For insolvency practitioners, understanding how to handle cases that involve arbitration agreements is essential. The case of Sian Participation Corp v Halimeda International Ltd was a landmark decision that reduces legal uncertainty, clarifies the limits of arbitration in insolvency contexts, and allows practitioners to better protect the interests of creditors and other stakeholders.

It is in this context that funding and insurance can become vital factors. Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency and arbitration cases.

Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16

In December 2012, Halimeda International Ltd loaned $140 million to Sian Participation Corp, with the loan agreement stating that any disputes of any nature arising from the loan should go to arbitration. In September 2020, Halimeda requested to have Sian placed into liquidation under the British Virgin Islands Insolvency Act 2003, as Sian couldn’t show that the debt was disputed on genuine and substantial grounds. The court ordered Sian’s liquidation, and the Court of Appeal of the Eastern Caribbean Supreme Court upheld this decision. The Privy Council later granted permission to appeal in November 2023.

In the case of Sian Participation Corp v Halimeda International Ltd [2024] UKPC 16, the Privy Council examined the conflict between insolvency and arbitration in the British Virgin Islands (BVI). Generally, it’s in the public interest to have a straightforward process for liquidating insolvent companies. However, there is also a policy supporting the enforcement of arbitration agreements.

The Privy Council noted a disagreement among various courts on what constitutes a “dispute” about a debt. If there is an arbitration agreement covering a debt dispute, creditors are generally required to arbitrate rather than pursue court action, even if the debt is denied.

In the case before the Privy Council, Lords Briggs and Hamblen clarified that under British Virgin Island law, when deciding whether to issue a liquidation order where an arbitration agreement between the parties exists, the correct test is whether the debt is genuinely disputed on substantial grounds. Since the debt in question was not disputed on substantial grounds, the lower courts correctly applied the law, and a winding-up petition should not be stayed in favour of arbitration. Therefore, the Privy Council rejected the appeal.

The decision also has broader implications beyond the British Virgin Islands. The Privy Council directed that the precedent set in Salford Estates v Altomart, which mandated staying insolvency proceedings in favour of arbitration in England and Wales, should no longer be followed. The new decision represents the law of England and Wales, emphasising that arbitration should not delay liquidation when there is no substantial dispute.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance– ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding– In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with both UK and International arbitration matters. If you are in the process of bringing a claim or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.