Originially from Conflict of Laws in International Commercial Arbitration

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I.INTRODUCTION 

Insolvency2 has very aptly been described as a “crossroad where all the elements of the Legal System in question meet.”3 Following the global financial and economic crisis, the traffic at this crossroad has been increasing over the last decade. That is reflected in the fast growing legal literature addressing the regulation of this traffic as far as it concerns the relationship between arbitration and insolvency, both at the national as well as at the international level.4 In some jurisdictions and on the European level the increased traffic at the crossroad has also led to a revision of the legal framework and the erection of clearer signposts at the crossroad, for example in the recast European Insolvency Regulation.5 Irrespective of that there is still a considerable danger of accidents for unwary parties and arbitrators.6 In this regard one has to distinguish between the core insolvency disputes on the one hand and insolvency related disputes of single creditors about the existence of their claims or the extent of the divisible property on the other hand. The former disputes go to the heart and the administration of the insolvency proceedings as proceedings for collective redress. They are often of an administrative nature and concern the opening of insolvency proceedings, the appointment of an administrator, the creation and approval of restructuring or insolvency plans, the final distribution of assets or the release of the debtor from insolvency proceedings. Such disputes are often not covered by the Parties’ arbitration agreement or are, due to their collective nature and the necessary participation of all creditors involved not considered to be arbitrable. The latter type of disputes, by contrast would in principle be covered by existing arbitration agreements concluded between the debtor and the individual creditor. They do not affect third parties, in particular not other creditors, in a way which would necessarily exclude meaningful arbitration proceedings from the beginning. In such cases disputes about the enforceability of arbitration agreements, the proper parties to arbitral proceedings or awards rendered are not a rare occurrence even in purely domestic cases. The danger of “accidents” increases once the case involves an international element, in particular foreign insolvency proceedings. In a worst-case scenario, a creditor has spent considerable time and money in obtaining an award against the debtor or the estate just to find out that it is not enforceable as it is conflicting with crucial principles of insolvency law.7