
In the case of <span class="news-text_italic-underline">Sian Participation Corp v Halimeda International Ltd</span>, the Judicial Committee of the Privy Council re-evaluated the decision made in <span class="news-text_italic-underline">Salford Estates (No.2) Ltd v Altomart Ltd [2014] EWCA Civ 1575, [2015] Ch. 589, [2014] 12 WLUK 258</span>, concluding that it was incorrectly decided and should no longer be followed.
The ruling emphasised that the practice of staying or dismissing a creditor's winding-up petition, where the debt was covered by an arbitration clause and was disputed (even if not on genuine and substantial grounds), must end. The presence of a generally worded arbitration or exclusive jurisdiction clause should not result in the stay or dismissal of such petitions unless the debt is genuinely disputed on substantial grounds.
The Appellant contested an order under the Insolvency Act 2003 (British Virgin Islands) s.162(1)(a), which appointed liquidators and directed that the Appellant be put into liquidation. The Appellant had borrowed $140 million from the Respondent under a loan agreement that included a broadly defined arbitration clause. Upon default, the Respondent demanded repayment.
The Appellant disputed the debt's validity, leading the Respondent to seek the court's appointment of liquidators. The court found that the Appellant lacked genuine and substantial grounds for disputing the debt and appointed liquidators, a decision upheld by the BVI Court of Appeal.
The Appellant contended that the BVI courts should have adhered to the precedent set by <span class="news-text_italic-underline">Salford Estates</span>, either dismissing the Respondent's application or staying it until arbitration confirmed the debt's legitimacy.
Appeal Dismissed.
<span class="news-text_medium">Proper Test:</span> The BVI's insolvency jurisdiction, inherited from the UK, did not permit winding up a company on a disputed debt. A debt was considered "disputed" if genuinely contested on substantial grounds, resulting in the dismissal or stay of any winding-up petition until the dispute was resolved.
Following <span class="news-text_italic-underline">Salford Estates</span>, the English court regarded any non-admitted debt as "disputed," irrespective of substantial grounds. Conversely, BVI courts required substantial grounds for dispute before staying a creditor's application for liquidators due to an arbitration agreement.
<span class="news-text_medium">Status of Salford Estates:</span> <span class="news-text_italic-underline">Salford Estates</span> was deemed wrongly decided. Insolvency proceedings did not activate mandatory stay provisions of the Arbitration Act 1996 s.9 and the Arbitration Act 2013 (Virgin Islands) s.18, as they did not resolve debt existence or amount.
The court's discretion to grant a winding-up petition or appoint liquidators when the debt was disputed on insubstantial grounds did not breach contractual obligations or public policy. The BVI court correctly applied the test of genuine and substantial grounds for dispute (paras 1, 57, 88-100, 122-123).
<span class="news-text_medium">Appeal as of Right:</span> The appeal did not qualify under s.3(1)(a) of the Order for an appeal to the Board as of right. The BVI court's judgment did not significantly affect the Appellant's interests by at least £300, as the debt determination still required proof in liquidation (paras 114-117, 121-123).
<span class="news-text_italic-underline">Sian Participation Corp v Halimeda International Ltd</span> underscores the necessity for substantial grounds in disputing debts within insolvency proceedings, particularly in the presence of arbitration clauses. The ruling clarifies that <span class="news-text_italic-underline">Salford Estates</span> should not be followed, aligning BVI's approach with a more stringent requirement for genuine dispute. This decision has significant implications for creditors and debtors involved in insolvency proceedings where arbitration clauses are present.



