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ARTICLE · 10 NOVEMBER 2025

When Arbitration Meets Insolvency: Insights From Common Law Systems

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When a company is unable to meet its debt obligations, a creditor's natural course of action is to file a winding-up petition. If granted, the company goes into liquidation and its assets are distributed among creditors.

GlobalLitigation, Mediation & Arbitration
Gary Leung
Gary Leung
Mohammed Reza
Mohammed Reza
Mark Chau
Mark Chau
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When a company is unable to meet its debt obligations, a creditor's natural course of action is to file a winding-up petition. If granted, the company goes into liquidation and its assets are distributed among creditors.

Across common law jurisdictions, the standard for opposing such a petition is largely consistent: the company cannot simply deny the debt, it must demonstrate a bona fide dispute on substantial grounds.

The situation becomes more complex when the debt in question arises under a contract containing an arbitration clause. In such cases, two competing public policy considerations come into play:

  • On one hand, there is a public interest in ensuring that companies unable to meet their debts are promptly placed into an insolvency process, ensuring their assets are equitably distributed among creditors.

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