In BWG v BWF [2020] SGCA (“BWG”) the Singapore Court of Appeal considered the application of the “prima facie dispute” ground which a Singapore debtor (the Respondent) raised to resist winding up proceedings when there was a valid arbitration agreement. The Court of Appeal considered this in circumstances where the Appellant alleged that the debtor’s position in the winding up proceedings is allegedly an abuse of process which is inconsistent with the position the debtor has taken in other proceedings against X.

In the other proceedings against X, the debtor raised four defences including the defence of illegality, in particular that the purported coal sales contracts up and down the chain were a sham hiding an illegal loan.

The Singapore debtor had already obtained a bankruptcy order against X’s CEO in Hong Kong litigation, for non-payment under a personal guarantee. The Singapore court agreed that the Singapore debtor’s claim against X’s CEO was “on its face, seemingly inconsistent with its belief that the transaction may be illegal“.

However, the Singapore court explained that it would nonetheless be inappropriate to prevent the Singapore debtor from relying on the illegality defence on the basis of the abuse of process doctrine. The court must balance the competing policy factors and “determine which position carries the greater risk of injustice“. It was clear that the Singapore debtor was not a typical litigant seeking to profit from an illegal transaction. It was itself a victim of deception.

The Singapore court was thus faced with a clash between the imperative to prevent a party from relying on inconsistent positions and the principle that a court will not lend its aid to enforce an illegal contract. It concluded that the risk of injustice would be “indubitably greater” should the Singapore debtor be barred from raising the illegality defence.


As the economic impact of COVID-19 deepens, we expect a continued increase in enquiries from commercial parties stuck in distressed contractual chains – whether sale of goods, supply chains or infrastructure and construction contracts. Whilst the Singapore debtor appears to have been a victim and in a difficult position, this decision makes clear the importance of considering the wider disputes strategy before responding to claims in either direction in the chain. Adopting inconsistent positions under different contracts is a treacherous path that will often backfire.

We are also seeing a rise in commercial arbitrations with related (potential) insolvency proceedings. BWG follows, and was heard with, the Court of Appeal decision in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33 (“AnAn Group”), in which the court held that, where a winding-up application relies on a debt which is subject to arbitration, a debtor need only show to the prima facie standard that there is a dispute (rather than the normal higher triable issue standard), provided that the dispute is not being raised by the debtor in abuse of process (see here for our note on the case and here for our note on the High Court’s first instance decision in BWG). BWG confirms the difficulty in disputing an alleged “prima facie dispute” to a debt, although parties should take note of the safeguards established by the court in AnAn Group.


There were a string of back-to-back contracts relating to the sale and purchase of the same cargo of crude oil (the “Cargo”) under which X sold to the Singapore creditor, who in turn sold to the Singapore debtor, who finally sold the Cargo back to X. X was therefore both the ultimate seller and the ultimate buyer of the Cargo.

X failed to pay the Singapore debtor. The Singapore debtor and X entered into a settlement agreement (the “Settlement Agreement”), which provided for a payment schedule. X failed to make payments under the Settlement Agreement and the Singapore debtor in turn did not pay the Singapore creditor. The Singapore creditor served a statutory demand on the Singapore debtor. The Singapore debtor sought to set aside the statutory demand and to restrain the Singapore creditor’s pending winding-up proceedings on the basis that the dispute should be referred to arbitration. The Singapore debtor also commenced separate proceedings against X for non-payment and successfully obtained a bankruptcy order in Hong Kong against X’s CEO for non-payment under a personal guarantee he had given.

The High Court applied the prima facie standard of review and concluded that the debt was disputed and that such dispute fell within the arbitration agreement. It also concluded that there had been no abuse of process. Accordingly, it granted the Singapore debtor an injunction to restrain the Singapore creditor from taking out winding-up proceedings.

The Singapore creditor appealed to the Singapore Court of Appeal on the basis that three of the four defences relied on by the Singapore debtor to show a prima facie dispute were inconsistent with the positions it adopted in its proceedings against X and its CEO in Hong Kong (the “Price Defences”). Such inconsistency, the Singapore creditor submitted, amounted to an abuse of process.


The Court of Appeal began by noting that the Singapore debtor’s four defences satisfied the prima facie threshold. With respect to one of these defences there was no allegation of inconsistency with the position taken in other proceedings, and so the appeal was doomed to fail, since the Singapore debtor’s remaining defence would on its own satisfy the prima facie review standard.

The court nonetheless considered whether the Singapore debtor disputing the debt on illegality grounds constituted an abuse of process.

Abuse of process

The court agreed with the Singapore debtor that the contract at the top of the chain (between X and the Singapore creditor) appeared not to have been a bona fide transaction for the sale of goods but was a disguised loan arrangement.

