Commercial Arbitration (n 62) 463, 472; Born, International Arbitration (n 63) 39, 59. 155
151
For more choice-of-law discussions see for example Born, International Commercial Arbitration (n 62) Ch. 4
21
To determine those three laws the tribunals must first decide which rules to apply to determine these laws, i.e.
which conflict-of-laws rules.152 This can be considered the starting point for of determining any legal question.
The critical path arbitrators should logically follow can be expressed as follows;
Find conflict-of-laws rules Determine applicable law Apply applicable law.
However, due to the nature of arbitration, the tribunal has no clear-cut direction or rules regarding the selection
of conflict-of-laws rules. Thus, practice has produced a range of possibilities.
A few common methods can be described. Direct applicability of the conflict-of-laws rules of the country of
the seat is the historical approach and is still applied in many cases.153 Reverting to the legislation of the seat
country, as discussed under recognition, points to a hybrid or even territorial view on arbitration. At least it is
not in line with a pure delocalized view.
More in line with a delocalized view is the application of so-called international conflict-of-laws rules. What
these exactly are depends on the views of the arbitrators.154
Some arbitrators apply the conflict-of-laws rules of all the relevant states. When testing the validity of the
arbitration agreement this is referred to as the validation theory, and the validity only has to be granted by one
of the laws.155 For other questions a similar cumulative test can be applied, here the tribunal looks for common
ground between the relevant laws.156
Finally, some arbitrators ignore the conflict-of-laws step and directly apply a substantive law.157 A method that,
should be discouraged, in the opinion of the author as it lacks proper reasoning.
Law Applicable to the Underlying Contract

The law applicable to the underlying contract is often the law that plays the most visible role in the arbitration
proceedings. As most, if not all, of the substantive arguments will be based on the law that applies to the
contractual relationship, c.q. the dispute, of the parties.
Determining the law applicable is finally up to the arbitrators. Luckily parties often choose the law applicable
to their contractual relationship within their contract, in choice-of-law clauses. Generally, these choice-of-law
clauses will be given effect,158 depending on the conflict-of-laws system applied. But the vast majority of
systems gives effect to the Parties’ choice, includes the jurisdictions incorporating the Model Law on
International Commercial Arbitration, see Arts. 28(1), 35(1) Arb.ML.
If no choice of law has been made, the selection of conflict-of-laws systems becomes more important and
application of the methods described in Sec. 7.1 can lead to different results.159 But before assuming that no
152
153
ibid 40–41
154
ibid 41, 60-61
155
See also Born, International Commercial Arbitration (n 62) 542-49; Born, International Arbitration (n 63) 41, 60
156
See for more Sec. 7.1.3
157
158
Cf. Draguiev (n 12), 520–521; Born, International Arbitration (n 63) 39-40, 250-257
159
Cf. UNCITRAL, UNCITRAL model law on international commercial arbitration 1985: With amendments as
adopted in 2006 (United Nations 2008) Note 39
22
choice has been made, it is important to look at the institutional arbitration rules chosen. As those rules can
contain default laws of law selection, e.g. Art. 21 ICC Arbitration Rules.160
Law Applicable to the Arbitral Proceedings

The law applicable to the arbitral proceedings can be viewed as the procedural law of the arbitration. But it
must be noted that within arbitration, this commonly does not refer to any procedural rules outside of the
arbitration legislation.161 The role of this law is to govern, what Born calls the ‘internal’ and ‘external’
relationship of the arbitral proceedings, i.e. how the arbitration is run internally and how it relates to the external
world, mainly to courts.162
In most cases, this law will be the law of the seat of arbitration, see for example Art. 1(2) Ins.ML.163 One could
come to a different conclusion depending on the application of the conflict-of-laws rules. In practice one of the
very few exceptions to applying the law of the seat as the procedural law of the arbitration is in case parties
overtly choice a procedural law to apply.164 This however, produces practical and procedural issues.165 Keeping
in mind the seperability principle, such a choice has to be made specifically for the arbitration agreement.
Since the procedural law of the arbitration is virtually always that of the seat of arbitration, the choice of seat is
often regarded as a choice of the procedural law.
It is important to note that national legislation often does not exhaustively arrange arbitration and parties can
deviate from many parts of the national arbitration law.166 For example, only a few articles from the model law
are normally designated as mandatory.167 Therefore, besides the procedural law, the chosen or otherwise
applicable procedural rules play a big if not bigger rule in the actual proceedings.
Most states of importance have adopted the New York Convention. The convention guarantees the freedom of
parties to choose the procedural rules of their arbitration, see Art. V(1)(d) NYC. So, whichever conflict-of-laws
system is selected, when that system points towards a contracting state of the New York Convention, a choice
of procedural rules of the party should be respected. States which implement the Model Law on International
Commercial Arbitration, have that rule implemented via Arts. 18, 19(1), 24(1) Arb.ML.168
Law Applicable to the Arbitration Agreement

The issue as to what law applies to the formation, interpretation and validity of an arbitration agreement is,
again due to the seperability principle, to be decided separately from the main contract based on an individual
conflict-of-laws analyses.169
Arguably six option can be identified. The first one is historical and now mostly out of use; the law of the
judicial enforcement forum.170 The second option is the law chosen by the parties. Art. V(1)(a) NYC enforces
160
161
Born, International Commercial Arbitration (n 62) 1622–1624; Born, International Arbitration (n 63) 118–119
162
Born, International Commercial Arbitration (n 62) 1597; Born, International Arbitration (n 63) 118
163
Kühn (n 4), 210; Born, International Arbitration (n 63) 118
164
Born, International Commercial Arbitration (n 62) 1601 possible in e.g. France and Switzerland
165
See for example the discussions on limitations on the parties' choice for a procedural law in ibid 1608–1612
166
Cf. Draguiev (n 12), 520–521
167
This will however, vary per jurisdiction see UNCITRAL, UNCITRAL 2012 digest of case law on the Model Law on
International Commercial Arbitration (United Nations 2012) 13–14
168
169
170
23
this choice indirectly as well, as do Arts. 34(2)(a)(i), 36(1)(a)(i) Arb.ML. The problem with this approach is
that parties mostly do not agree on a law governing their arbitration agreement.171 Some authorities, in these
situations, have chosen to extend the general choice-of-law clauses in underlying contract to include the
arbitration agreement.172 Others stick to the seperability principle and do not extend such clauses unless they
expressly cover the arbitration agreement.173
The third option is a now familiar one; applying the law of the seat. Authorities commonly adopt the law of the
seat of the arbitration in case the parties have not made a choice. That rule is also incorporated into the New
York Convention and the Model Law on International Commercial Arbitration, see Art. V(1)(a) NYC and Arts.
34(2)(a)(i), 36(1)(a)(i) Arb.ML.174
Fourth, a contemporary development is to refer to the concept of the ‘closest connection’. Application of the
previous, classic, methods can have serious analytical and theoretical defects; directly applying the law of the
seat for example ignores the contractual aspects of arbitration. Practice has therefore produced a more balanced
approach, the closest connection or most significant relationship approach. In this approach courts and tribunals
look for evidence in the agreement and the facts, to determine which law or jurisdiction has the closest
connection to the arbitration agreement. That law is then subsequently applied to the arbitration agreement.175
Fifth, other authorities unsatisfied with classic choice-of-law systems apply the cumulative method.176 In this
approach all the possible laws are checked for the answer to the posed question. This yields convincing results
when all laws point the same way, but remains unsatisfying if this is not the case.177 In this sense, it differs from
the validation method, which is similar to an extent. The validation method applies all relevant laws to find a
law that validates the arbitration agreement, whilst the cumulative method aims at looking for a common
direction or answer in the relevant laws.178
A sixth approach is to directly apply international standards. There are, however, also other less well known or
common approaches such as applying the law of the place where the arbitration agreement was concluded.179
Law Applicable in Cross-Border Insolvency

When it comes to the law applicable in a single-state insolvency, the law applicable is relatively straightforward;
virtually always the law of that state. Answering the question as to the applicable law in a cross-border
insolvency, is a bit harder and requires the application of conflict-of-laws systems.
It is important to note that due to the nature of insolvency law, one in general cannot choose the law applicable
to the insolvency. Although one of the theories, discussed in Sec. 2.4, proposes this. Therefore, choice-of-law,
which plays an important role in arbitration, does not play a role in this discussion.
171
Tsvengrosh (n 145) 29; Born, International Commercial Arbitration (n 62) 490
172
Born, International Commercial Arbitration (n 62) 514–516
173
174
Born, International Commercial Arbitration (n 62) 492-493, 498-499, 508-513
175
ibid 516–521
176
ibid 522–523
177
ibid 523
178
ibid. footnote 256
179
ibid.
24
To determine the law applicable to the insolvency, courts in general fall back to specific insolvency conflict-
of-laws rules. These will necessarily be the conflict-of-laws rules of the forum seized, the lex fori, as courts are
bound by these rules.180
These conflict-of-laws rules can lead in different directions; some are more territorial, some are more
universalist. The answer as to what law will be found applicable to the effects of the insolvency and which
conflict-of-laws rules will be applied will thus vary per jurisdiction.
For insolvencies within the EU, the EIR plays the role of conflict-of-laws system for cross-border insolvencies.
Art. 7 EIR, as a presumption, applies the law of the opening state to the insolvency throughout the union. With
the exceptions in Art. 8 EIR.181 The Model Law on Cross-Border Insolvency is silent on applicable law.
However, the UNCITRAL legislative guide refers to the lex situs as applicable to the question of the validity
and effectiveness of insolvency rights and claims. Thus, the law of state where such rights and claims are
located. For everything else, the main rule applies; the lex fori.182
Some issues that are related to the insolvency will not be dealt with in the insolvency specific conflict-of-laws
rules. Depending on the rules, some may take a wider range of issues into insolvency specific conflict-of-laws
rules than others. Issues referred to normal international private law conflict-of-laws systems can be defined a
contrario, by looking at the issues covered by the insolvency specific rules.
Applicable Law to the Effect of Insolvency in Arbitration

When an arbitral tribunal is confronted with the insolvency of one of the parties in the arbitration, it must
establish which law it will use to answer the questions that arise out of this insolvency. In many cases, the
arbitral tribunal still directly goes to the lex fori or the law of the seat of arbitration to discover which effects a
foreign insolvency should have. However, this approach has been rightly criticized for ignoring the fact arbitral
tribunals do not have a proper lex fori. As such, only those rules that are part of the international public policy
of the seat in the sense of Art. V(2)(b) NYC should be considered.183
Due to the lack of a real lex fori, selecting the conflict-of-laws rules becomes more difficult. Aptly put by De
Ly; the tribunal has a ‘conflict of conflict-of-laws’-problem.184 For every effect the question of applicable law
needs to be answered again. Thus, the general discussion below is merely a framework. In the following
chapters the issue of applicable law will feature again for the specific questions.
When it comes to selecting a set of conflict-of-laws rules, some options used by arbitral tribunals were discussed
in Sec. 7.1. Arbitral tribunals tend to fall back to the law of seat for their conflict-of-laws rules regarding
insolvency, often without reasoning why they would be bound to do so. On the other side, using the other
traditional methods described in Sec. 7.1 above makes little sense, as they seem ill-suited to the determination
of the effects of an insolvency on arbitration.
180
Cf. J. J Fawcett, Janeen M Carruthers and P. M North, Cheshire, North & Fawcett: Private international law (14th
ed. Oxford University Press 2008) 8–9
181
COUNCIL REGULATION (EC) No 1346/2000 on insolvency proceedings (n 52) Arts. 7 and 8 Recital 23; Wessels (n
9) 553 et seq.
182
UNCITRAL, Legislative guide on insolvency law (United Nations Commission on International Trade Law
UNCITRAL, 2005 2004-2010-2013) 72–74 Recommendations 30-34; Wessels (n 9) 314–324
183
Nadeau-Séguin (n 5), 86
184
Filip de Ly, ‘Arbitation and Insolvency - Selected Conflict of Law Prbolems’ in F. Ferrari and S. Kröll (eds), Conflict
of Laws in International Arbitration (no. 1. sellier european law publishers 2011) 3; as quoted in Vorburger (n 8) 87
25
Several specific approaches to find the conflict-of-laws rules applicable to the insolvency are discussed in
literature. Three main approaches are described by Vorburger: first, taking the seat’s insolvency specific
conflict-of-laws system;185 second, taking its international private law conflict-of-laws system; and third,
applying the rules from the lex fori concursus in as far as they are mandatory law.186
Although the tribunal is not per se bound by the conflict-of-laws systems of the seat jurisdiction, it is clear that
this system plays a large role. Choosing the insolvency specific conflict-of-laws rules has an inherent logic, as
one is looking to answer insolvency related issues. However, the Swiss tribunal and Supreme Court in Vivendi
v. Deutsche Telekom preferred the second option and translated all issues to a private law conflict-of-laws
system, applying the Swiss Private International Law (PILA).187
The third option, the mandatory rule approach has a solid based in the arbitration framework. As stated such
rules will need to be respected in light of enforcement and setting aside concerns. That would include the
mandatory rules of not only the lex fori concursus, as mentioned by Vorburger,188 but also the mandatory rules
of the seat country. Problematic is that many rules will not reach the level of mandatory rule or international
public policy and thus the tribunal can be left with an incomplete conflict-of-laws framework. Another problem
would be the possibility of conflicting mandatory rules in lex fori concursus and the law of the seat. This would
force a choice between risking setting aside or unenforceability. In which case, the tribunal would likely choose
to follow the mandatory rules of the seat to prevent setting aside.
Others, like Sachs and Westbrook, seem to skip the question of the applicable conflict-of-laws system and jump
immediately to the question of applicable law.189 If that is intentional, a similar approach can be found in a good
number of cases.190
Sachs however, seems to bind his overview of the possible applicable laws to the mandatory rules of the possibly
relevant jurisdictions.191 To that extent, it can be stated that his approach is also aimed at prevention of setting
aside and non-enforcement and to an extent parallel to Vorburger’s third option.
Another option is to directly apply a substantive law. It is common for tribunals to directly apply insolvency
laws and without discussion movie to the effects of the insolvency under that law.192
The Issue of Characterization

To choose the correct conflict-of-laws system it is crucial to classify the issue which one is dealing with.193 In
this context, the words ‘qualify’ and ‘characterize’ are also used. As can be seen in both, the UNCITRAL
185
Elektrim v. Vivendi Universal (n 134)as mentioned in; Vorburger (n 8) 124–125
186
187
Vivendi S.A et al. v. Deutsche Telekom AG et al. [2009] 4A_428/2008, [2010] 28 ASA Bull 104 et seq. (Swiss
Federal Supreme Court) 2-3
188
189
Jay L Westbrook, ‘International Arbitration and Multinational Insolvency’ (2011) 29(3) Penn St Int'l L Rev 635
644; Sachs (n 4), 35
190
Cosco Bulk Carrier Co. Ltd. v. Armada Shipping S.A (2011) [2011] EWHC 216 (Ch) [34] (London High Court of
Justice)
191
Sachs (n 4), 35
192
Swiss entity v Dutch entity [2001] HKZ Case No. 415, [2002] 20 ASA Bull 467 III; (2011) CAM Case No. 2412 A
contribution by the ITA Board of Reporters, Kluwer Law International
193
Tsvengrosh (n 145) 7
26
legislative guide and EIR articles previously mentioned,194 a different qualification can lead to a different
applicable law depending on the conflict-of-laws system.
Many courts see the general question of the effect of insolvency on arbitration as a question of capacity and
hence will apply the conflict-of-laws rules dealing with capacity. Others have qualified it as a question as to the
validity of the arbitration agreement, which leads to the application of a different conflict-of-laws rule.195
Courts follow the understanding of classification of the lex fori. Tribunals can and do refer to the conflict-of-
laws rules and the classification understanding of the law of the seat. As discussed before, essentially making a
choice of seat a choice of conflict-of-laws rules as well.196
Some suggest that characterization of questions can also be done from the perspective of the lex causae. In case
this is a chosen law this leads to a presumption of validity, as one will need to apply the chosen law and it
characterization to in fact see if that law was chosen validly. If there is not chosen law, this becomes highly
problematic as there is no starting point anymore. Furthermore, the law chosen to govern the merits of a case,
often bears no relationship to the law governing the insolvency. Characterization could also be done based on
the lex fori concursus, the law of the insolvency forum. This again would start with a presumption of
applicability.197
Finally, a range of comparative and functional approaches find support. Comparative approaches take into
account several legal systems. Functional approaches do the same but keep the focus on the lex fori.198 These
methods strike a balance between the straightforward lex fori approach and the lex causae approach,199 which
can be seen as opposing options rooted in the territorial and contractual approaches. Thus, one could consider
this the hybrid option, which in many of the theoretical discussions tends to be the preferred outcome, as it
seems here as well.
The EIR and Arbitration; Vivendi Cases

