Press release

Pérez-Llorca analyses the new scenario for insolvency proceedings in the session on ‘Arbitration and insolvency: the challenges of reconciling polar opposites’.


Pérez-Llorca organised a seminar entitled ‘Arbitration and insolvency: the challenges of reconciling polar opposites

Pérez-Llorca organised a seminar entitled ‘Arbitration and insolvency: the challenges of reconciling polar opposites’ to analyse the new framework for restructuring and the future of insolvency proceedings as a result of some recent events such as the war in Ukraine, inflation and the impact on supply chains. Speakers were Ignacio Santabaya and Laura Ruiz, Litigation and Arbitration partners at Pérez-Llorca; Laura Carballo, a lecturer in Private International Law at the Universidad de Vigo; and Manuel Penadés, arbitrator and reader in International Commercial Law at King’s College London.

Ignacio Santabaya opened the session, providing a brief overview of the current legal framework on restructuring before introducing the other speakers. Manuel Penadés then explained the two procedural structures, arbitration and insolvency proceedings, the coexistence of which sometimes creates certain discrepancies. Penadés highlighted the key points in cases where a client initiates insolvency proceedings, highlighting a number of scenarios in which insolvency may have adverse effects on the arbitration proceedings. Next, the speaker wanted to highlight the reach of arbitration awards and whether they are “toothless”, a circumstance he defined as “the cases in which the courts understand that the arbitration decision exceeds the scope of jurisdiction, and may cause damage to the credit rights held by the creditors”. With regard to arbitration as a dispute settlement mechanism, the speaker pointed to Spain as one of the countries most likely to use it.

Penadés also focused on the role of the “IBA toolkit”, which allows issues to be resolved in the context of arbitration in insolvency situations. This toolkit provides guidance to parties, counsel and arbitrators in situations where a party to the arbitration proceedings is also subject to insolvency proceedings in one or more jurisdictions.

Laura Ruiz began by introducing the option of suspending the arbitration proceedings in order to respond to any unforeseen situations. In her view, the solution must be sought in the rules of international jurisdiction, since the principle on which these rules are based, outside of certain pronouncements by the ECJ, is the commitment to mitigating the “vis attractiva concursus”. As such, she explained that “only issues related to insolvency or that derive directly from or that are closely related to insolvency proceedings should be resolved by the insolvency judge”.

With regards to case law, Ruiz raised the question of whether the innovative judgment of the Barcelona Court of Appeal, section 15, of 29 April 2009, appeal: 708/2008, Pirelli case, FJ 6, in relation to Article 52.1 of the Insolvency Act, is applicable to domestic arbitration and international arbitration as defined by Article 3 of the Arbitration Act and the International Conventions to which Spain is a party. In this regard, according to the partner, and in accordance with Article 52.1 of the Insolvency Act, it would only be applicable to the extent that the aforementioned international conventions signed by Spain designate Spanish law as the applicable law to determine the effectiveness of the arbitration agreement.

In the same vein, she analysed the judgment of the Commercial Court of Cantabria of 30 September 2019, which rules on the criteria that must be taken into account in the context of an international insolvency in order to specify the possibility offered by article 52.1 of the Insolvency Act to suspend the effectiveness of the arbitration agreement.

Lastly, she brought up Madrid Commercial Court No. 1’s ruling of 27 January 2020, in the context of insolvency proceedings, to highlight the discretionary power to annul the agreement and the possibility of the judge suspending the agreement should they considers it detrimental to the insolvency proceedings.

Laura Carballo began her section by discussing the consequences that may arise in the event of insolvency proceedings being declared while arbitration is ongoing. In this regard, she noted that “the opening of insolvency proceedings does not affect arbitration, but it must be respected and follow its course”, stressing the need for joint work between the Arbitration Act and the Insolvency Act. Along the same lines she mentioned Article 111 of the Insolvency Act, since it sets out a series of actions strictly related to arbitral proceedings, and the declaration opening insolvency proceedings may not interrupt the debtor’s professional or business activity, and does not prevent the insolvent party, under supervision, or the insolvency administrator, from entering into new arbitration agreements.

Another possible situation with an impact on arbitration that Carballo wanted to raise is one in which the administrator could also choose to terminate the contract for the benefit of the creditors and initiate the insolvency proceedings. In any case, the speaker emphasised the importance of analysing whether such insolvency issues are covered by the arbitration agreement on a case-by-case basis.

Lastly, she highlighted Article 18 of Regulation No 848/2015 on insolvency proceedings, which compares the Arbitration Act with the Insolvency Act, noting that the regulation is designed for national law and therefore should not influence or have any effect on arbitration.

Related Practice areas

__More news