The effects of insolvency on international arbitration – the EU perspective

It is well known that where one party has been declared insolvent in a State other than the one where the arbitral proceedings are being held, a conflict of laws may occur and, as a consequence, the arbitral tribunal shall need to ascertain the effects of the insolvency on the pending arbitration.

The EU has issued a specific conflict rule, under art. 18 EC Reg. 848/2015 (former art. 15 Reg. 1346/2000) to uniformly regulate the issue: ‘The effects of insolvency proceedings on a pending lawsuit or pending arbitral proceedings concerning an asset or a right which forms part of a debtor's insolvency estate shall be governed solely by the law of the Member State in which that lawsuit is pending or in which the arbitral tribunal has its seat’.

Consequently, the Arbitral Tribunal shall verify the effect of one party’s insolvency on the pending arbitration according to the lex arbitri applicable, even if those rules differ from the corresponding rules, according to the lex concursus.

For example, it may be the case that, according to the applicable lex concursus rules, the arbitration would ordinarily have been suspended/terminated, but according to the insolvency law of the State where the Arbitral Tribunal sits (ex art. 18 EC Reg. 848/2015 ), the arbitral proceeding proceeds instead (see the leading case of Elektrim v. Vivendi).

As a further example, in a case recently handled by the author, the Arbitral Tribunal correctly applied the above mentioned EC Regulation and ordered a temporary suspension of the proceeding, with the possibility of resumption thereof, derogating from the otherwise applicable lex concursus.

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