The previously mentioned Syska v. Vivendi case has, to a large extent, established how the EIR deals with
arbitration. 200 This case supports several conclusions, such as the fact that the EIR should be considered as part
of the public policy/mandatory rules of EU states.201 It also supports the application of a company’s home
jurisdiction to the question of its capacity, discusses the characterization of the effects of insolvency and has
led to a fundamental discussion on disclosure and fraud and the reviewing power of courts.202 But in EIR context
194
Infra Sec. 7.2
195
Lord (n 4), 323; a discussion on this point can be found in Syska v. Vivendi Universal (n 134) as cited by ; Born,
International Commercial Arbitration (n 62) 894
196
197
ibid 92–93
198
Actually a range of several comperative and functional approaches see Siehr (n 12) 528 et seq.
199
200
Syska v. Vivendi Universal (n 134); this case has been heavily discussed in literature, e.g. in Richard Millet, ‘Cross-
Border Insolvency and Arbitration: A Collision of Spheres?’ (2011) 5 Disp Resol Int'l 113
201
Ricky H Diwan and V. V Veeder, ‘National Report for England and Wales (2015)’ in Pieter Sanders and A. J van
den Berg (eds), International handbook on commercial arbitration (Kluwer Law International 1984-) 5
202
It is mentioned in context ranging from the capacity of the parties to fraud, the possibility of antiarbitration
injunctions and document disclosure and annulment Born, International Commercial Arbitration (n 62) 628, 1307–
1308, 2192, 3241, 3336, 3807; Nigel Blackaby and others, Redfern and Hunter on international arbitration (Sixth
edition, Oxford University Press 2015) 67; Gary B Born, International arbitration: Cases and materials (2nd edn,
Kluwer Law International 2015) 330, 459, 799-809; Reto Marghitola, Document production in international
arbitration (International arbitration law library volume 33, Kluwer Law International 2015) 218–219; Born,
International Arbitration (n 63) 334–335; Dolores Bentolila, Arbitrators as Lawmakers: The Creation of General
27
and that of insolvency in arbitration, the conclusion that the wording of Art. 15 EIR regarding lawsuits pending
applies to arbitration is the most significant.203 Furthermore that the EIR also applies directly to tribunals seated
in the EU and that as such ignoring it can lead to annulment.204
That decision is important for the applicable law question. Under Arts 4(2)(f), 15 EIR pending lawsuits,
including arbitration, are governed by the law of the seat of arbitration. But, the arbitration agreement is a
current contract under Art. 4(2)(e) EIR.205 Therefore, without pending arbitration, the arbitration agreement is
governed by the law of the state where insolvency proceedings are pending.206 The importance of which law
applies in this case be seen in the opposing results that the Swiss and English courts reached in this case; the
Swiss court applied the company’s personal law, i.e. Polish Law, and found the arbitration could not have
moved forward due to lack of capacity whereas the English court applied English law and refused to set aside
the award.207
Interim Conclusion
The question of applicable law is crucial in international arbitration and cross-border insolvency. In
international commercial arbitration, many aspects relevant to the arbitration can be governed by different laws:
the law applicable to the merits, the law applicable to the procedure and the law applicable to the arbitration
agreement. To determine the effects that the insolvency has on the arbitration, the tribunal will have to make
another conflict-of-laws determination.
Tribunals and judges have taken varying approaches to this issue. Whereas, some directly apply a law, often
that of the insolvency proceedings, others make a conflict-of-laws analyses. The selection of the conflict-of-
laws system is vitally important. However, no clear-cut rule for that selection exists. Several options have been
proposed, following the lex fori in either their specific insolvency rules or their international private law rules.
Another option is to look at the relevant laws and determine which rules reach the level of mandatory rule and
apply those. To see which specific rule in the selected conflict-of-laws rule should be applied, the issue of
characterization becomes relevant. The preferred route seems to be to follow a functional characterization
method focused on the lex fori.
When it comes to the questions of applicable law, approaches in literature range from the pragmatic to the
highly theoretical. Tribunals seem to favor more pragmatic, direct approaches, skipping over complex choice-
of-law discussions. Due to the contentious relationship between arbitration and the law of seat, set to the
background of competing theories, one cannot truly point out a right and wrong way to determine the law
applicable to the effects of the insolvency on the arbitration. This gives tribunals a large degree of freedom,208
Rules through Consistent Decision Making in International Commercial and Investment Arbitration (Kluwer Law
International 2017) 28
203
Jason Chuah, ‘Resolving Unresolved Relationship Problems - the Case of Cross Broder Insolvency and Pending
Arbitrations’ (2011) 8(4) ECFR 423 426; although it remains controversial Draguiev (n 12), 546-539
204
205
A similar conclusion was reached by a tribunal seated in the Czech Republic Bělohlávek (n 2) 153–154
206
Syska v. Vivendi Universal (n 134) 33-34, 97, 100, 102, 104; Ian F Fletcher, ‘Effect on arbitration proceedings of
the EU Regulation’ (2009) 22(4) Insolvency Intelligence 60 61–62; Kühn (n 4), 205–206; Millet (n 200), 114–120
207
Syska v. Vivendi Universal (n 134) [106]; Vivendi S.A et al. v. Deutsche Telekom AG et al. (n 187) 3-3-4; Born,
International Commercial Arbitration (n 62) 1002–1003; George Naegeli and Simon Vorburger, ‘Chapter III: The
Award and the Courts, When a Party to an International Arbitration Goes Bankrupt: A Swiss Perspective’ in
Christian Klausegger and others (eds), Austrian Yearbook on International Arbitration 2016 (Austrian Yearbook on
International Arbitration vol 2016. MANZ'sche Verlags- und Universitätsbuchhandlung; Verlag C.H. Beck; Stämpfli
Verlag 2016) 142
208
Cf. Vorburger (n 8) 84
28
at the cost of certainty and predictability. As the limits of this freedom, one could points at the mandatory rules
and international public policy of the seat. The tribunal will have to act within these boundaries to ward of any
setting aside procedures later.
What can, however, be considered as the ‘wrong way’ is applying a law without reasoning. As described, this
is still a common way of going forward, or at least the awards often do not provide the reasoning behind their
choice. Similar to point of critique made in Ch.6, this in the opinion of the author seriously endangers the whole
award. In this way, the choices of applicable law can hardly be scrutinized and the award could be set aside for
lack of reasoning.
Following a hybrid theory and applying the conflict-of-laws rules and characterizations of the lex fori for the
question of applicable law to an insolvency, would provide a certain degree of legal certainty. It would also
take into account any mandatory rule or rule of public policy of the lex fori in this area. Following international
rules would be more in line with a delocalized view of arbitration. However, it would not provide certainty
regarding what rules will in the end be applied. As such, the first option can be considered more suitable.
8 Arbitrability
Arbitrability plays a large role in the debate on insolvency and arbitration. Many jurisdictions find many areas
of insolvency and insolvency related issues to be non-arbitral. In general, when insolvency occurs within
commercial arbitration, arbitrability should not be a major issue. Because, if a party goes insolvent during an
arbitration, it is unlikely that the arbitration concerns insolvency issues. Arbitrability mostly plays a role in this
context when one tries to arbitrate certain claims and issues related to the insolvency. However, every
jurisdiction is free to decide what they consider arbitrable. Therefore, it is relevant to understand arbitrability
and how it factors into the arbitration.
First, the concept of arbitrability will shortly be discussed (8.1). Second, the arbitrability of insolvency matter
(8.2). Third, the applicable law for arbitrability (8.3). Fourth, arbitrability before the state court (8.4). Fifth,
arbitrability before an arbitral tribunal (8.5). Followed again by an interim conclusion (8.6).
Doctrine of Arbitrability
Arbitration is held in place by the framework of the New York Convention, other treaties and arbitration
legislation. Arts. II(1), V(2)(a) NYC provide jurisdictions with an exception to their general duty under the
convention to recognize arbitration agreements and awards if it concerns issues that the jurisdiction considers
not capable of being settled by arbitration.209 This exception is mirrored in most national legislation. Interesting
is that the Model Law on International Commercial Arbitration remains silent on the definition of arbitrability.
This is attributed to the lack of consensus on the subject.210 As such, countries remain free to determine what
they consider arbitrable.211
209
Sachs (n 4), 32; Born, International Commercial Arbitration (n 62) 87
210
Sachs (n 4), 35–36; referring to Michael J Mustill and Stewart C Boyd, Commercial Arbitration: Including 2001
Companion Volume (2nd edn, Butterworths Law 2001) 71
211
Jones (n 3), 124
29
Even though the arbitration agreement or award may otherwise be valid, if it concerns an issue considered non-
arbitrable, it can be set-aside or be unenforceable.212 In essence, the consequence of non-arbitrability is a
limitation on the tribunal’s jurisdiction, c.q. the admissibility of certain claims.213
In general, it can be noted that the doctrine of arbitrability mirrors what the states considered too important for
the public good or in need of judicial protection. Thus, arbitrability is a public policy limitation on arbitration.214
Many jurisdictions find insolvency issues non-arbitrable because many third-party rights are affected by the
proceeding. As another Example, EU protect consumers from arbitration clauses in standard terms.215
Most states have limited their concept of non-arbitral claims considerably over recent years.216 The U.S., for
example, now follows a quite wide interpretation; only when there is a clear legislative intent to have certain
claims settled by courts, the claim is deemed non-arbitrable.217
Areas often or in the past defined as non-arbitrable are; competition and antitrust claims, securities claims,
insolvency claims, labor and employment contract, and consumer disputes.218 But, this will vary between
jurisdictions, making the question of the applicable law again of crucial importance.219
Objective and Subjective Arbitrability

In discussions about arbitrability, the subject is normally divided in objective and subjective arbitrability.220
Subjective arbitrability refers to arbitrability in regard to the entity submitting to arbitration or ratione personae.
In the past, state entities argued that they cannot be party to an arbitration, due to national regulations.221 The
general effect of insolvency on subjective arbitrability, will be dealt with under locus standi, the standing of the
party.
Here, objective arbitrability will mainly be discussed. Objective arbitrability concerns the subject matter and is
therefore also referred to as subject matter arbitrability or arbitrability ratione materiae.222 The subjective
arbitrability will feature in the discussion about capacity and locus standi.
Arbitrability of Insolvency Disputes

Thus, the remaining question is the objective arbitrability of insolvency disputes. In the situation, wherein a
party to an ongoing arbitration goes insolvent, a tribunal is prohibited from deciding upon issues stemming
212
213
Lazić, Insolvency proceedings and commercial arbitration (n 6) 139; Daniel Girsberger and Nathalie Voser,
International arbitration: Comparative and Swiss perspectives (Third edtion, Nomos; Schulthess 2016) 330
214
Lazić, Insolvency proceedings and commercial arbitration (n 6) 137; referring to Alan Redfern and Martin Hunter,
Law and practice of international commercial arbitration (2nd edn, Sweet & Maxwell 1991) 137; Blackaby and
others (n 202) 116-117, 585
215
Born, International Arbitration (n 63) 87- 89
216
Klaus P Berger, Private dispute resolution in international business: Negotiation, mediation, arbitration/ Klaus
Peter Berger (Third, revised edition, Wolters Kluwer Law & Business 2015) 326–327
217
Mitsubishi v. Soler Chrysler-Plymouth (1985) 473 U.S. 614 628 (US Supreme Court)
218
Born, International Arbitration (n 63) 87,89
219
Sachs (n 4), 36; Cf. Lazić, Insolvency proceedings and commercial arbitration (n 6) 139
220
L. Y Fortier, ‘Arbitrability of Disputes’ in Gerald Aksen and others (eds), Global reflections on international law,
commerce and dispute resolution: Liber amicorum in honour of Robert Briner (ICC publication no. 693. ICC
Publishing 2005) 269–270
221
ibid 270
222
Lazić, Insolvency proceedings and commercial arbitration (n 6) 135; Fortier (n 220) 270
30
from non-performance or other contract related claims.223 This does not change that in many jurisdictions, e.g.
France, a decision by the tribunal will merely serve as proof of a claim in insolvency proceedings.224
The line of arbitrability is often drawn at claims that are based in insolvency law; commencement, payments
out of the estate, nomination of trustee or other insolvency professionals are commonly held non-arbitrable, i.e.
core or pure insolvency issues.225 All the typical steps of insolvency can be added to this list; claim verification,
collection of assets, payments out of the estate and settlement of claims.226
Nature of the Claims

Therefore, it becomes key to consider the nature of a claim; is it based on insolvency specific law or not? In
case, an insolvency occurs during an ongoing arbitration, it seems practically unlikely that the claim being
arbitrated is based in the insolvency regulations governing that insolvency. This for the simple reason that such
a claim would likely not exist before the insolvency is commenced.
However, when an insolvency occurs all creditors and claims are affected. How to handle creditors in
insolvency is an insolvency specific issue. In most jurisdictions, individual actions against an insolvent debtor
are not allowed and party autonomy is drastically restricted, as such claims need to be put into a collective
proceeding.227 Although secured creditors are often excluded from these rules.228
The questions rises if follows that any contractual, monetary claim against the debtor becomes non-arbitrable.
This varies under the applicable law. In practice, the arbitrability of claims surrounding insolvency mostly
follow the extent in which vis attractiva concursus principle is adopted in a jurisdiction.229 The principle that a
single (insolvency) forum takes over all insolvency proceedings and claims and all the issues and disputed
related to the insolvency.230 Following that principle, issues given to the sole jurisdictions of the bankruptcy
court are often deemed non-arbitrable.
Since the qualification of the nature of claim depends on the applicable law, jurisdictions can and have
developed their own doctrine on this point. Whilst several EU member states have followed the vis attractive
concursus rule, the EIR itself does not institute such a rule.231 The U.S. courts have dealt with this issue by
making the now common separation between so-called ‘core’ and ‘non-core’ bankruptcy issues. Core
insolvency issues generally are those based in insolvency law and are mostly non-arbitrable. Whilst mixed/non-
core issues can pertain to insolvency but are not based per se on insolvency law and are mostly arbitrable.232
Applicable Law to Arbitrability

As has been shown, the applicable law is the determining factor when determining arbitrability.233 Therefore,
is it important to look at the ways this applicable law is found.
223
Sachs (n 4), 54
224
Cf. Mantilla-Serrano (n 120), fn. 15
225
Lazić, Insolvency proceedings and commercial arbitration (n 6) 154; Blackaby and others (n 202) 116
226
Cf. Lazić, Insolvency proceedings and commercial arbitration (n 6) 154
227
For a list of areas in which party autonomy is restricted in insolvency see Kühn (n 4), 207
228
Wagner, ‘Insolvency and Arbitration: A Pleading for International Insolvency Law’ (n 146) 191
229
In other words the extend of the exclusive jurisdiction of the bankruptcy courts; ibid 196
230
Lazić, Insolvency proceedings and commercial arbitration (n 6) 157–159
231
Miguel Virgós and Francisco Garcimartín, The European insolvency regulation: Law and practice (Kluwer Law
International 2004) 57–59
232
Jones (n 3), 127–128
233
Eric A Schwartz, ‘The Domain of Arbitration and Issues of Arbitrability: The View from the ICC’ (1994) 9(1) ICSID
Review - Foreign Investment Law Journal 17 24
31
International doctrine remains inconclusive on this point.234 The law that a court applies can depend on the stage
of the proceeding in which the question comes up. A court seized for enforcement of an arbitration agreement
can apply its own law, that of the seat or that governing the contract. A subsequent court seized to enforce the
award could again apply its own law on arbitrability.
Born lists six possibilities regarding the applicable choice-of-law regarding arbitrability;235 the law of the
country of probable enforcement, the law governing the substantive validity of the arbitration agreement, the
law of the seat of arbitration, the law of the forum in which the arbitration agreement is enforced, the law
governing the claim, or international standards of arbitrability.
For countries party to the New York Convention, some guidance can be found in the convention. But it does
not provide a direct answer to the choice-of-law question Art. V(2)(a) NYC states, that a forum seized for
enforcement of an award may apply its own law regarding arbitrability. Thus, leading to the situation that an
award that is enforceable in one country can be unenforceable in another country.236
It is argued that these rules apply analogously to the enforcement of an arbitration agreement. Following that
line of argument, a forum seized to enforce an arbitration agreement could apply its own arbitrability
concepts.237 However, if that forum has no factual or legal links to the claims and laws they are based in, this
makes little sense. One could also view the rules of arbitrability of the seized forum as not extending to similar
claims under foreign laws, e.g. whilst the forum state renders insolvency issues non-arbitrable this would not
extend to claims based on foreign insolvency law.238
But even without the analogous application of the New York Convention, the law of the seat has been used to
define arbitrability. This, however, happens from a territorial approach; the arbitration takes place within the
jurisdictions therefore its rules are decisive regarding what can be arbitrated upon.239
In practice, it seems, that under a quite similar logic, the majority of courts tends to apply the arbitrability rules
of the court of judicial enforcement. This can of course be the lex arbitri, but by no means needs to be.240
Whereas arbitral tribunals are seen to favor the lex loci arbitri or the law of the seat as determining for
arbitrability.241 Schwartz in 1994, found that ICC tribunals, even though they are not legally required, tend to
go beyond the lex loci arbitri and consider the arbitrability concepts of relevant jurisdictions for enforcement.242
Born proposes to make an analogy to the public policy exception, as arbitrability and public policy are closely
related. He proposes to follow the ‘closest-connection’ conflict-of-laws concept mentioned as a means to find
the relevant public policy.243 As such, one would look for the jurisdiction with the closest connection to the case
and apply its concept of arbitrability.244
234
235
Others list more or less options, see for example Schwartz (n 233), 25
236
237
ibid 598–599
238
Cf. ibid 599
239
ibid 601
240
ibid 602
241
Stavros L Brekoulakis, ‘Law Applicable to Arbitrability: Revisiting the Revisited Lex Fori’ in Loukas A Mistelis and
Stavros L Brekoulakis (eds), Arbitrability: International and Comparative Perspectives (International arbitration law
library. Kluwer Law International 2009) 120
242
Schwartz (n 233), 27–30
243
Discussed in this thesis under Sec. 7.1.3
244
32
Arbitrability and the Courts
Arbitrability can come up at different stages before a court. Mainly in the phase of enforcement of the arbitration
agreement or the award. Secondly, it can come up in setting aside procedures.245
As stated, the court can come to different conclusions regarding the applicable law for arbitrability. The courts
in the enforcement stage of the arbitration agreement tend to apply the arbitrability concepts of the lex fori, the
enforcement forum.246 Brekoulakis puts forward a similar critique to this as Born and states that this approach
only makes sense in the extent the lex fori in relevant to the dispute.247
In setting aside procedures, there is again a clear preference for the lex fori. For this choice, reference is often
made to Art. V(2)(a) NYC, as it expressly refers to the lex fori or the court seized and that of the arbitral seat.
This reference is often mirrored in national laws, e.g. in Art. 34(2)(b)(i) ML.248
Yet again, at the stage of award enforcement, the court will apply the lex fori to determine arbitrability. This
also follows directly from Art. V(2)(a) NYC.249 It seems therefore, that national courts still strongly favor
applying their lex fori. It should be noted that, in all three instances this can of course be a different lex fori, as
all three actions or phases can take place in different jurisdictions.
Arbitrability and Arbitral Tribunals

Outside of such court proceedings, an arbitral tribunal can also examine arbitrability. Hanotiau and van den
Berg state that the tribunal answers this question based on the law applicable to the arbitration agreement. 250
They base that answer on Arts. II(1), V(1)(a) NYC.251
However, the law of the seat cannot be ignored by the arbitral tribunal. As stated, the law of the seat is by
default the law that governs the arbitration agreement, which might be the reason why some commentators state
the lex arbitri as the general rule.252 Even if this is not the case, some national laws force tribunals to consider
the arbitrability rules of the seat country. As can be found for example in Art. 177(1) PILA in Switzerland.253
To prevent future setting aside such rules need to be respected.
Interim Conclusion
Arbitrability is not often an issue in international commercial arbitration, but when insolvency is involved it
cannot be avoided. No uniform international concept of arbitrability exists, although common rules can be
discerned. If a dispute is arbitral depends on the law applied to this question.
The conclusion on which law should be applied depends on stage of proceedings and the court asked. When it
comes to the arbitral tribunal, it tends to apply the law applicable to the arbitration agreement. However, as
discussed in Ch. 7, determining the law applicable to the arbitration agreement can be difficult.
245
Brekoulakis (n 241) 103–111
246
Jones (n 3), 126
247
Brekoulakis (n 241) 103–104; Bernard Hanotiau and Albert van den Berg, ‘The Law Applicable to Arbitrability’
(2014) 26 SAcLJ 874 883–884; Born, International Commercial Arbitration (n 62) 604; Cf. Born, International
Arbitration (n 63) 90
248
Brekoulakis (n 241) 108; Hanotiau and van den Berg (n 247), 884
249
Brekoulakis (n 241) 109; Cf. Hanotiau and van den Berg (n 247), 884–885
250
For law applicable to the arbitration agreement see Sec. 7.1.3 above.
251
Hanotiau and van den Berg (n 247), 879
252
Jones (n 3), 125
253
Hanotiau and van den Berg (n 247), 883
33
In general, it can be said that claims directly based in insolvency legislation are rarely considered arbitrable.
However, claims based on contracts or non-related tort claims can be considered arbitral even when a party is
insolvent. That all depends on law being applied to the question.
Thus, as applying a different law may lead to different answers, providing a well-reasoned answer to the specific
applicable law question is paramount. As pointed out in Ch.7, tribunals still often dangerously neglect this
question. This could be because the applicable law to arbitrability contested or was regarded as obvious.
However, in the opinion of the author, tribunals should answer the question as to what law to apply and why;
in general and specifically to arbitrability, ex officio, as that choice is the fundament for any further reasoning.
Although the Tribunal is not legally required to provide enforceable awards, the practice observed by Schwartz
over two decades ago seems practically the most prudent. Meant here is the observation that ICC tribunals go
beyond the concept of arbitrability that technically applies to consider the concept of arbitrability in jurisdictions
of likely enforcement. In practice, often at least one of the parties wants to have an enforceable award. As such,
it seems although the tribunal is not obliged to follow this practice, is fits best with the purpose of arbitration,
namely to provide final and effective dispute resolution. To safeguard the efficiency of arbitration, it is the
opinion of the author that tribunals should follow the arbitrability concept of the law of the seat and as such
prevent setting aside. But, in line with a best effort to make an enforceable award, it should at least consider the
arbitrability concept of jurisdictions of likely enforcement.
9 Effects of Insolvency on Arbitration

Besides the quite intricate and at times highly theoretical issues discussed above insolvency has some very
practical legal effects on arbitration. In this chapter, a selection of these effects is discussed on a general and
theoretical level. All these issues will be dealt with specifically for the selected jurisdictions.254 It should be
noted, that tribunals have often ignored the applicable insolvency law in the case the insolvency was outside
the seat country, especially if it was requested to do so by one of the parties. This, however, risks rendering the
award unenforceable in the country where the insolvency is pending.255
One often-discussed issue is a possible stay of arbitral proceedings in case insolvency proceedings are opened.
This features in the first section (9.1). Then the effects of insolvency on the arbitration agreement will be
discussed, which was also focus of the previously mentioned Vivendi cases (9.2). Third, the effect of the opening
of insolvency proceedings on the capacity of the party and the administrator regarding arbitration will be dealt
with (9.3). The fourth section features the effect of insolvency in arbitration on a security for costs request (9.4).
Lastly, the effect of insolvency on awards will be discussed (9.5). Followed by an interim conclusion (9.6).
Stay of Proceedings
Many insolvency codes have clauses that suspend any ongoing legal proceedings concerning the debtor in case
insolvency proceedings are opened.256 Based on the same consideration, such rules often prevent further
proceedings outside of the ongoing insolvency proceedings from being opened.257 That consideration being; the
aim to center all proceedings of the insolvent debtor in one forum. These rules are often found in the insolvency
254
Cf. Wagner, ‘Insolvency and Arbitration: A Pleading for International Insolvency Law’ (n 146) 190 for a wider
discussion of effects.
255
Franco Ferrari and Stefan Kröll, Conflict of laws in international arbitration (Sellier 2011) 373
256
Mantilla-Serrano (n 120), 57; Bělohlávek (n 2) 151; Ge Yang, ‘Insolvency Proceedings and Their Effect on
International Commercial Arbitration’ (LLM Thesis, University of Ghent 2012) 30
257
Vorburger (n 8) 179 for a discussion on the choisen jurisdictions see part III
34
code and sometimes in the procedural law. They are mostly formulated generally, e.g. as to apply to
‘proceedings’, but many jurisdictions have concluded that they extend to arbitration proceedings.258
A stay or suspension of proceedings can be temporary; to replace the insolvent party’s representative by the
insolvency administrator or until, and if, the arbitrated claim is disputed by the administrator or another creditor,
e.g. the system in the Netherlands.259
Mantilla-Serrano assessed that the dominant trend in 1995 was to deny a request for suspension of the arbitral
proceedings, if the insolvency was outside of the country of the seat of arbitration.260 In general, tribunals had
tended to ignore the effects of insolvencies outside of the seat country.261 Such a trend is mostly founded in a
territorial view of insolvency. He even goes as far as to say that, in general arbitrators should continue
proceedings, as long as this does not violates applicable mandatory law.262 This view is also (partially) reflected
in later work of other authors, where it is advised to decide on the stay of proceedings, in case of insolvency
outside the seat country, on a case-to-case basis. This by considering several factors, such as the assets available.
Based on consideration of due process, on which some jurisdictions also base their suspension of proceedings,
some practical points regarding communication, service and representation should be considered.263 Although
this does not have to lead to a formal stay but can also lead to an informal stay or delay as observed by Mantilla-
Serrano.264
All in all, when deciding upon a stay of proceedings in case of international commercial arbitration, tribunals
should be sensitive to both, the legal and practical aspects of the case, as besides practical issues problems of
enforceability and setting aside can occur, due to issues of due process and violation of mandatory law.265
Applicable Law to the Stay of Arbitral Proceedings

Although one might naturally assume that the law applicable to the question whether arbitral proceedings must
be stayed in case of insolvency is that of the insolvency proceedings, this does not necessarily hold true. No
international instrument has an explicit answer to this question.266 As in the discussion on applicable law, three
possible conflict-of-laws approaches can be considered.
A classic conflict-of-laws approach; the tribunal could rely upon the conflict-of-laws rules it would select
regardless of insolvency, sometimes arbitration specific rules. The tribunal might come to the conclusion to
258
Ferrari and Kröll (n 255) 362; Yang (n 256) 32
259
(2010) ECLI:NL:RBSGR:2010:BO8353 2012 JOR 158 et seq. 2.4-2.5, 3 (Rechtbank Den Haag); (2013) ECLI: NL:
RBNNE: 2013: BZ6109 4.3, 5.1 (Rechtbank Noord-Nederland); A.I.M. van Mierlo and M. van de Hel-Koedoot,
‘Faillissement en Arbitrage’ [2010] Ondernemingsrecht 39; M. C van Genugten, ‘Faillissement en lopende
procedures (art. 27 t/m 30 Fw): Een drietal draden uit de kluwen: Een onderzoek naar de gevolgen van
faillietverklaring op arbitrage- en bindend adviesprocedures, op procedures met samenhangende vorderingen en
op het instellen van rechtsmiddelen’ [2015] Tijdschrift voor Curatoren 192, 3.1
260
A trend reconfirmed by Born in 2014 Born, International Commercial Arbitration (n 62) 1006
261
Ferrari and Kröll (n 255) 373
262
[1968] ICC Case No. 1350, [1975] Clunet 931 et seq; [1974] ICC Case No. 2139, [1976] YCA 220 et seq; [1984] ICC
Case No. 4415, [1984] Clunet 952 et seq. 955 et seq; [1990] ICC Case No. 6057, [1993] Clunet 1016 et seq. 1017 et
seq; Mantilla-Serrano (n 120), 57–58, 60
263
Lazić, Insolvency proceedings and commercial arbitration (n 6) 301; Yang (n 256) 33 referring to a case cited by ;
See also Sec. 9.5.1 below.
264
Mantilla-Serrano (n 120), 60
265
Cf. Mantilla-Serrano (n 120), 60; Cf. Yang (n 256) 34
266
Vorburger (n 8) 190
35
apply this set of rules when it characterizes the question of the stay as not per se insolvency related or a question
related to the procedural rights in arbitration.267
When the tribunal, however, characterizes the question of a stay of the proceedings as an insolvency related
issue, it could or even should refer to the insolvency specific conflict-of-laws rules.268 The third option can
occur when the rules regarding a stay of proceeding reach the importance of mandatory rules of the law of the
forum state. In that case, the stay should be applied to prevent setting aside.269
EIR and the Stay of Arbitral Proceedings

As discussed in Sec. 7.3.2, following the Vivendi cases of the English courts,270 the EIR must be considered as
international public policy of the member states. Although the EIR has no specific stay of proceedings rule,
ignoring the EIR and its conflict-of-laws system could therefore result in the setting aside of the award.
Concerning the opening of arbitral proceedings, the EIR’s conflict-of-laws system refers to the law of the lex
fori concursus, under Art. 4(2) EIR. For ongoing arbitral proceedings, at the time of opening the insolvency
proceedings, Art 15 EIR provides the answer, i.e. the lex fori arbitri is decisive.271
UNCITRAL Model Law and the Stay of Arbitral Proceeding

The Model Law on Cross-Border Insolvency, as opposed to the EIR, provides a substantive rule on the stay of
proceedings in Art. 20(1)(a) Ins.ML. The article is, however, quite broadly worded and it can be debated if it
applies to arbitral proceedings. But, the guide to the model law and that on insolvency law state that in general
the automatic stay should also be applied to arbitration and jurisdictions such as the U.S. and England have
come to the same conclusion. Without further explanation, the guides do make the note that in certain situations
of international arbitration this might not be practically feasible.272
Effects of Insolvency on the Arbitration Agreement

In some jurisdictions, an insolvency affects the validity of an arbitration agreement,273 i.e. when a party goes
insolvent all arbitration agreement become void. This is the case under Art. 487(8) Latvian Civil Procedure
Code and was the case under Art. 142 Polish Bankruptcy Law, which can be seen in the Vivendi cases, but was
repealed in 2016.274 Other jurisdictions have also relatively recently moved away from this e.g. Spain and
Lithuania.275 In some countries, the insolvency administrator can opt-out of arbitration agreements. For
example, in Italy, based on Art. 72 Italian Bankruptcy Act, the insolvency administrator can avoid contracts
267
Vorburger (n 8) 191; Naegeli and Vorburger (n 207) 162
268
Vorburger (n 8) 191
269
ibid 191–192
270
Syska v. Vivendi Universal (n 134); Elektrim v. Vivendi Universal (n 134)
271
272
UNCITRAL, Legislative guide on insolvency law (n 182) 31; Vorburger (n 8) 193; UNCITRAL (n 48) 180
273
Cf. Girsberger and Voser (n 213) 329-332
274
Syska v. Vivendi Universal (n 134) [7]; Born, International Commercial Arbitration (n 62) 995; Naegeli and
275
Sachs (n 4), 19; Cole and others (n 102) 96, 131-132; for the current situation in Spain Carlos J González-Bueno
Catalán de Ocón, Laura Lozano and José M Figaredo, The Spanish arbitration act: A commentary (Dykinson S.L
2016) 67
36
which have not been fully preformed. Under Art. 83bis Italian Bankruptcy Act, this terminates any proceedings
based on these contracts.276 In most countries, however, the arbitration agreement remains valid.277
Practically, insolvency might render the arbitration agreement incapable of being performed due to
impecuniosity. This conclusion was reached by the German Federal Supreme Court in the Plumber’s Case.278
However, insolvency does not necessarily mean impecuniosity and such decisions need to be made on a case-
to-case basis. Access to justice considerations also play a role in such decisions. Most writers do not follow the
logic of the Plumber’s Case and other courts have concluded that an impecunious party cannot rely on its own
inability to perform the arbitration agreement.279
Regarding the applicable law on the effects of insolvency on the arbitration agreement, depending on the
characterization made different approaches would be available; a classic conflict-of-laws approach, an
insolvency specific conflicts-of-laws approach and a mandatory law approach. When the questions are
characterized as validity questions the discussion of Sec. 7.1.3 applies.
Capacity of the Party and Administrator

In many jurisdictions, a company’s normal representatives lose the power to represent that company in case of
insolvency and liquidation.280 It should be noted that, in many of the procedures excluded from this thesis, this
is not necessarily the case. When it comes to certain pre-bankruptcy systems and proceedings or restructuring
procedures, those persons and bodies remain able to represent the company or can do so with supervision.
This logically would also affect the ability of those regular representatives to represent the insolvent party in
arbitration. The debtor’s right to conduct proceedings, either by it or against it, is often transferred to the
insolvency administrator. This also brings with it that the administrator is most often bound by existing
arbitration agreements.281 Such provisions are found anywhere from Chinese Law to U.S. Law, see respectively
Art. 25(7) P.R.C. Bankruptcy Law and U.S.C.A Sec. 541.282
Following the above, the debtor, according to most insolvency laws, loses its locus standi, whereas the
insolvency administrator gains locus standi.283 The administrator is however, often not free to decide upon the
276
Tsvengrosh (n 145) 14; Sachs (n 4), 20
277
Christian Dorda, ‘Arbitration and Insolvency Proceedings’ (2009) Year LVII Annals FLB - Belgrade Law Review 83
85; Sachs (n 4), 17; e.g. for Brazil see Walter Stuber and Adriana M Stuber, ‘Brazil: insolvency - arbitration’ (2008)
23(12) JIBLR 116–117 116; for France see Christophe von Krause and Gaelle Filhol, ‘International Arbitration and
French Insolvency Proceedings: French Supreme Court Reiterates Importance of Public Policy’ (2009) last para
<http://kluwerarbitrationblog.com/2009/10/28/international-arbitration-and-french-insolvency-proceedings-
french-supreme-court-reiterates-importance-of-public-policy/> accessed 02/11/16
278
Plumber's Case (2000) III ZR 33/00 145 BGHZ no 116 II (German Federal Supreme Court); Gerhard Wagner,
‘Impecunious Parties and Arbitration Agreements’ 2003 SchiedsVZ 206 206–207; Wagner, ‘Insolvency and
Arbitration: A Pleading for International Insolvency Law’ (n 146) 196–197; Cf. Sec. 9.4 below.
279
Paczy v. Haendler & Natermann GmbH [1980] YCA IX, 445, [1981] Lloyd's Rep 302 et seq. (Court of Appeal) 305;
Lord (n 4), 325–326; John Fellas, ‘Chapter I: The Arbitration Agreement and Arbitrability, The Power of Arbitrators
To Adapt Contracts – A United States Perspective’ in Christian Klausegger and others (eds), Austrian yearbook on
international arbitration 2014 (Manz Verlag Wien 2014) 129
280
Lazić, Insolvency proceedings and commercial arbitration (n 6) 109
281
Ferrari and Kröll (n 255) 369
282
Yang (n 256) 2–309
283
Lazić, Insolvency proceedings and commercial arbitration (n 6) 112; Lord (n 4), 331–333
37
(dis)continuation of arbitral proceedings or proceedings in general. The administrator might require consent of
a bankruptcy court or a creditor’s commission, e.g. under English Law see Sec. 314 Insolvency Act 1986.284
When it comes to the administrator’s legal ability to start new arbitrations or conclude arbitration agreements,
similar considerations can be made. Some codes have specific rules regarding such questions, whilst in some
jurisdictions this is viewed as part of the administrator’s overall duty and capacity in relation to the estate, c.q.
the creditors.285
In an international context, the question as to the applicable law regarding the standing of party must be
determined. In general, tribunals tend to determine the representative power of agents of a company based on
the company law applicable to that company,286 this is for example stated by Arts. 154(1) and 155(c) PILA in
Switzerland.287 Mostly that would be the home jurisdictions of the company. However, in the EU that does not
necessarily have to be the case. Wagner writes that the lex concursus of the insolvency should be decisive. A
choice also motivated by the fact that this is most often the home jurisdiction of the party.288 Overall, there
seems to be a consensus that this issue should be governed by the domicile jurisdiction of the party. This choice
is often not overtly motivated in the awards, although the logic seems to be apparent and practical.
Much is dependent on the qualification of the legal question. For example in the discussion on subjective
arbitrability and the binding power of the arbitration agreement on the administrator in the Swiss example the
validation principle of Arts. 178(2) PILA would apply.289
Insolvency in Arbitration and Security for Costs

It is sometimes argued that when a party in arbitration goes insolvent or is insolvent, that constitutes a ground
for security for costs. This is not as straightforward as it might seem.
On the one hand, looking at common requirements for security for costs orders, one could find that an
insolvency proceeding could prima facie fulfil such requirements. See for example the rules of Art. 17A
Arb.ML, which mentions three basic and common requirements for interim measures, which is widely
understood to include security for costs;290 the danger of substantial harm, this harm outweighing the potential
harm caused by the interim measure and a chance to win the on the merits of the case. An insolvency would be
of particular interest considering the first requirement, as insolvency exponentially enlarges the chance that one
would not be able to practically enforce a costs award.291 Whilst it does not influence the third requirement, it
could be argued that it has an indirect influence on the second requirement; if for example the company has
seized operations it is hard to argue that the company would suffer any harm due to a security for costs measure.
284
Lazić, Insolvency proceedings and commercial arbitration (n 6) 112; Yang (n 256) 30
285
see for example [1990] ICC Case No. 6192, [1997] 8 ICC Bulletin 64 et seq. also referenced in ; Mantilla-Serrano
(n 120), 64; Lazić, Insolvency proceedings and commercial arbitration (n 6) 113
286
Born, International Commercial Arbitration (n 62) 628, 1003, 2721 ; Draguiev (n 12), 521–523; Born also refers
to the cases of Vivendi S.A et al. v. Deutsche Telekom AG et al. (n 187) and;
287
X v. Z (2012) 4A_414/2012 1.2, 2.1, 2.3.1.1 (Swiss Federal Supreme Court)
288
Wagner, ‘Insolvency and Arbitration: A Pleading for International Insolvency Law’ (n 146) 160
289
Naegeli and Vorburger (n 207) 151–153
290
Weixia Gu, ‘Security for Costs in International Commercial Arbitration’ (2005) 22(3) Journal of International
Arbitration 167 167
291
James Hargrove and Vanessa Liborio, ‘Arbitration and Insolvency: English and Swiss Perspectives’ (2009) 75
Arbitration 47 50–51
38
However, the weight of case law seems to point in the other direction; i.e. the direction of insolvency not being
a valid or sufficient reason to order security for costs. For example, looking at the Luxembourg Award,292 the
tribunal considers that ordering such a measure is violation of the paritas creditorum, or equality of creditors.
293
As a side-note, the tribunal did consider that the insolvent party can be requested to provide a guarantee for
its own costs.
Other cases point out that insolvent does not mean impecunious, meaning that an insolvent company may have
enough money to pay for a potential costs award.294 Thus, the conclusion follows that insolvency itself is not
enough to justify a security for costs award.295 This is also confirmed by the Chartered Institute of Arbitrators’
guidelines for requesting security for costs, which state that if the insolvent party had a questionable financial
situation at the inception of the contract, security for costs are further barred because the risk of insolvency was
accepted. 296
Another complicating factor is that, if after ordering security for costs non-compliance occurs, under some
legislation the claims can be dismissed, for example in England under Sec. 41(6) Arbitration Act.297 This does
not seem to be common in arbitration legislation, but would significantly amplify the already difficult
considerations of security for costs in case of insolvency.
As to the applicable law; security for costs requests falling under the interim measures regulations mainly found
in the lex arbitri which is commonly the law of the seat of arbitration, see Sec. 7.1.3.
In general, insolvency does not automatically justify a security for costs award. In practice, it seems more likely
to severally complicate matters regarding security for costs and issues surrounding costs in general.
Insolvency and the Award

When a party is insolvent or goes insolvent, this might present a problem for the award, besides the facts that
ongoing arbitrations might be temporarily or indefinitely halted. The first and most obvious effect would be a
practical unenforceability of any award that awards goods or money. Often countries explicitly or implicitly
take away the executive effect, i.e. the direct practical enforceability, in light of the paritas creditorum¸ equality
of creditors, e.g. France. The Luxembourg Award considers that a tribunal is not even allowed to order payment
in case of insolvency. Mantilla-Serrano discusses this as a mandatory form requirement for the award. 298
However, it seems more practical to consider awards ordering payment as having merely a declarative effect as
opposed to deeming the award as violating public policy.299
292
Cited by Mantilla-Serrano, 70
293
Partially published; Casa v. Cambior [1990] ICC Award. No. 6697, [1992] Rev Arb 135-145 [587]
294
Smith v. UIC Insurance Co Ltd (2001) BCC 11 (Comm (QBD)); Hargrove and Liborio (n 291), 51 referring to
295
[2007] ICC Case No. 14993, [2014] 24 ICC Bulletin 24; Hargrove and Liborio (n 291), 51
296
[1994] ICC Case No. 7047, [1995] ASA Bull 301 et seq. n. 18as referred to by; Chartered Institute of Arbitrators,
‘International Arbitration Practice Guideline: Applications for Security for Costs’ (London 2015) Commentary to
Article 3 (b) <http://www.ciarb.org/docs/default-source/ciarbdocuments/guidance-and-ethics/practice-guidelines-
protocols-and-rules/international-arbitration-guidelines-2015/2015securityforcosts.pdf?sfvrsn=28> accessed 26
April 2017
297
Cf. Hargrove and Liborio (n 291), 51
298
299
As is for example stated by Kröll concerning Germany in Stefan M Kröll, ‘Part IV: Selected Areas and Issues of
Arbitration in Germany, Insolvency and Arbitration - Effects of Party Insolvency on Arbitral Proceedings in
Germany’ in Karl-Heinz Böckstiegel, Stefan M Kröll and Patricia Nacimiento (eds), Arbitration in Germany: The
model law in practice (Second edition. Wolters Kluwer Law & Business 2014) 1007–1008
39
The biggest hurdle for the award in regard to insolvency is legal enforceability. For international awards this
generally means that the refusal ground of the NYC are relevant. If enforcement is sought in the country of the
seat of arbitration, this often happens under the rules of domestic arbitration. However, that depends on what is
considered domestic arbitration.300
Art. V(1) NYC

However, when the award is considered international the New York Convention applies excluding a few
exceptions. Thus, for the effect of insolvency on the enforceability of an arbitral award, the rules regarding
enforceability found in Art. V NYC are the relevant rules to look at.301
Art. V(1)(a) NYC mentions the first ground for non-enforcement; the non-validity of the arbitration agreement.
As discussed in Sec. 9.2, insolvency can affect the validity of the arbitration agreement. Though, this remains
uncommon.302. As the insolvent loses the power to enter into contracts, at least without the consent of the
administrator, Art. V(1)(a) NYC can invalidate arbitration agreements and the awards based thereon, entered
into by the insolvent after the insolvency was declared.303 If a party loses capacity due to insolvency, this is
does not per se invalidates previously signed arbitration agreements under Art. V(1)(a) NYC, as it only refers
to incapacity at the time the arbitration agreement.304
Art. V(1)(b) NYC is a procedural fairness guaranty and is relevant for several practical issues that come up
when insolvency occurs in arbitration, especially when the insolvent party is the respondent. If, for example,
the insolvency administrator has not been notified properly or the arbitral tribunal has refused to stay the
proceedings, the award might become unenforceable. Therefore, even if a stay of proceedings is not mandatory
a tribunal should consider a temporary stay of proceedings, to facilitate an insolvency administrator and to make
sure that procedural fairness is maintained.305
Art. V(1)(c) NYC is meant to ensure that tribunals only decide upon matters that the parties wanted to submit
to arbitration.306 Although one could argue that parties did not intend to submit insolvency related issues to
arbitration, regardless of their arbitrability, courts have tended to be very reluctant to deny enforcement based
on Art. V(1)(c) NYC.307
Art. V(1)(d) NYC does not seem to generate any new considerations due to insolvency of one of the parties.
Since the insolvency administrator generally takes the legal position of the insolvent, it is bound by its decisions,
with several exceptions which should not play a role here.308 It will generally also not have a special ground to
object to the composition of a tribunal or procedure of the arbitration.
300
Vorburger (n 8) 202
301
ibid 202–203
302
See Secs. 9.2 and 7.1.3.
303
Cf. International Council for Commercial Arbitration, ICCA's guide to the interpretation of the 1958 New York
Convention: A handbook for judges (International Council for Commercial Arbitration 2011) 84
304
Seung Woo Lee (Co-Receiver) v. Imagin3 [2008] No. 06-55993, [2008] XXXIII Yearbook Commercial Arbitration
1180 et seq. (US Court of Appeals, 9th Circuit) 1180–1182; Marike Paulsson, The 1958 New York Convention in
action (Wolters Kluwer Law International B.V 2016) 179
305
Cf. International Council for Commercial Arbitration (n 303) 90–91; See Secs. 9.1 and 9.3
306
Cf. International Council for Commercial Arbitration, ICCA's guide to the interpretation of the 1958 New York
Convention: A handbook for judges (International Council for Commercial Arbitration 2011)
307
Vorburger (n 8) 207; see Ch. 8 of this thesis.
308
Although insolvency administrators in many jurisdictions can void certain contract especially if they have not yet
been performed or have been partially performed, e.g. Arts. 72 and 83bis Italian Bankruptcy Act.
40
Art. V(2) NYC
Under Art. V(2) NYC there are two refusal grounds; non-arbitrability (a) and public policy (b). Arbitrability
has already been discussed in Ch. 9. The ground of public policy has already been mentioned and to an extent
it overlaps with arbitrability; a subject deemed non-arbitrable can also lead to awards breaching public policy.309
However, even if a subject matter is deemed arbitrable, an award can still be unenforceable due to public policy.
Tribunals mostly refer to the lex loci arbitri, or the law of the seat, regarding arbitrability, see Sec. 8.3. The
enforcement forum, both on arbitrability and public policy, tends to apply the law of the forum. If the award
violates the international public policy of the state in which it is enforcement is sought, Art. V(2)(b) NYC
provides grounds for unenforceability. If parts of the insolvency law or insolvency principles of the state are
part of international public policy, is dependent on the views of the relevant state and its courts. However, one
principles core to insolvency laws are generally thought of as public policy, i.e. the equality of creditors.310
Interim Conclusion
In a national context, insolvency in arbitration already poses quite some questions. In an international setting,
these questions only multiply. It seems that a broadly worded stay of proceedings in case of insolvency generally
also applies to arbitration. However, in an international setting, arguments are made to not stay arbitral
proceedings in case of insolvency outside of the seat jurisdiction.
Some countries used to, or still, have rules that interfere with the arbitration agreement and arbitration
proceedings in case of insolvency, making them null and void or inoperable. The practical problem of capacity
cannot be forgotten. In practice, the party’s original representative might need to be replaced by the insolvency
administrator. This will cause delays in the proceedings due to considerations of procedural fairness. It can be
concluded that an award against an insolvent is open to several grounds of unenforceability, highly dependent
on the state of enforcement. But, a tribunal can minimalize such risks by keeping an extra eye on due process.
In light of that due process, arguments in favor of not providing a stay of proceedings make little sense. The
trend observed in the past, to ignore the effect of a foreign insolvency on arbitral proceeding and to not provide
such a stay, might seem practical for the arbitration proceedings themselves. However, this author finds that
such an approach shows a dangerously territorial approach that can run counter to the realities of insolvency,
‘foreign’ or otherwise. In fact, it seems far more prudent to generally provide a stay of proceedings in case of
an insolvency, both for the parties and the tribunal to carefully consider the appropriate steps and consequences
of the insolvency. Measured against the only downside, the loss of time in the arbitration proceedings, the
upsides; protecting the integrity of the process and thus the award should be considered to weigh heavier. As
such, it is good that tribunals usually upon request of the insolvent provide at least an informal stay or delay.
However, it is more prudent for tribunals to consider a stay or delay ex officio, as depending on the
circumstances it might take some time for the insolvency administrator to be duly appointed and up to speed.
Although courts and tribunals still often do not properly motivate their applicable law choices, the general
practice to apply the rules of the home jurisdiction of a party to its capacity is the most practical. It makes little
sense to arbitrate with persons that have no capacity to represent a party under its home law, as the subsequent
award would most likely be non-enforceable in that jurisdiction.
309
Cf. ibid 218
310
IBA Subcommittee on Recognition and Enforcement of Arbitral Awards (n 130) 16; Judith Gill and David Baker,
‘The Public Policy Exception Under Article V.2(b) of the New York Convention: Lessons From Around the World’
[2016] Asian Dispute Review 74, 77; This is considered international public policy for example in France see Société
Saret v. SBBM [1992] [1992] 38 Rev Arb 625-684 (French Supreme Court) 663 cited in; Mantilla-Serrano (n 120), 70
41
Part III Insolvency and Arbitration
The theoretical problems as dealt with in the Chosen Jurisdictions.
In this part, the frameworks of insolvency and arbitration and the practical issues discussed in Ch. 9 will be
discussed per selected country. Every chapter in this part consists of the same sections; first and second the
general insolvency system and general arbitration laws. Third, recognition will be discussed. The fourth section
concerns arbitrability. The fifth section concerns the effects of insolvency on the arbitration agreement and the
locus standi. Then a potential stay of proceedings is discussed in the sixth section. The seventh section deals
with the effect of the insolvency on the award, i.e. enforceability. Followed, by an interim conclusion containing
short evaluations by the author.
10 United States
United States Insolvency Legislation
The United States has enacted the Model Law on Cross-Border Insolvency. Substantively, it arranges its
insolvency regulation in federal law based on the congressional authority stated in Art. 1 Sec. 8 Cl. 4 of its
constitution. United States legislation uses the term bankruptcy broadly, hence, Bankruptcy Act.
For bankruptcy two statutes are primarily important; the Bankruptcy Act of 1898 applying to cases filed before
1 October 1979 and the Bankruptcy Reform Act of 1979 replacing the old act and governing the cases thereafter.
The system as standing is referred to as the Bankruptcy Code. Besides the code, a large part of the procedural
rules is found in Supreme Court case law.311
The Bankruptcy Code provides five different proceedings, referred to with the chapter they are incorporated in:
Chs. 7, 9, 11, 12 and 13. The Cross-Border regulation, the implementation of the Model Law, is found in Ch. 15.
Within these procedures there are two main kind of relief, liquidation/reorganization and rehabilitation.
Ch. 7 encompasses the basic executive bankruptcy procedure. The other chapters contain several different kinds
of reorganization which will not be further considered here.
United States Arbitration Legislation

The United States is a party to the New York Convention. On the state level, several states have adopted the
Model Law on International Commercial Arbitration.312 On the federal level, the Federal Arbitration Act (FAA)
from 1925 is the governing piece of law.313 The FAA is also directly applicable in the states.
By interpreting legislation, the Supreme Court of the United States (SCOTUS) has also played a significant role
in the development of the U.S. arbitration system.314
The FAA provides for enforcement of arbitration agreements in maritime transactions and commercial contracts
with the regular contractual exceptions, i.e. fraud, force etc. (9 U.S.C. Sec. 2). It also provides for a stay of court
proceedings upon request, if the case should be referred to arbitration (9 U.S.C. Sec. 3). It gives the court limited
leeway to refuse, it can only look at the scope of the arbitration agreement and the objective arbitrability of the
311
Lazić, Insolvency proceedings and commercial arbitration (n 6) 32–33
312
UNCITRAL (n 99) United States
313
Lazić, Insolvency proceedings and commercial arbitration (n 6) 56; Claudia Salomon and Samuel d Villiers, ‘The
United States Federal Arbitration Act: a powerful tool for enforcing arbitration agreements and arbitral awards’
(2014) 1 <https://www.lw.com/thoughtLeadership/the-us-fed-arbitration-act> accessed 11 January 2017
314
Salomon and Villiers (n 313) 2; Jarashow (n 1), 2; Cf. Scherk v. Alberto-Culver Co. (17/0671974) 417 U.S. 506 517
(US Supreme Court)
42
issue.315 Besides this, the setting aside of awards is limited to a few stringent grounds (9 U.S.C. Sec. 4). Overall
the FAA can be considered as a pro-arbitration piece of legislation.316
Recognition of Foreign Insolvencies

As stated, the United States has adopted the UNCITRAL Model Law on Cross-Border Insolvency.
Art. 15 Ins.ML requires an application for recognition at the relevant court in the sense of Art. 4 Ins.ML. Ch. 15
of the Bankruptcy Code incorporates the Ins.ML (11 U.S.C. §§ 1501 et seq.), the adaptation of Art. 15 can be
found in 11 U.S.C. § 1515. As such, recognition is not ipso jure or automatic, but requires a formal order by a
bankruptcy court, which has the exclusive jurisdiction in such matters.317
Ch. 15 barely contains any grounds for non-recognition and these are mostly of a procedural informative nature.
In the sense that, the court must be satisfied with specific prove of the existence and nature of the foreign
proceedings, as can be gathered from 11 U.S.C. §§ 1515-1516.
Case law shows that the U.S. cross-border insolvency rules apply directly to tribunals seated in the U.S., as case
law states that the rule of automatic stay upon recognition of a foreign insolvency applies to arbitral tribunals
in the States as well. However, this requires the recognition proceedings mentioned above.318 It is clear that
tribunals cannot make the formal recognition as mentioned Ch.15. However, they could make a practical,
factual or incidental recognition, the extent of which is not yet defined.
Arbitrability
The United States has a developed corpus of case law and literature on arbitrability, which is relatively pro-
arbitration.319 The traditional approach makes a split between the so-called ‘core and non-core’ bankruptcy
issues, leaving the former non-arbitrable and the latter free to arbitrate. Yet, it should be noted, that the FAA
itself does not address the issue of arbitrability.
The judiciary, to which it is thus left to define arbitrability, has widened its view of arbitrability since the 70’s.
Holding issues such a securities exchanges, which had been long held non-arbitrable, as arbitrable.320 The
relevant test is called the McMahon test, after a Supreme Court case.321 Later cases like Mitsubishi Motors Corp
v. Soler Chrysler-Plymouth Inc. reflect this test as well; there is presumed arbitrability except if there is anything
expressly in text of the statute, its history or an inherent conflict in purposes, which supports non-arbitrability.322
The referred case, involved antitrust claims. However, other cases extended this logic to insolvency issues.323
Hays and Co. v. Myrril Lynch, Fenner & Smith, Inc. is fundamental for the arbitrability of insolvency,
specifically non-core issues. It states that for such issues no inherent conflict between the purposes of the FAA
315
316
ibid 57
317
318
re Tembec Industries 08-13435 (US Bankruptcy Court, Southern District of New York); Vorburger (n 8) 47–48
319
Lord (n 4), 335–337
320
Scherk v. Alberto-Culver Co. (n 314) 506; Robert B Kovacs, ‘A Transnational Approach to the Arbitrability of
Insolvency Proceedings in International Arbitration’ (2012) 81
<https://www.iiiglobal.org/sites/default/files/transnationalapproachtothearbitrabilityofinsolvencyproceedingsinint
ernationalarbitration.pdf> accessed 2 November 2016
321
Shearson/American Express v. McMahon (1987) 482 U.S. 220 (US Supreme Court); Ferrari and Kröll (n 255) 363
322
Mitsubishi v. Soler Chrysler-Plymouth (n 217)
323
Sander Confectionery Products v. Heller Financial (1992) 973 F.2d 474 483 (US Court of Appeals, 6th Circuit);
Wood v. Wood (2017) 825 F.2d 90 97 (US Court of Appeals, 5th Circuit); Cf. Kovacs (n 320) 84–85
43
and the Bankruptcy Code exists.324 The split between core and non-core issues itself is based on 28 U.S.C. Sec.
157(b), which list certain core issues on which the bankruptcy court has exclusive jurisdiction. However, that
is a non-exhaustive list. In general, core issues can be described as issues stemming from bankruptcy law that
solely arise in bankruptcy.325 As confirmed by the courts, this leaves an a contrario definition of non-core
issues, i.e. arbitrable issues; issues that can exist outside of bankruptcy and are not based on bankruptcy law.326
This seems straightforward enough, however, there seems to be a lack of consensus as to what the core issues
are in bankruptcy.327 This determination will therefore have to be made on a case-to-case basis, whilst
considering if the arbitrability would endanger the objectives of the bankruptcy code.328. Presumed non-
arbitrable matters include voidable transactions, challenges to the schedule of claims and to a large extent the
determination of the assets of the estate. 329
Effect on the Arbitration Agreement and Locus Standi

In the U.S., there is no dispute as to the validity of the arbitration agreement upon insolvency. Similarly, there
also no real discussion upon the locus standi of the insolvency administrator in arbitration.
As Mantilla-Serrano noted, to determine locus standi arbitrators tend to follow the ‘home’ law of the party. As
most bankruptcy codes consistently transfer such locus standi to the administrator, in general no problems will
arise.330 For the U.S., the capacity of the administrator (trustee) is arranged in 11 U.S.C. Sec. 323(a) jo. 11
U.S.C. Sec. 541.331
Stay of Proceedings
Under 11 U.S.C. Sec. 362, upon opening of insolvency proceedings in the U.S. all legal proceedings are
automatically stayed, including arbitration.332 When it comes to foreign insolvencies; as 11 U.S.C. Sec. 1520
applies directly to arbitral proceedings seated in the U.S. (see Sec. 10.3), all legal proceedings including
arbitration should be stayed upon recognition of a foreign insolvency.333

Similar to the situation in most jurisdictions, an award will have to be registered with the insolvency
administrator as proof of claim in the sense of 11 U.S.C. Sec. 501.334
As to enforceability defenses based on insolvency principles, there are some relevant U.S. cases which describe
what is considered international public policy. However, they do not seem to settle the issue. In Fotochromo v.
Copal, the court makes a restrictive interpretation of the Art. V NYC, but stops its reasoning after it concludes
324
Hays and Company v. Merrill Lynch Pierce Fenner & Smith Inc (1989) 885 F.2d 1149 [53] (US Court of Appeals,
3th Circuit)
325
Kovacs (n 320) 84
326
Electric Machinery Enterprises, Inc. (2007) 479 F.3d 791 796 (US Court of Appeals, 11th Circuit); Wood v. Wood
(n 323) 97; Cf. Kovacs (n 320) 85
327
Jones (n 3), 133
328
Jarashow (n 1), 7
329
Re United States Lines, Inc (n 4) 640; MBNA America Bank v. Hill (2006) 436 F.3d 104 108 (US Court of Appeals,
2th Circuit); Kovacs (n 320) 86–90; Chartered Institute of Arbitrators (n 296) 281
330
331
Yang (n 256) 30
332
Jones (n 3), 132; Yang (n 256) 31; Cf. Sachs (n 4), 24
333
re Tembec Industries (n 318) 4
334
Cf. Vorburger (n 8) 227
44
that the NYC makes no reference to the equal treatment of creditors in regard to public policy.335 In Victrix S.S.
Co. v. Salen Dray Cargo, the court stated the equitable distribution of assets was considered public policy in
the U.S., but Vorburger rightly considers that the court did not decide if this fits the bill of the narrow public
policy exception in Art. V(2)(b) NYC.336 Thus, the extent of the public policy exception and the enforceability
of awards in regard to certain principles of insolvency law, seem to be narrow but unsettled.
Interim Conclusion
The United States have likely the most developed, but surely the most accessible, body of doctrine regarding
insolvency in arbitration. Over the years, the doctrine has developed towards a more pro-arbitration stance
and has a hybrid foundation to the point practical universalism. This observation is supported by developed
and wide view of arbitrability, ready recognition and little practical divergence being made towards ‘foreign’
and ‘domestic’ insolvencies, e.g. regarding stays. As such, the United States can be seen a good example for
how a jurisdiction can practically and effectively deal with the issues of insolvency and arbitration.
11 England
English Insolvency Legislation
Besides having law based on the Model Law on Cross-Border Insolvency,337 the substantive insolvency
framework in England is provided by the Insolvency Act 1986 and in a European context, the EIR.338 Due to
the system in the United Kingdom, it is noteworthy that there are separate regimes for the constituent nations
of the United Kingdom and that a United Kingdom Insolvency Act also exists. Thus, to be precise, the
Insolvency Act 1986 is a piece of legislation applicable to England and Wales.
In England, the term bankruptcy is technically reserved for personal insolvency whilst the term insolvency is
reserved for legal entities.339 The Insolvency Act contains several different kinds of proceedings; e.g. there are
voluntary arrangement schemes for both persons and corporations.
As this thesis aims to discuss insolvency in international commercial arbitration issues, only the proceedings
for companies will be mentioned here. The voluntary liquidation proceeding is found in Secs. 84 et seq. IA.
This proceeding is initiated by the ‘members’ of a company itself. It veers off into two different directions; the
members’ voluntary winding up and the creditors’ voluntary winding up. The difference being mainly that in
the first the company is solvent and in the latter the company is not, creating, in the case of the latter, a greater
degree of control for the creditors.340
Besides this, there is compulsory liquidation. This proceeding is initiated by a court. The initiation is triggered
by a petition of creditors or appropriately authorized directors. The order and proceedings can overrule and
335
Fotochrome, Inc. v. Copal Company Ltd. (1975) 517 F.2d 512 516 (US Court of Appeals, 2th Circuit); Theresa
Lawler, ‘Fotochrome, Inc. v. Copal Company Limited’ (1976) 1(2) Maryland Journal of International Law 263 265
<http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1361&context=mjil> accessed 18 April
2017; Vorburger (n 8) 221–222
336
Victrix S.S. Co. v. Salen Dry Cargo (1987) 825 F.2d 709 [13] (US Court of Appeals, 2th Circuit); Vorburger (n 8)
220–221
337
UNCITRAL (n 44) England
338
Jonathan Hosie and Devi Shah, ‘The Cross-Over Between Insolvency and Arbitration: The English Perspective’
(19 July 2010). Mayer Brown Article 1 <https://www.mayerbrown.com/fr/publications/The-Cross-Over-Between-
Insolvency-and-Arbitration-The-English-Perspective-07-19-2010/> accessed 02/11/16
339
340
ibid 18–19
45
replace existing voluntary proceedings. Compulsory Liquidation has more court involvement and a greater
degree of creditor protection.
Furthermore, there is a scheme of Voluntary Arrangements, which mainly consists of an agreement with the
creditors to fully or partially pay the outstanding debts. Finally, there is the procedure of Administration, which
is meant for reorganization of the company. 341 However, certain creditors, floating charge holders, may push
for the more aggressive form of administration, Administrative Receivership. Administrative Receivership is
not an insolvency proceeding in sense of general execution, but a proceeding of security enforcement. However,
it resembles an insolvency proceeding, e.g. an Administrative Receiver takes possession of the property.342
English Arbitration Legislation

In England arbitration is arranged by the Arbitration Act of 1996. This act is largely based on the UNCITRAL
Model Law but is not a one-on-one adoption of it.343 English common law rule does not provide an exclusive
jurisdiction for arbitrators, i.e. it does not exclude the jurisdiction of the courts. Therefore, Sec. 9 of the
Arbitration Act is of major importance as it indirectly enforces arbitration agreements. It creates a duty to stay
proceedings upon request, again with only narrow grounds of refusal; the arbitration agreement being null and
void, inoperative or incapable of being performed. These grounds can be found in Art. II NYC as well.344

In England, formal recognition of a foreign insolvency by the courts is binding on arbitral tribunals seated in
England. However, when this recognition is absent, tribunals seated in England are not precluded from making
their own preliminary assessment regarding recognition applying the same rules as the courts would do.345
For European insolvencies there is, presumably until the finalization of ‘Brexit’, automatic recognition under
the EIR. For other foreign insolvencies, this means the application of the English adaptation of the Model Law
on Cross-Border Insolvency in the Cross-Border Insolvency Regulations 2006 (CBIR); meaning recognition
upon application with narrow exceptions.346
Arbitrability of Insolvency Issues

Similar to U.S. law, the English law does not provide for a definition of arbitrability. Mustill and Boyd submit
that any issue that would lead to an enforceable award would be considered arbitrable.347 However, this hardly
seems to be an extra limitation as the arbitrability is one of the general restrictions on enforceability based on
Art V(2)(a) NYC. Diwan and Veeder describe it as anything that can affect the civil interests of parties and base
restrictions on arbitrability its private law nature, e.g. cannot lead to enforcement against the public.348
For further guidance one need to look at case law. The case law seems to have a general pro-arbitration tone
with few exceptions.349 Antitrust and competition law claims have been rendered arbitrable.350 In many other
341
ibid 20
342
ibid 20–21
343
UNCITRAL (n 99) England
344
345
Vorburger (n 8) 48
346
Stewart Perry, ‘Insolvency law v arbitration’ [2016] International Arbitration 1/3LY 24, 25
347
Mustill and Boyd, Commercial Arbitration (n 210) 70; Cf. Kovacs (n 320) 75
348
Diwan and Veeder (n 201) 22
349
Fiona Trust & Holding Corporation v. Yuri Privalov [2007] UKHL 40, [2007] BUS LR 686 et seq. (UK House of
Lords)
350
ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115 (Comm), [2005] APP LR (England and Wales High Court
(Commercial Court))
46
cases arguments regarding non-arbitrability have been dismissed.351 However, certain boundaries remain, e.g.
one could not arbitrate a claim to a bribe or other illegal actions.352 Such boundaries seem to refer to subjects
one should under general principles of law not be able to contract about and thus also not arbitrate on.
When it comes to the arbitrability of insolvency matters, the standard is set by case law. In Fulham Football
Club (1987) Ltd v Richards (Fulham) it was decided that the determining question is; if third party rights are
involved. In case such rights are involved, the matter is deemed non-arbitrable.353
Although there is no definitive list this would logically include; any action aiming at payment out of the estate,
any procedural actions regarding the insolvency procedure, from opening to closing, actions aimed at altering
the schedule of claims and any actions regarding the use of powers of the insolvency administrator in regard to
the estate or third parties.354
It was also decided in Fulham that parties do not have the right or power to override the Insolvency Act. Thus,
issues such as voidable actions and any other action that the Insolvency Act specifically assigns to court
jurisdiction, are likely non-arbitrable.355

In England, the arbitration agreement remains unaffected by the insolvency.356 The locus standi is transferred
to the liquidator, ex Secs. 91, 161(1)(a) IA.357 The liquidator is furthermore assumed to have a power to enter
in new arbitration agreement under his general power to contract. In case of individual bankruptcy, the trustee
gains a specific power to do so, ex Art. 314(1)(a) IA.358
Stay of Proceedings
In England, in case of compulsory liquidation, there is an automatic stay when a winding up order is made, ex
Sec. 130(2) IA. This section is interpreted to apply to arbitration as well.359 Proceedings cannot be continued
without the permission of the administrator or the court. However, in the other forms of proceedings this
automatic stay does not apply, such as the creditors’ voluntary liquidation.360
Great Britain (as opposed to the U.K. or England) has enacted the UNCITRAL Model Law on Cross-Border
Insolvency via the Cross-Border Insolvency Regulations 2006. Thus, based on Art. 20 Ins.ML/ Art. 20 CBIR
this should also be the case when a foreign insolvency is recognized as a main proceeding.
351
Kovacs (n 320) 75
352
Michael J Mustill and Stewart C Boyd, The law and practice of commercial arbitration in England (2nd edn,
Butterworths 1989) 149
353
Fulham Football Club (1987) Ltd v. Richards [2011] EWCA Civ 855, [2012] Bus LR 606 et seq. (England and Wales
Court of Appeal) [40]
354
Fulham Football Club (1987) Ltd v. Richards (n 353) [74]; Kovacs (n 320) 78
355
Kovacs (n 320) 77–79
356
Sachs (n 4), 18; Perry (n 346), 24
357
Philpott and another v. Lycee Francais Charles De Gaulle School (2015) EWHC 1065 (Ch) 1067 et seq. (England
and Wales High Court (Chancerry))
358
Lazić, Insolvency proceedings and commercial arbitration (n 6) 113, 121-122
359
Bristol Airport plc v. Powdrill [1989] CA 21 Dec 1989, [1990] Ch 744 et seq. (Court of Appeal) B.2; Hosie and Shah
(n 338) 1
360
Perry (n 346), 24–25
47
Outstanding awards will have to be filed with the administrator as a claim, as in most jurisdictions.361
In England, the pari passu principle is considered domestic public policy. However, it is not established if this
is also international public policy in the sense of Art. V(2)(b) NYC.362 Breaching the provisions on automatic
stay, can also be viewed under as a breach of public policy.363 The discussion above about arbitrability will also
play a role in enforcement or setting aside.
Interim Conclusion
In comparison to the United States, England arguably has a less developed body of doctrine on the interaction
of insolvency and international arbitration. But it still has a few landmark cases that settle many fundamental
issues. In the EU context, many questions were settled by the Vivendi cases. In general, it can be noted that
England, where it did not always, now has a pro-arbitration attitude. Although Lord Thomas, the Lord Chief
Justice of England and Wales, recently criticized arbitration by stating that it hinders the development of
common law and called for higher degree of judicial scrutiny as arbitration generally lacks a right to appeal.364
A consequence of its common law system, many of the relevant rules are found in case law and not readily in
the relevant codes. Furthermore, some answers are not entirely straightforward, such as the stay of
proceedings question. Some authors have concluded that there is no such stay, as many texts begin with
stating that upon application of insolvency there is no stay of proceedings, whilst in reality there is a stay but
only at the stage of the insolvency order. This can present issues in international settings as the answer to
fundamental questions might not be evident to foreign arbitral tribunals or councils. However, this perhaps
more a general critique of the common law system informed by the civil-law background of the author.
12 Germany
German Insolvency Legislation
Since 1999, insolvency in all of Germany is arranged via the Insolvenzordnung, i.e. the Insolvency Code
(InsO).365 This code replaced arrangements in several West German codes: the Konkursordnung of 1877, the
Vergleichsordnung of 1935 and the East German Gesamtvollstreckungsordnung of 1975.366
In contrast to the previous systems, the InsO knows only one insolvency procedure (German;
Einheitsverfahren). Nonetheless, this proceeding can have several different results such as liquidation or
confirmation of an insolvency arrangement, see Art. 1 InsO.367 German law also allows for the restructuring of
the insolvent company, but these proceedings will not be considered further here.
361
Vorburger (n 8) 227; Cf. Sachs (n 4), 30
362
Belmont Park Investments PTY Ltd v. BNY Corporate Trustee Services Ltd (2011) UKSC 38 [I.1, I.7] (Supreme Court
of the United Kingdom)
363
Vorburger (n 8) 219
364
Lord Thomas of Cwmgiedd, ‘Developing commercial law through the courts: rebalancing the relationship
between the courts and arbitration’ (The Bailii Lecture, 9 March 2016), 5, 43, 48
<http://www.bailii.org/bailii/lecture/04.pdf> accessed 18 May 2017
365
Insolvenzordnung 1 January 1999, InsO (Bundesrepublik Deutschland)
366
Lazić, Insolvency proceedings and commercial arbitration (n 6) 25; Fenger (n 12) 2; Christoph Becker 17–19
367
Becker (n 366) 19; Ralph Kramer and Frank K Peter, Insolvenzrecht: Grundkurs für Wirtschaftswissenschaftler
(3th ed. Springer Gabler 2014) 18
48
Germany has also introduced legislation regarding the European Insolvency Regulation, called the
Einführungsgesetz zur Insolvenzordnung (EGInsO).368 However, such legislation cannot be viewed as leading
a separate life from the European Insolvency Regulation.
German Arbitration Legislation

In Germany arbitration is regulated by the 10th book of the civil procedure code (ZPO). Germany’s international
arbitration framework is a straightforward adaptation of the Model Law on International Commercial
Arbitration. Germany is also a member state of the New York Convention.
Germany’s domestic arbitration law is similarly arbitration friendly; 1032(1) ZPO states, for example, that upon
request a court must deny admissibility (jurisdiction) of a claim subject to an arbitration agreement. The
exceptions to that are those stated in Art. II NYC; the arbitration agreement being null and void, inoperable or
incapable of being performed. This makes both, international and domestic arbitration agreements relatively
easily enforceable.

In Germany, foreign insolvencies are automatically recognized. For European insolvencies, the EIR applies;
implemented via Arts. 102, 102a EGInsO. Consequently, the automatic recognition of those insolvencies is
based on Arts. 16, 17 EIR.369 For other foreign insolvencies, the rules are found in Arts. 343 to 353 InsO.370
Whereas the German rules of recognition are not an adaptation of the UNCITRAL Model Law, it takes a
similarly universalist approach with its automatic recognition.
The German Federal Supreme Court has a restrictive view on the grounds for non-recognition of insolvencies,
based in a public order exception.371 However, this ground is limited as it states that even in the event of fraud,
if the creditors have remedies in the opening state, a German court will have to recognize the insolvency.372
German commentators argue that tribunals should recognize a foreign insolvency, based on the rules of
recognition of the law of the seat, thus creation a difference between foreign and domestic insolvencies.
However, in Germany, due to above mentioned automatic recognition, this presents no issue. German academic
Stefan Kröll argues for automatic recognition regardless of such categories.373
Arbitrability
In Germany, arbitrability of insolvency related issues is not a major issue.374 Sec. 1030(1) ZPO states that every
economic interest can be arbitrated and every non-economic interest in as far as the parties are allowed to
contract on the subject.375 Sec. 1030(2) ZPO only creates an exception for rent contracts.
368
Einführungsgesetz zur Insolvenzordnung 5 October 1994, EGInsO (Bundesrepublik Deutschland)
369
Patricia Nacimiento and Biner Bähr, ‘Insolvenz in nationalen un internationalen Schiedsverfahren’ [2009] NJOZ
4752, 4758–4759
370
Kröll (n 299) 984–986
371
Vorburger (n 8) 26
372
(2015) IX ZR 304/13 [10–13] (German Federal Supreme Court)
373
Ferrari and Kröll (eds) (n 124) 253; Vorburger (n 8) 41
374
Rolf Trittmann and Inka Hanefeld, ‘Part II: Commentary on the German Arbitration Law (10th Book of the
German Code of Civil Procedure), Chapter II: Arbitration Agreement’ in Karl-Heinz Böckstiegel, Stefan M Kröll and
Patricia Nacimiento (eds), Arbitration in Germany: The model law in practice (Second edition. Wolters Kluwer Law
& Business 2014) 101
375
Ferrari and Kröll (n 255) 366; Kröll (n 299) 988
49
Kröll, discussing objective arbitrability, recognizes three categories; issues related to the insolvency proceeding,
disputes based on facts or rights that predate the insolvency and those that came after the insolvency was opened.
The latter two being issues related to the insolvency as such. 376
As there is not specific rule on the arbitrability of insolvency issues, the general rules apply. Even though it is
understood that under the German concept of arbitrability exclusive jurisdiction does not prevent arbitrability,
Kröll concludes that issues concerning the insolvency proceeding per se, i.e. opening, appointing the
administrator and closing the proceedings, are non-arbitrable due to their legal nature. He mostly basis this
conclusion on the erga omnes effect of these insolvency issues; its binding effect against everyone and not only
the parties to the arbitration. However, besides organization considerations, an inferred will of the legislator to
have such issues excluded from arbitration based on the provided exclusive jurisdiction also play a role.377
Insolvency related issues are in general thought to be arbitrable, both in regard to issues pertaining to pre-
existing facts and rights and those arising after the opening of the insolvency. In general, both categories concern
economic interests in the sense of Sec. 1030(1) ZPO. Regarding debts of the estate, c.q. claims based on facts
and rights after the start of insolvency, this is implicit in Sec 160(2) no. 3 InsO.378 Even arbitrating the admission
of a claim to the insolvency schedule is deemed possible.379
In Germany, there is no stringent exclusive jurisdiction for the insolvency court (or vis attractive concursus).380
Pre-existing claims that have been contested by the administrator are referred to the regular courts at place
where the proceedings have been opened, ex Sec. 180(1) InsO. Here Kröll points out that exclusive jurisdiction
or even the binding effect against third parties is in fact by itself not enough to prevent objective arbitrability. 381

As touched upon by the German Federal Supreme Court, the insolvency does not affect the validity of the
arbitration agreement.382 The right to administer the estate of the insolvent is transferred to the insolvency
administrator based on the rules of Secs. 85, 86 InsO in line with the general rule of Sec. 80 InsO, as such an
insolvent party in arbitration will be replaced by the administrator.383 Literature and case law have confirmed
that based on those rules the insolvency administrator is bound by the arbitration agreement, although an option
for other creditors to object exist.384 If, the administrator has used its right to avoid a contract, claims based
376
Kröll (n 299) 987–988
377
ibid 990
378
Kröll (n 299) 988; Reinhold Geimer and Richard Zöller, Zivilprozessordnung: Mit FamFG (Paragraphen 1-185,
200-270, 433-484) und Gerichtsverfassungsgesetz, den Einführungsgesetzen, mit Internationalem Zivilprozessrecht,
EU-Verordnungen, Kostenanmerkungen : Kommentar (31. neubearbeitete Auflage, 2016) § 1030
379
Sebastian J Longrée and Matthias Gantenbrink, ‘Insolvenz des Beklagten im Schiedsverfahren’ [2014] SchiedsVZ
21, 23
380
381
Kröll (n 299) 988–990 referring to the discussion regarding company law in; [2009] II ZR 255/08, [12, 13, 32]
[2009] SchiedsVZ 233 (German Federal Supreme Court)
382
[2003] III ZB 24/03, [2004] ZinsO 88 et seq. (German Federal Supreme Court) 148; [2008] III ZB 11/07, [2008]
SchiedsVZ 148 et seq. (German Federal Supreme Court) 88; Lord (n 4), 338; Sachs (n 4), 18; Klaus Sachs and Torsten
Lörcher, ‘Part II: Commentary on the German Arbitration Law (10th Book of the German Code of Civil Procedure),
Chapter V: Conduct of the Arbitral Proceeding’ in Karl-Heinz Böckstiegel, Stefan M Kröll and Patricia Nacimiento
(eds), Arbitration in Germany: The model law in practice (Second edition. Wolters Kluwer Law & Business 2014) 257
383
[2015] 20 Sch 10/11, [2013] SchiedsVZ 112 et seq. (Higher Regional Court of Berlin) where an insolvency
administrator is deemed to be able to enforce an award in the name of the insolvent; Sachs and Lörcher (n 382)
257
384
Nacimiento and Bähr (n 369), 4752–4753; Longrée and Gantenbrink (n 379), 23; Trittmann and Hanefeld (n 374)
90, 101
50
thereon can be brought to court as the right to avoid contracts stems purely from the insolvency law.385 The
only section that to an extend touches upon this subject is the earlier mentioned Sec. 160(2) no. 3 InsO, where
it is stated that the administrator needs permission to enter in arbitration agreements, which involve a dispute
of significant value. According to Kröll this implies subjective arbitrability for the insolvent.386
Stay of Proceedings
In accordance with Sec. 240 ZPO, ongoing procedures are stayed in case insolvency is opened. However, this
section does not apply to arbitration proceedings.387 The same rule for foreign insolvencies is found in Sec. 352
InsO, but similarly has no effect on arbitration.388
However, case law and commentary suggest that for reasons of procedural fairness and to prevent setting aside,
tribunals should consider a stay of some sorts to give the administrator sufficient time.389

Claims and awards need to be registered with the insolvency administrator, following from Secs. 87 jo. 38, 85,
174 InsO. Awards that order payments of can and should be registered and viewed as mere proof of a claim.390
Although in Germany a court procedure can be started by the award debtor declaring the award enforceable, at
which point only insolvency related objections can be brought.391
Insolvency, or not dealing with the insolvency properly, can lead to several reasons for setting aside the award.
The effects of foreign insolvencies on arbitration are governed by the place of the insolvency procedure,
according to German understanding. Thus, foreign insolvencies rendering arbitration agreements invalid can
provide jurisdiction problems, especially if the arbitration is not pending at the time of insolvency.392
As stated under the stay of proceedings, not providing the insolvency administrator with the necessary time can
be a reason for setting the award aside, ex Sec. 1059(2) no. 1(b) ZPO or Art V(1)(b) NYC.393 Various points of
insolvency law can be considered public policy: the equality of creditors; the substitution of the debtor by the
administrator; failing to register the claim with the administrator.394 However, Kröll concludes that is has to be
assessed a case to case if there is a real conflict and if this conflict constitutes a violation of public policy.395
385
Trittmann and Hanefeld (n 374) 101
386
Kröll (n 299) 987
387
J. F Poudret and S. Besson, Comparative Law of International Arbitration (Translated by Berti, S.V. and Ponti, A,
2nd edn, Sweet & Maxwell 2007) 505; Nacimiento and Bähr (n 369), 4755; Sachs (n 4), 26; Kröll (n 299) 984;
Longrée and Gantenbrink (n 379), 21
388
Nacimiento and Bähr (n 369), 4761
389
[2005] 11 SchH 02/04, [2005] SchiedsVZ 159 et seq. (Court of Appeal Dresden) 159 et seq; Gabrielle Kaufmann-
Kohler and Laurent Levy, ‘Insolvency and International Arbitration’ in Henry Peter, Nicolas Jeandin and Jason J
Kilborn (eds), The challenges of insolvency law reform in the 21st century: Facilitating investment and recovery to
enhance economic growth (Schulthess 2006) 22–24; Sachs (n 4), 26; Longrée and Gantenbrink (n 379), 21; Sachs
and Lörcher (n 382) 257, 274
390
Kröll (n 299) 1007–1008
391
Sachs (n 4), 30–31; Vorburger (n 8) 228; Cf. (1998) 11 Sch 01/98 (Court of Appeal Dresden)
392
Kröll (n 299) 1008–1009
393
ibid 1009
394
Nacimiento and Bähr (n 369), 4755–4756
395
Kröll (n 299) 1009–1010
51
Interim Conclusion
Germany, even though the amount of case law on the subject is not abundant, seems to have a highly
internationalist approach; both in the field of arbitration and insolvency. That observation is supported by ready
and near automatic recognition of foreign insolvencies and an extremely wide interpretation of arbitrability.
In fact, the concept of arbitrability in Germany could be considered too wide. Whilst in general, wide and open
concepts of arbitrability can and should be supported. Some points of insolvency should be considered non-
arbitrable following from the idea of arbitration itself. Arbitration is the private settlement of disputes between
parties which have agreed to this procedure. It follows that arbitration should normally have no direct effect on
third parties. As such, arbitrating issues such as the payments out of the estate, which directly affect third parties
and their rights, should in the opinion of the author and perhaps in contrast to some of the authors discussed
above, be considered non-arbitrable.
13 Switzerland
Swiss Insolvency Legislation
In Switzerland, the Federal Statute on Debt Enforcement and Bankruptcy (Bundesgesetz über Schuldbetreibung
und Konkurs; SchKG)396 is the primary source of insolvency law. Previously non-monetary debt enforcement
was organized on a cantonal level. This persisted until a relatively recent change of law when the first nationally
applicable law of civil procedure (Schweizerische Zivilprozessordnung; ZPO) came into force in 2011.
Under the federal law there are two different proceedings for general execution; a Ch.11 (U.S.)-like
restructuring proceeding and a straight forward insolvency proceeding.397
Within these insolvency proceedings, as in most such procedures, an administrator takes control of the estate
after a bankruptcy court has ruled on the request for bankruptcy.398 Interesting to note is, that creditors can only
request insolvency proceedings after having tried to enforce their claims via a different enforcement proceeding
also found in the SchKG, under Arts. 46-55 SchKG.399
Swiss Arbitration Legislation

Switzerland despite its small size plays a large role in international commercial arbitration.400 With its unrivaled
reputation of neutrality, Geneva and to an extent Zurich have become centers of arbitration.
International arbitration and domestic arbitration are regulated under two different regimes in Switzerland;
international commercial arbitration under Ch. 12 of the Swiss Private International Law Act and domestic
arbitration in part 3 of Swiss Civil Procedure Code (CPC).401 In Switzerland, the distinction of domestic and
international is not based on the relevant contractual relationship, which is most often the case, but on the
domicile of the parties. Ex art. 176(1) PILA, the PILA applies to arbitrations seated in Switzerland if one of the
parties at the time of conclusion of the arbitration agreement was seated outside of the Switzerland.
396
Thomas Rohde, ‘Chapter 31: Switzerland’ in Donald S Bernstein (ed), International insolvency review (The law
reviews, Third edition. Law Business Research 2015) 398
397
Rohde (n 396) 407; Birgitte Umbach-Spahn and Roland Burkhalter, ‘Key Topics: Legal’ (January 2016) Summary
<http://www.amcham.ch/key_topics/p_business_ch.asp?s=2&c=12> accessed 22 December 2016
398
Umbach-Spahn and Burkhalter (n 397) 3.2 a)
399
ibid FAQ
400
Cole and others (n 102) 181
401
ibid 183
52
Swiss law is perceived as very arbitration friendly. There are few and narrow grounds for denying enforcement
of both awards and arbitration agreements and there is a single forum for setting aside procedures (Art. 191
PILA, Art. 389 CPC).402 For questions of substantive validity, Art. 178(2) PILA creates a validation system,403
under which the arbitration only has to be valid under one of three laws; the chosen law of the parties, the law
governing the main contract or Swiss law. This is quitearbitration friendly, as it will not be difficult to find that
at least one of these laws finds the agreement valid. The same can be said of very wide understanding of
objective arbitrability as any ‘financial interest’ in art. 171 PILA.

The recognition of insolvencies in Switzerland is relatively hard. A recognition is denied in as far as the goal
of the action is aimed at accessing the assets of the insolvent in Switzerland. Other questions of recognition
concerning the status of the administrator or the insolvent itself, are the subject of debate; do they need to be
recognized via insolvency rules and thus can they only be taken into account in case of formal recognition or
can they be taken into account via international private law rules. Those questions become relevant when a
foreign administrator wishes to enforce an award in Switzerland.404
The Swiss Federal Supreme Court construes the Swiss insolvency system as a closed system. In theoretical
terms, it is a territorial system. Art 166 PILA promulgates four requirements for recognition: first, the
insolvency order originates from the debtor’s domicile jurisdiction; second, it is enforceable there; third, there
are no grounds for non-recognition under Art. 27 PILA (procedural safeguards); and fourth, there is reciprocity
with the country in where the order comes from. However, even when recognized a foreign insolvency
proceeding cannot access the assets in Switzerland. When a foreign insolvency is recognized in Switzerland
and there are assets on Swiss territory, a secondary insolvency proceeding in Switzerland has to be opened for
those assets, administered by Swiss courts under Swiss law.405
The reciprocity requirement in Swiss law is quite restrictive. It is currently only met by a few countries
according to Swiss courts, e.g. Belgium, Germany and France but not by the Netherlands, Denmark or Sweden.
It is interesting to note that the Swiss Federal Council has made proposals recently to remove this requirement.
This proposal also makes it easier for foreign trustees to act in Switzerland without formal recognition.406
When it comes to recognition by arbitral tribunals seated in Switzerland, Swiss commentators have argued that
the recognition rules of insolvencies are irrelevant for arbitral tribunals as they possess no forum state. Instead,
arbitral tribunals should recognize insolvencies automatically.407 However, others argue that the tribunals
should follow the same rules as the courts, either directly or analogously.408
402
ibid.
403
404
Vorburger (n 8) 26; Naegeli and Vorburger (n 207) 168–169
405
Naegeli and Vorburger (n 207) 167–168
406
Naegeli and Vorburger (n 207) 169; Sabine Schellenberg and Stéphanie Oneyser, ‘Proposed revamp of provisions
on recognition of foreign bankruptcy proceedings’ (2016) <http://www.internationallawoffice.com> accessed 17
April 2017
407
Martin Bernet, ‘Schiedsgericht und Konkurs einer Partei’ in Monique Jametti Greiner, Bernhard Berger and
Andreas Güngerich (eds), Rechtsetzung und Rechtsdurchsetzung: Zivil- und schiedsverfahrensrechtliche Aspekte ;
Festschrift für Franz Kellerhals zum 65. Geburtstag (Stämpfli 2005) 6
408
Vorburger (n 8) 43
53
Arbitrability
Under Art. 177(1) PILA, any dispute involving property can be subject to arbitration.409 This has been further
clarified to mean; any claim that can be valued in money is arbitrable.410 It has been held that this can include
for example antitrust claims, which have often been found non-arbitrable.411
From this wide view of arbitrable matters, the conclusion follows that most insolvency issues are deemed
arbitrable. Only the very core of insolvency matters is non-arbitrable, e.g. claims solely belonging to the estate.
Commentators have also come to the same conclusion.412
Regarding insolvency related issue a distinction is made based on the nature of the matter that one wishes to
submit to arbitration. Substantive claims, are as stated still arbitrable in insolvency and so are substantive claims
related to the insolvency or even the state of insolvency, dubbed mixed claims. Although the arbitrability of
mixed claims remains controversial also because it is often hard to view them as within the scope of commonly
phrased arbitration agreements.
Clear is that core bankruptcy issues are non-arbitrable.413For example, the opening and closing of insolvency
proceedings and the appointing of an administrator etcetera are off-limits to arbitration. On the other hand as
mixed claim or substantive claim preferences as to the estate, will be deemed arbitrable under Swiss law.
Importantly, although controversial the typical insolvency action of a voidable transactions, actio pauliana, can
also be considered arbitrable. The same goes for handling assets of the estate414 and dealing with the schedule
of creditors.415 Concluding that even in insolvency there seems to be a wide range of arbitrable issues under
Swiss law, i.e. Art. 177 PILA.

More than a century ago, in 1907, the Swiss Federal Supreme Court determined that insolvency administrator
and the estate are not bound by preexisting arbitration agreements.416 However, this was based on the assessment
that the arbitration agreement is a substantive agreement. Later, the Supreme Court recognized the arbitration
agreement as a procedural agreement and concluded that it remains valid and binding upon the administrator in
case of insolvency.417 This indirectly confirms the locus standi of the administrator. The decision reached in the
Swiss Vivendi Case, has been moderated by the Portuguese Cases; although the governing law for capacity
remains the personal law of the party, only a general incapacity will lead to denial of jurisdiction.418
409
Cf. Kovacs (n 320) 68
410
Ficantieri-Cantinieri Navali (1992) BGE 118 II 353 3a (Swiss Federal Supreme Court)
411
G.S.A. (1992) BGE 118 II 193 198 (Swiss Federal Supreme Court); Kovacs (n 320) 68; Saverio Lembo and Aurélie C
Hari, ‘International Arbitration in Switzerland and Foreign Bankruptcy: Where Do We Stand?’ (2014) 32(4) ASA Bull
736–737
412
Kovacs (n 320) 72 referring to Poudret and Besson, Kaufmann-Kohler and more; Lord (n 4), 339; Girsberger and
Voser (n 213) 107, 329-332
413
Poudret and Besson (n 387) 306–307; Kovacs (n 320) 72; Lembo and Hari (n 411), 737; Naegeli and Vorburger (n
207) 160–162
414
Laurent Levy, ‘Arbitrability of Disputes in Corporate Matters (Swiss Law)’ (2002) 5(3) Int ALR 77 83 based on;
(1980) ATF 106 III 121 121–122 (Swiss Federal Supreme Court) as referenced by; Kovacs (n 320) 74
415
; (1981) BGE 107 III 113 304–305 (Swiss Federal Supreme Court); as mentioned by Kovacs (n 320) 74; Kaufmann-
Kohler and Levy (n 389) 264–265
416
(1907) BGE 33 II 648 [4] (Swiss Federal Supreme Court)
417
Naegeli and Vorburger (n 207) 146
418
Vivendi S.A et al. v. Deutsche Telekom AG et al. (n 187); Portuguese Case (2012) BGE 138 III 714 (Swiss Federal
Supreme Court); Lembo and Hari (n 411), 754; Girsberger and Voser (n 213) 109-110; Naegeli and Vorburger (n
207) 146–154
54
It is important to note that due to the validation principle followed in Switzerland (Sec. 7.1.3), Swiss law is only
one of the options to be applied. When the agreement is lawful under another relevant law, a tribunal seated in
Switzerland can find it valid even if it is not valid under Swiss law.419
Stay of Proceedings
The Swiss bankruptcy code under Art. 207 SchKG orders a temporary stay of proceedings for procedures before
Swiss courts in case of insolvency. This does, however, not extend to proceedings before foreign courts or to
arbitral tribunals,420 as the Swiss follow a delocalized view of arbitration.
In practice, a stay can be ordered upon request by the parties, mostly to bring the administrator into the
proceedings.421 This can be done based on the procedural rules or flowing from considerations of due process
and the linked enforceability/setting aside concerns.422

Seeking enforcement in Switzerland follows the NYC; the procedure for doing so is set out in the SchKG which
also governs bankruptcy. Therefore, when enforcement is sought in case of insolvency the award needs to be
registered as an outstanding debt with the administrator. This as individual enforcement procedures are blocked
under Art. 206 SchKG.423 An ongoing ‘foreign’ arbitral proceeding can however, not be registered with the
administrator. Due to a recent case by de Swiss Supreme Court, it is disputed if an award rendered during the
insolvency has any effect at all. This case decided that foreign courts cannot bind the Swiss trustee or court
after the opening of insolvency proceedings and decision rendered in insolvency cannot even serve as proof of
a claim.424 However, scholars have suggested that, whilst this judgement applies by analogy to arbitration, Swiss
courts and administrators should be bound by the substantive aspect of such awards, i.e. that an award should
still serve as proof of claim.425
When it comes to the non-enforcement grounds under Art. V(2) NYC, the Swiss have a very restrictive
approach; insolvency law principles do not form part of Swiss international public policy and thus do not
constitute grounds for non-enforcement. However, violating principles underlying arbitration such as equal
treatment and due process can lead to non-enforcement. This is particularly important in case of insolvency,
e.g. the stay of proceedings and representation.426
Interim Conclusion
It is interesting to see the contrast in the discussion above; whereas, Swiss law and doctrine is highly pro-
arbitration the jurisdiction remains protective of its insolvency jurisdiction. It has a very internationalist
approach to arbitration but a mainly territorial approach towards insolvency.
One could argue that this approach is a purely practical approach based on Swiss interest and as such is not
primarily informed by theoretical or idealistic approaches. An international approach towards arbitration can
realistically be viewed as a boon to the economy and to the Swiss international reputation of neutrality and a
419
Lembo and Hari (n 411), 738
420
Sachs (n 4), 24–25
421
Poudret and Besson (n 387) 505; Jonathan Sutcliffe and James Rogers, ‘Effect of Party Insolvency on Arbitration
Proceedings: Pause for Though in Testing Times’ (2010) 76 Arbitration 277 284
422
Jones (n 3), 134; Sachs (n 4), 25; Naegeli and Vorburger (n 207) 163
423
Vorburger (n 8) 222, 231; Naegeli and Vorburger (n 207) 165
424
(2015) 5A_491/2013 [6] (Swiss Federal Supreme Court); Naegeli and Vorburger (n 207) 166
425
Georg v Segesser and Anya George, ‘Swiss Private International Law Act (Chapter 12: International Arbitration),
1989: Art. 177’ in Loukas A Mistelis (ed), Concise international arbitration (Second edition. Wolters Kluwer Law &
Business 2015) 1193; Naegeli and Vorburger (n 207) 166–167
426
Vorburger (n 8) 223
55
country in which to solve disputes. Therefore, there is little that could endanger Swiss interest and much to
gain by adopting an internationalist approach to arbitration. Whereas, a universalist approach towards
insolvency can subject Swiss nationals to foreign and unknown insolvency law, which is arguably not in their
interest.
However, in the opinion of the author, on the long term it is not in the interest of anyone to largely ignore
foreign insolvencies or to make taking them into account exceedingly difficult. The result is that an arbitration
will run into practical issues regarding a foreign insolvency, to which is has no efficient answer. A tribunal
might have to make practical accommodations towards the insolvency regardless, to safeguard the
proceedings and the award. In the current system, the legality of that is debatable. It is more advisable to
make such accommodations available via legislation or doctrine, to secure certainty and consistency.
14 Singapore
Singaporean Insolvency Legislation
Singapore is an interesting jurisdiction to look at, both geographically and legally; an Asian nation heavily
influenced by Anglo-Saxon law.
Singapore differentiates between personal and corporate insolvency. Within corporate insolvency, there are
four different regimes: winding up or liquidation, judicial management, receivership and schemes of
arrangement.427 Winding up or liquidation is a straightforward liquidation proceeding including all assets of the
debtor and all creditors, under the supervision of a court. After the proceedings, the company is dissolved.428
Judicial Management is a reorganization proceeding and as such can be disregarded for now.
Receivership is, similar to the Administrative Receivership in England, a proceeding which is in actuality not
an insolvency proceeding. It is not a general execution proceeding, but aimed at executing one or more
debentures.429 The last procedure, the Schemes of Arrangement, is similar to the English Company Voluntary
Arrangement, a procedure in which the debtor can come to a debt-settling agreement with (the majority of) its
creditors.430 This, again, is not a method of general execution.
Singaporean Arbitration Legislation

Singapore has an arbitration law based on the Model Law and is a party to the New York Convention. Like
most jurisdiction, Singapore’s domestic and international law are governed by different regimes. Domestic
arbitration being governed by the Arbitration Act and international arbitration aptly being governed by the
International Arbitration Act (IAA).431
Singapore, similar to Switzerland, considers arbitration ‘international’ if one party was domiciled outside of
Singapore at the time of contract conclusion. But Singapore also recognizes other factors as prove for
international arbitration; the place of arbitration being outside of the country of domicile of the parties, the place
of performance being outside of the country of domicile and agreement by the parties that the arbitration
agreement involves multiple countries, Sec. 5(2) IAA.
427
Andrew Chan, ‘Global and Regional Practices in Financial Restructuring and Bankruptcy Laws: Lessons to Be
Learned from Singapore’ in Tarek M Hajjiri and Adrian Cohen (eds), Global Insolvency and Bankruptcy Practice for
Sustainable (International Best Practice vol 2. PalGrave Macmillan 2016) 226
428
ibid 227
429
ibid 229
430
ibid 229–230
431
Lawrence Boo and Ling W Lee, ‘Ch.04 International and Domestic Arbitration in Singapore’ (2015) 4.4.5
<http://www.singaporelaw.sg/sglaw/laws-of-singapore/overview/chapter-4> accessed 14 January 2017
56
This provides quite a wide definition of ‘international’ and consequently a wide applicability of the IAA.
Leaving more or less only factually domestic arbitration to the Arbitration Act; parties domiciled and
performing within Singapore. However, even in that case, the parties can opt to be treated under the international
regime, Sec. 5 IAA.
Enforcement of international arbitration agreements is based Art. 8 of the Model Law, see Secs. 3, 6 of the IAA.
This creates the option to request the stay of other ongoing proceedings, Sec. 6(1) IAA. It also only leaves the
familiar narrow grounds for non-enforcement; the arbitration agreement being null and void, inoperative or
incapable of being performed, Sec. 6(2) IAA. The Enforcement of awards is described below under Sec. 14.7,
but similarly, the grounds for non-enforcement are narrow.
Overall, not unlike the previously discussed jurisdictions, Singapore has an arbitration friendly system.

Singapore this year will enact legislation to adopt the Model Law on Cross-Border Insolvency. As such the
recognition of foreign insolvencies will be based on the Singaporean equivalent of Art. 15 Ins.ML and done by
an application to the relevant court in the sense of Art. 4 Ins.ML.
However, until then recognition and assistance of foreign insolvencies is done under the common-law principle
of recognition. The common-law principle on this point is highly universalist and calls for general recognition,
with few exceptions. However, the scope of this recognition and possible assistance remains rather unclear.432
The drive towards universalism is not only proven by the coming adaptation of the Ins.ML, but also for example
by a recent landmark case in which the Singapore High Court for the first time accepted the appointment of a
foreign liquidator from a country other than the country of incorporation.433
Arbitrability
No statutory provision in Singapore directly defines subject matter arbitrability. However, Sec. 11(1) IAA,
states that any dispute can be arbitrated if the parties have agreed to do so in an arbitration agreement. Sec.
11(1) IAA’s only exception to this is; if to arbitrate would be against public policy. Therefore, the arbitrability
test in Singapore is a public policy test.434
A body of case law provides further guidance on the arbitrability of insolvency issues in Singapore. Next to the
general public policy test, the landmark Larsen Oil case puts a test forward that is similar to that in United
States.435 It states the presumption of arbitrability, unless it is clear from text or legislative history, that the
parliament wished the subject to be non-arbitrable.436
The Court in Larsen Oil also states that post-insolvency claims are non-arbitrable due to their effect on third
parties, namely other creditors. Based on the same logic, the Court states that disputes involving an insolvent
432
Andrew Chan and others, ‘Cross-Border Insolvency and its Impact on Arbitation’ (2014) 26 SAcLJ 999 1006
433
Re-Opti Medix Ltd. (in liquidation) & Anor Matter (2016) SGHC 108 (Singapore High Court)
434
Lawrence Boo and Earl J Rivera-Dolera, ‘4. Arbitration’ (2015) 16 SAL Ann Rev 100 108 at 4.27
435
See the discussion in Eng B Lee and Kelvin Poon, ‘16. Insolvency Law’ (2011) 12 SAL Ann Rev 319 320–323
436
Larsen Oil and Gas Pte Ltd v. Petroprod Ltd (2011) SGCA 21 [44] (Court of Appeal, Singapore); Chan and others (n
432), 1031–1032; Michael Hwang and Divyesh Menon, ‘Singapore Country Update’ [2016] Asian Dispute Review
202, 202; Cf. Lawrence Boo, Yewon Han and Michael Hwang, ‘National Report for Singapore (2015)’ in Pieter
Sanders and A. J van den Berg (eds), International handbook on commercial arbitration (Kluwer Law International
1984-) 9
57
company that are based on rights that predate the insolvency remain arbitrable. This because in those latter
cases the public policy consideration of protecting other creditors is not apparent.437
In the case of Tomolugen Holdings the relief being sought was the winding up of a company, which was
considered not to be in the power of the tribunal. The case includes a significant discussion upon public policy
and the insolvency law, confirming the rule of Larsen Oil and to a large extent; i.e. the non-arbitrability of
claims based in insolvency laws, such as the avoidance claims in question.438

In Singapore, insolvency does not influence the validity of the arbitration agreement. Whereas the administrator
in Singaporean personal bankruptcy has an opt-in/opt-out option under Sec. 148A Bankruptcy Act, an
equivalent thereof does not exist for corporate insolvency. However, Sec. 332 Companies Act, give an
administrator the option to terminate certain unprofitable contracts, including arbitration agreements.439
In Singapore, in compulsory winding up proceedings an administrator takes over all property and actions to the
exclusion of the debtor, ex Secs. 269-272 Companies Act. This is only significantly different in the schemes of
arrangement procedure. Although it is not explicitly discussed, it is implicit in the discussions that this includes
that the administrator taking over the locus standi in arbitration.440
Stay of Proceedings
In case of winding up application a stay can be ordered in Singapore under Secs. 258, 353 Companies Act. This
stay also applies to arbitration. However, an automatic stay follows upon, the winding-up order itself, ex Sec.
262(3) Companies Act.441 In bankruptcy such an automatic stay does not exist.442
Upon the adoption of the Model Law on Cross-Border Insolvency, Art. 20 Ins.ML will be the determining
factor for foreign insolvencies, hinging on the Singaporean courts extending this rule to arbitration. If so, all
proceedings will be stayed upon recognition of a foreign main proceeding.
Currently, Singapore does not directly apply foreign insolvency laws, or their rules regarding stays of
proceedings.443 Furthermore, no current statutory provision provides that the courts can order stay of
proceedings in case of a foreign insolvency.444 Thus, the common law is determining for any assistance by the
court and specifically for a stay of proceedings. Doing so, the Singaporean court concluded that although foreign
stay provisions do not directly apply, the court can use its inherent discretion to order such stays. 445 In doing
so, it should also consider the fairness and due process of Art. V(1)(b) NYC.
437
Larsen Oil and Gas Pte Ltd v. Petroprod Ltd (n 436) 47; Chan and others (n 432), 1032–1033–51
438
Tomolugen Holdings Ltd and another v. Silica Investors Ltd (2015) SGCA 57 75 et seq. (Singapore Court of
Appeal); Chan and others (n 432), 1033
439
Chan and others (n 432), 1001 pointing at two cases as an example of a contracts avoided including arbitration
agreements; Velde v. Prime Property Investment Pty Ltd (2011) 86 ACSR 112 (Supreme Court of Queensland,
Australia); Prime Property Investment Pty Ltd v. Van der Velde (2011) FCA 1397 (Federal Court of Australia)
440
Larsen Oil and Gas Pte Ltd v. Petroprod Ltd (n 436) [24]; Chan and others (n 432), 1010–1011; Hwang and
Menon (n 436), 202–203
441
Chan and others (n 432), 1031 at 88 and note 152; Sean Y Chou, Manoj P Sandrasegara and Mark Choy,
‘Restructuring & Insolvency: Singapore’ (London 2015). Getting the Deal Through 369 at 20
442
Boo, Han and Hwang (n 436) 8
443
Beluga Chartering GmbH v. Beluga Projects Pte (2014) SGCA 14 [90, 98] (Singapore Court of Appeal); Chan and
others (n 432), 1003
444
Chan and others (n 432), 1016
445
Beluga Chartering GmbH v. Beluga Projects Pte (n 443) [31]; Cf. Chan and others (n 432), 1018
58
There are no special provisions on the enforcement of awards against an insolvent. Consequently, it seems
highly likely that as in most jurisdictions under the general rule prohibiting individual execution actions, the
award will have to be registered with the administrator.446
Enforcement of foreign awards is based on the New York Convention and has to be applied for at the Singapore
High Court under Sec. 29 IAA.447 The Arbitration Act limits the setting aside of local awards to a few common
procedural and contractual exceptions, such as incapability or not providing notice, ex Sec. 48 Arbitration Act.
The IAA has a similar list of grounds as seen in Art. 34 Arb.ML, plus some additional grounds in Sec. 24 IAA;
corruption, fraud and a ‘breach of natural justice’ prejudging the rights of a party. For non-enforcement of an
award domestically the same grounds apply as for setting aside.448 For non-enforcement of international awards
there are no other grounds than the ones in the New York Convention.449 Thus, the considerations regarding
arbitrability and procedural fairness should be viewed as grounds for non-enforcement under Art. V(1) NYC.
Interim Conclusion
Singapore as a hub for transport and trade seems to have adopted a practical international approach towards
arbitration. For insolvency, it seems to have realized that such an approach is also necessary. It is a positive
development that Singapore will adopt the Model Law on Cross-Border Insolvency. By having, both the
Model Law on International Arbitration and the Ins.ML; insolvency in international arbitration should
generally be dealt with similar as in the United States, which has also adopted these model laws. In the
opinion of the author, this approach is probably the most practical and theoretically grounded approach.
The United States and Singapore’s approach to arbitrability are similar. Arguably they will in most cases lead
to the same conclusion. However, one of the arbitrability consideration made by the Singaporean court in
Larsen Oil, deserves more attention as it is the most practical and theoretically sound approach found in this
thesis and the most elegant; the effect on third parties rule. Its simplicity belies its solid foundations. As
discussed in Ch.13, arbitration by its nature should not affect third parties. On the other hand, there is no
sound argument against arbitrating insolvency issues that do not have an effect on third parties. As it seems
hard to argue that issues of insolvency should remain non-arbitrable to protect the public interest if such
issues have no effect on third parties. Thus, whilst other doctrines might often come the same conclusions
regarding arbitrability, e.g. the U.S. doctrine, this approach seems the most elegant whilst remaining
theoretically sound.
15 Conclusion and Reflection

This thesis set out to provide a theoretical analysis of some of the important questions that come up when
insolvency occurs in international commercial arbitration and to provide an insight into how several important
jurisdictions answer a selection of practical questions. Whilst doing so in the past chapters it has become clear,
that there is much to be learned and much to be cleared up, hopefully by further case law, on this issue.
Questions range from the very practical; does the arbitration need to be stayed to the aspecific, but
fundamentally important question; which theory of cross-border insolvency and which theory of international
commercial arbitration do we want to adhere to. Because, without answering these fundamental questions,
446
Sachs (n 4), 30
447
Boo and Lee (n 431) 4.4.1
448
ibid 4.4.3
449
ibid 4.4.5
59
several logical links in the chain that leads to the final answer as to the stay of proceedings or the recognition
of an insolvency in arbitration remain missing.
Due to almost contrary nature of insolvency and arbitration, it can seem hard to reconcile the goals and purposes
of the two and even harder to find answers to practical questions. However, by having a clear view of the
underlying theory and navigating the conflict-of-laws questions properly, one can find the proper answers. The
relatively few awards that deal with insolvency in arbitration, do not show a thorough theoretical process.
Tribunals need to give answers to the specific legal and practical questions of the case and seem less inclined
to provide large theoretical discussion for the sake of precedent setting. Thus, most practical-theoretical
discussion comes from court cases like the Singaporean Larsen Oil case, or the body of American case law on
the subject. But many answers remain theoretical in discussions by scholars.
Tribunals that fail to provide a reasoning that reflects a theoretically founded chain of logic towards decisions
of applicable law, arbitrability or any of the other questions of this thesis, in the opinion of the author fail to
provide a properly reasoned award. Particularly, the question of applicable law is so fundamental to the outcome
of a case that tribunals ought to show the parties how they come to apply a certain law. They should do so ex
officio, in other word even when it is not disputed by the parties. This reasoning should show the chain of
choices made; conflict-of-laws rules selection and application thereof before the application of the found law.
Whilst on the one hand, the theory should be observed and is of crucial importance in finding consistent
answers, on the other hand practical reality cannot be ignored. As pointed out at several junctions, a tribunal
cannot ignore the facts. Even if a tribunal is not legally obliged to provide a stay of proceedings, it should
consider doing so regardless. It should do so for the very practical reason and the risk of the award otherwise
being set aside or becoming non-enforceable in key countries.
It seems that for reasons of effectivity of arbitration, the choice to ignore purported ‘foreign’ insolvencies is
flawed. Such disregard can be deemed highly careless, as it seriously endangers due process. As discussed, the
Swiss approach to international insolvency can be questioned from this perspective. However, with
developments both in Switzerland and Singapore, and previous developments in most of the jurisdictions
discussed, there seems to be a global trend towards a more open attitude regarding international insolvencies.
Arbitrability will always remain a point of contention when insolvency and arbitration interact. Many
jurisdictions have developed doctrines on arbitrability of insolvency issues. Often, they resemble a split between
core and non-core issues. Which admittedly is a functional approach. However, using the effect on third parties
as the core rule, seems more elegant whilst still well-founded. In many jurisdictions, this consideration has
already featured in the reasoning to large or small extents, however, was not used as the main determinant.
Turning from the theoretical discussion to practice; it is key that tribunals understand what insolvency of one of
the parties means for their proceedings. They should take the practical common sense steps necessary, such as
accepting the administrator into the proceedings and providing him the necessary time. They should also
understand that, in most jurisdictions their awards will be set aside or become non-enforceable if they deal with
core insolvency issues, whilst mostly they are legally allowed to decide pre-insolvency issues. Even though
generally not forced to, they should look at the insolvency law of the fori concursus, specifically its public policy
and mandatory rules. Especially, if that jurisdiction is also the intended forum of enforcement. These are all
necessary practical steps to keep arbitration operating effectively and efficiently. In the ideal situation tribunals
would manage to combine this practical approach with a deeper theoretical understanding of the problem area
and show this in their awards. Awards that ignore the issues discussed in this thesis or make choices without
reasoning, pose the biggest issue to the development and efficiency of this field.
60
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Case Law
Alphabetically by name, cases without names by court chronologically
Australia
Prime Property Investment Pty Ltd v. Van der Velde (2011) FCA 1397 (Federal Court of Australia).
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Australia).
European Court of Human Rights
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Rights).
X v. Germany (1962) Application no. 1197/196 (European Court of Human Rights).
France
Cosco Bulk Carrier Co. Ltd. v. Armada Shipping S.A (2011) [2011] EWHC 216 (Ch) (London High
Court of Justice).
Société Saret v. SBBM [1992] [1992] 38 Rev Arb 625-684 (French Supreme Court).
(2009) No. 08‐10.281 (French Supreme Court).
Germany
Plumber’s Case (2000) III ZR 33/00 145 BGHZ no 116 (German Federal Supreme Court).
(1998) 11 Sch 01/98 (Court of Appeal Dresden).
[2005] 11 SchH 02/04, [2005] SchiedsVZ 159 et seq. (Court of Appeal Dresden).
[1998] III ZR 194/96, [1999] 24 Yearbook Commercial Arbitration 928 (German Federal Supreme
Court).
[2003] III ZB 24/03, [2004] ZinsO 88 et seq. (German Federal Supreme Court).
[2008] III ZB 11/07, [2008] SchiedsVZ 148 et seq. (German Federal Supreme Court).
[2009] II ZR 255/08, [2009] SchiedsVZ 233 (German Federal Supreme Court).
(2015) IX ZR 304/13 (German Federal Supreme Court).
[2015] 20 Sch 10/11, [2013] SchiedsVZ 112 et seq (Higher Regional Court of Berlin).
Netherlands
(2010) ECLI:NL:RBSGR:2010:BO8353 2012 JOR 158 et seq. (Rechtbank Den Haag).
(2013) ECLI: NL: RBNNE: 2013: BZ6109 (Rechtbank Noord-Nederland).
Singapore
Beluga Chartering GmbH v. Beluga Projects Pte (2014) SGCA 14 (Singapore Court of Appeal).
68
Larsen Oil and Gas Pte Ltd v. Petroprod Ltd (2011) SGCA 21 (Court of Appeal, Singapore).
Re-Opti Medix Ltd. (in liquidation) & Anor Matter (2016) SGHC 108 (Singapore High Court).
Tomolugen Holdings Ltd and another v. Silica Investors Ltd (2015) SGCA 57 (Singapore Court of
Appeal).
Switzerland
Ficantieri-Cantinieri Navali (1992) BGE 118 II 353 (Swiss Federal Supreme Court).
Fomento de Construcciones y Contratas S.A. v. Colon Container Terminal S.A. (2001) BGE 127 III 279
(Swiss Federal Supreme Court).
G.S.A. (1992) BGE 118 II 193 (Swiss Federal Supreme Court).
Vivendi S.A et al. v. Deutsche Telekom AG et al. [2009] 4A_428/2008, [2010] 28 ASA Bull 104 et seq.
(Swiss Federal Supreme Court).
Portuguese Case (2012) BGE 138 III 714 (Swiss Federal Supreme Court).
X v. Z (2012) 4A_414/2012 (Swiss Federal Supreme Court).
(1907) BGE 33 II 648 (Swiss Federal Supreme Court).
(1980) ATF 106 III 121 (Swiss Federal Supreme Court).
(1981) BGE 107 III 113 (Swiss Federal Supreme Court).
(2015) 5A_491/2013 (Swiss Federal Supreme Court).
United Kingdom
Belmont Park Investments PTY Ltd v. BNY Corporate Trustee Services Ltd (2011) UKSC 38 (Supreme
Court of the United Kingdom).
Bristol Airport plc v. Powdrill [1989] CA 21 Dec 1989, [1990] Ch 744 et seq. (Court of Appeal, England
and Wales).
ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115 (Comm), [2005] APP LR (England and Wales High
Court (Commercial Court)).
Fiona Trust & Holding Corporation v. Yuri Privalov [2007] UKHL 40, [2007] BUS LR 686 et seq. (U.K.
House of Lords).
Fulham Football Club (1987) Ltd v. Richards [2011] EWCA Civ 855, [2012] Bus LR 606 et seq. (Court
of Appeal England and Wales).
Paczy v. Haendler & Natermann GmbH [1980] YCA IX, 445, [1981] Lloyd’s Rep 302 et seq. (Court of
Appeal, England and Wales).
Philpott and another v. Lycee Francais Charles De Gaulle School (2015) EWHC 1065 (Ch) (England and
Wales High Court (Chancerry)).
Smith v. UIC Insurance Co Ltd (2001) BCC 11 (Comm (QBD), England and Wales).
Syska v. Vivendi Universal [2008] EWHC 2155 (Comm), [2009] CLC 459 et seq. (England and Wales
High Court (Commercial Court))
United States
69
Electric Machinery Enterprises, Inc. (2007) 479 F.3d 791 (US Court of Appeals, 11th Circuit).
Fotochrome, Inc. v. Copal Company Ltd. (1975) 517 F.2d 512 (US Court of Appeals, 2th Circuit).
Hays and Company v. Merrill Lynch Pierce Fenner & Smith Inc (1989) 885 F.2d 1149 (US Court of
Appeals, 3th Circuit).
Hilton v. Guyot (1895) 159 U.S. 113 (US Supreme Court).
MBNA America Bank v. Hill (2006) 436 F.3d 104 (US Court of Appeals, 2th Circuit).
Mitsubishi v. Soler Chrysler-Plymouth (1985) 473 U.S. 614 (US Supreme Court).
Sander Confectionery Products v. Heller Financial (1992) 973 F.2d 474 (US Court of Appeals, 6th
Circuit).
Seung Woo Lee (Co-Receiver) v. Imagin3 [2008] No. 06-55993, [2008] XXXIII Yearbook Commercial
Arbitration 1180 et seq. (US Court of Appeals, 9th Circuit).
Scherk v. Alberto-Culver Co. (17/0671974) 417 U.S. 506 (US Supreme Court).
Shearson/American Express v. McMahon (1987) 482 U.S. 220 (US Supreme Court).
Société Nationale Algérienne v. Distrigas Corp (1987) 80 B.R. 606 (US District Court, D Massachusetts).
Tembec Industries 08-13435 (US Bankruptcy Court, Southern District of New York).
United States Lines, Inc (1999) 136 F.3d 631 (US Court of Appeals, 2th Circuit).
Victrix S.S. Co. v. Salen Dry Cargo (1987) 825 F.2d 709 (US Court of Appeals, 2th Circuit).
Wood v. Wood (2017) 825 F.2d 90 (US Court of Appeals, 5th Circuit).
Awards
Chronologically
Swiss entity v Dutch entity [2001] HKZ Case No. 415, [2002] 20 ASA Bull 467.
Casa v. Cambior [1990] ICC Award. No. 6697, [1992] Rev Arb 135-145.
[1968] ICC Case No. 1350, [1975] Clunet 931 et seq.
[1974] ICC Case No. 2139, [1976] YCA 220 et seq.
[1990] ICC Case No. 6192, [1997] 8 ICC Bulletin 64 et seq.
[1991] ICC Award No. 6057, [1993] Clunet 1016 et seq.
(1991) ICC Award No. 5954 unpublished.
(1991) ICC Award No. 8133 unpublished.
[1993] ICC Award No. 7205, [1995] Clunet 1031 et seq.
[1994] ICC Case No. 7047, [1995] ASA Bull 301 et seq.
[1996] ICC Award No. 7337, [2003] 1996-2000 Collection of ICC Awards 308 et seq.
70
[2001] ICC Award No. 9163, [2003] Revue de L’Arbitrage 227 et seq.
[2002] Procedural Order No. 14, [2005] 23 ASA Bull 108 et seq.
[2004] ICC Award No. 11714, [2009] ICC ICArb Bull 74 et seq.
[2007] ICC Case No. 14993, [2014] 24 ICC Bulletin 24.
[2005] ICC Award No. 12421, [2008] 33 Yearbook Commercial Arbitration 102.
(2011) CAM Case No. 2412 A contribution by the ITA Board of Reporters, Kluwer Law International
[2011] ICC Award No. 16369, [2014] 39 Yearbook Commercial Arbitration 169.
Laws
Alphabetically with sections referenced and their locations
Arbitration Act (Singapore)

Arbitration Act of 1996 (England and Wales)
9 – 46
41(6) – 39
Bankruptcy Act (Italy)
72 – 36
82bis – 37
Bankruptcy Act (Singapore)
148A – 58
Bankruptcy Act of 1898 (United States)
Bankruptcy Code (United States)
363 – 44
541 - 37, 44
323(a) – 44
1501-1515- 20, 43
1516- 43
1520 – 44
Bankruptcy Law (China)
25(7) – 36
Bankruptcy Law (Poland)
142 – 36
Bankruptcy Reform Act of 1979 (United States)
Bundesgesetz über Schuldbetreibung und Konkurs (Switzerland)
71
46-55 – 52
206 – 55
207 – 55
Civil Procedure Code (Germany)
240 – 51
1030(1) – 50
1030(2) – 50
1059(1) no. 1(b) 51
Civil Procedure Code (Latvia)
487(8) – 36
Civil Procedure Code (Switzerland)
Part 3 – 52
389 – 55
Companies Act (Singapore)
258 – 58
262(3) – 58
269-272 – 58
332 – 58
353 – 58
COUNCIL REGULATION (EC) No 1346/2000 on insolvency proceedings 29 May 2000, EIR
(Council of the European Union).
4(2) – 36
4(2)(e) – 28
4(2)(f) – 28
7 – 16, 16
8 – 25
15 – 28, 36
16 – 20, 49
17 – 49
Cross-Border Insolvency Regulation 2006 (England and Wales)
Einführungsgesetz zur Insolvenzordnung 5 October 1994, EGInsO (Bundesrepublik Deutschland).
102 – 49
102(a) – 49
72
Federal Act on Private International Law, PILA (Switzerland)
27 – 53
154(1) – 38
155(c) – 38
166 – 53
171 – 53
176(1) – 38, 53
177(1) – 33, 54
178(2) – 38, 53
191 – 53
Federal Arbitration Act (United States)
2 - 42
3 – 43
4 – 43
Gesamtvollstreckungsordnung of 1975 (East-Germany)
Insolvency Act 1986 (England and Wales)
91 – 47
130(2) – 47
161(1)(a) – 47
314(1)(a) - 47
Insolvenzordnung 1 January 1999, InsO (Bundesrepublik Deutschland).
1 – 49
85 – 51
86 – 51
160(2) no. 3 – 50
174 – 51
180(1) – 50
343 – 49
352 – 51
353 – 49
International Arbitration Act (Singapore)
3 – 57
73
5 – 57
5(2) – 56
6 – 57
6(1) – 57
6(2) – 57
11(1) – 57
24 – 59
29 – 59
Konkursordnung of 1877 (West-Germany)
Model Law on Cross-Border Insolvency (UNCITRAL)
1(5) – 19
17A – 38
18 – 23
19(1) – 23
24(1) – 23
34 – 59
34(2)(a)(i) – 24
34(2)(b)(i) – 19
34(2)(b)(ii) – 17, 18
35(1) – 22
36(1)(a)(i) – 24
36(1)(b)(ii) – 18
Model Law on International Commercial Arbitration (UNCITRAL)
1(2) – 23
4 – 20, 57
15 – 43- 57
15(1) – 20
17 – 20
18 – 20
20 – 48, 58
74
20(1)(a) – 36
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, NYC
(1958)
II – 12, 46, 49
III – 12
IV – 12
V – 12, 13, 40, 45
V(1) – 40. 59
V(1)(a) – 23, 24, 33, 40, 46
V(1)(b) – 40, 51, 58
V(1)(c) – 40
V(1)(d) – 23, 40
V(2) – 41, 55
V(2)(a) – 19, 29 ,33, 41
V(2)(b) – 18, 25, 41 ,45, 48
VI – 13
VII – 13
REGULATION (EU) 2015/848 on insolvency proceedings 20 May 2015, EIR (recast) (European
Parliament and Council).
Tittle 28 Judiciary and Judicial Procedure (United States)
157(b) – 44
United Kingdom Insolvency Act 2000
Vergleichsordnung of 1935 (West-)Germany)
Relevant Webpages
Specific websources (blogs, articles etc.) are listed under Literature
Bundesgericht: http://www.bger.ch/
Bundesgerichtshof: http://www.bundesgerichtshof.de/
DeJure: https://dejure.org/
Heinonline: https://home.heinonline.org/
International Insolvency Institute (III): https://www.iiiglobal.org/
75
Kluwer Arbitration: http://www.kluwerarbitration.com/
Recht.NL: https://www.recht.nl/
Trans-Lex: https://www.trans-lex.org/
UNCITRAL: http://www.uncitral.org/
WestLaw: https://www.westlaw.com/
Aids
Citavi – Reference Management Program
https://www.unisg.ch/en/universitaet/bibliothek/recherche/hinweisezuendnote
https://www.citavi.com/
76
Appendix 1: Declaration of authorship
“I, Fabian Andreas van de Ven, hereby declare - that I have written this thesis without any help from
others and without the use of documents and aids other than those stated in the references, - that I
have mentioned all the sources used and that I have cited them correctly according to established
academic citation rules, - that the topic or parts of it are not already the object of any work or
examination of another course unless this explicitly stated, - that I am aware that my work can be
electronically checked for plagiarism and that I hereby grant the University of St.Gallen copyright as far
as this is required for this administrative action.”
……………………………………………
Marburg, Germany 19 May 2017
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Insolvency in International Commercial A

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Insolvency in International Commercial Arbitration

Where Two Fields Meet

Author: Fabian A. van de Ven

Supervisor: Prof. Gary B. Born

Arb.ML UNCITRAL Model Law on International

a.k.a. Also known as

B.C. Bankruptcy Code (as used in the USA)

CPC Civil Procedure Code (Switzerland)

c.q. casu quo (in this case; Latin)

ECHR European Court for Human Rights

EGInsO Einführungsgesetz zur Insolvenzordnung

EIR (recast) European Insolvency Regulation; Regulation (EU)

EIR European Insolvency Regulation; Regulation (EC)

e.g. exempli gratia (for example; Latin)

FAA Federal Arbitration Act (United States)

IA Insolvency Act (England and Wales)

IAA International Arbitration Act (Singapore)

ICC International Chamber of Commerce

InsO Insolvenzordnung (Insolvency Code; Germany)

Ins.ML UNCITRAL Model Law on Cross-Border

i.e. id est (that is; Latin)

jo. juncto (in conjunction with; Latin)

PILA Private International Law Act (Switzerland)

P.R.C. People’s Republic of China

SchKG Bundesgesetz über Schuldbetreibung und Konkurs

TFEU Treaty on the Functioning of the European Union

U.K. United Kingdom

UNCITRAL United Nations Commission on International

U.S. United States of America

U.S.C. United States Code

U.S.C.A. United States Code Annotated

ZPO Zivilprozessordnung (Law of Civil Procedure;

Terminology and Scope

2 International Insolvency Theory

Practice and the Middle Ground

3 Cross-Border Insolvency Instruments

European Insolvency Regulation

The Jurisdictional Theory

The Contractual Theory

The Hybrid Theory

The Autonomous Theory

5 International Commercial Arbitration Instruments

The New York Convention

The UNCITRAL Model Law on International Commercial Arbitration.

European Union Law

Part II The Issues of Interaction

Recognition by Arbitral Tribunals

Non-Recognition with Reference to Territoriality

Recognition Based on Cross-Border Insolvency Law of the Seat

Recognition Based on Mandatory Rules

Practice and Theory

Recognition and Arbitrability

UNCITRAL Model Law on Cross-Border Insolvency and the EIR

Applicable Law in Arbitration

Find conflict-of-laws rules Determine applicable law Apply applicable law.

Law Applicable to the Underlying Contract

Law Applicable to the Arbitral Proceedings

Law Applicable to the Arbitration Agreement

Law Applicable in Cross-Border Insolvency

Applicable Law to the Effect of Insolvency in Arbitration

The Issue of Characterization

The EIR and Arbitration; Vivendi Cases

Objective and Subjective Arbitrability