The Singapore creditor alleged that the Singapore debtor had acted inconsistently by raising the illegality defence as against the Singapore creditor whilst enforcing the Settlement Agreement against X. The court agreed that the Singapore debtor, by maintaining its claim against X’s CEO was “on its face, seemingly inconsistent with its belief that the transaction may be illegal“.

However, the court explained that, even if that were so, it would nonetheless be inappropriate to prevent the Singapore debtor from relying on the illegality defence on the basis of the abuse of process doctrine. The court must balance the competing policy factors and “determine which position carries the greater risk of injustice“. It was clear that the Singapore debtor was not a typical litigant seeking to profit from an illegal transaction. It was itself a victim of deception. The court was thus faced with a clash between the imperative to prevent a party from relying on inconsistent positions and the principle that a court will not lend its aid to enforce an illegal contract. It concluded that the risk of injustice would be “indubitably greater” should the Singapore debtor be barred from raising the illegality defence.

Doctrine of approbation and reprobation and waiver by election

Although the court decided that the issue of inconsistent positions is properly dealt with under the doctrine of abuse of process, as the parties had made submissions on the doctrine of approbation and reprobation and of waiver by election, it expressed its views on their proper scope and applicability.

The court, having surveyed the authorities, concluded that the doctrine of approbation and reprobation does extend to inconsistent positions against different parties in different proceedings, “as long as the party has received an actual benefit as a result of an earlier inconsistent position“.

The court concluded that the Singapore debtor’s judgment against the CEO in bankruptcy proceedings was a benefit. However, the proceedings against X and its CEO were never intended to benefit or enrich the Singapore debtor. Any benefit accruing to the Singapore debtor was always intended to be paid to the Singapore creditor to discharge the Singapore debtor’s purported liability. Accordingly, despite the benefit to the Singapore debtor, it would be inappropriate to apply the doctrine of appropriation to bar the Singapore debtor from raising the illegality defence.

As for the doctrine of waiver by election, the court found that there is not a strict bar against the application of the doctrine in relation to different proceedings against different parties in respect of different contracts.

The court concluded that the Singapore debtor was entitled to rely on all four defences to show that there was a prima facie dispute. The court noted that the defences in fact went beyond raising a prima facie dispute and amounted to triable issues (even if that higher standard was applied). Therefore the injunction was granted with liberty for the parties to apply to lift the injunction if the creditor can show legitimate concerns about the solvency of the debtor-company. There was no evidence that that was the case here.

For more information, please contact Gitta Satryani, Partner, Tomas Furlong, Partner, Mitchell Dearness, Associate, or your usual Herbert Smith Freehills contact.

Gitta Satryani
Gitta Satryani
+65 6868 8067
Tomas Furlong
Tomas Furlong
+65 6868 8085
Mitchell Dearness
Mitchell Dearness
+65 6868 8061


A recent judgment of the Supreme Court of Western Australia, Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia [2020] WASC 132 (available here), demonstrates that the use of interim measures to provide security for an amount in dispute can be a very powerful remedy when structured through the creation of a trust.

In a Singapore-seated arbitration between Dalian and Duro, the tribunal had ordered interim measures to secure (part of) the amount in dispute in the form of orders requiring an amount of money ($AUD27 million) to be placed in a solicitor’s controlled money trust account maintained by Duro’s solicitors, Clyde & Co. Duro subsequently entered voluntary administration, leaving Dalian with little recourse other than to pursue the trust money.

Justice Kenneth Martin of the Supreme Court of Western Australia found that Dalian was entitled to the trust money, thereby removing those funds from the resources available to the voluntary administrators.


The interim measures were made in the course of a Singapore seated arbitration between Dalian (an export company) and Duro (a mining and construction company) regarding an iron ore mine project in Western Australia. An interim procedural order made by the tribunal granted Dalian’s application seeking security for part of its claims in the arbitration and ordered Duro to pay $AUD27 million (‘trust amount’) into its solicitor’s trust account. This order was implemented through the execution of a Trust Agreement, with Clyde & Co holding the money as trustee.

Dalian was subsequently successful in the arbitration, securing a monetary award of $AUD53 million against Duro. Dalian commenced proceedings in the Western Australian Supreme Court seeking an order to compel Clyde & Co as trustee to pay the trust amount to Dalian. Duro entered voluntary administration three days later.

Dalian sought the release of the funds on the basis that it held an absolute beneficial entitlement to the trust money, whereas the voluntary administrators of Duro instructed Clyde & Co to maintain the status quo. The trust amount was the only significant asset held by Duro and the voluntary administrators were concerned that if Duro could not trade out of administration and Dalian were paid the trust amount, it would be impossible to recover the funds which were likely to be remitted by Dalian to a parent company in the People’s Republic of China. The effect would be to frustrate recovery steps by future liquidators against Duro’s assets on behalf of creditors. Conversely, if Dalian was not entitled to recover the trust amount, it faced the prospect of relying solely on enforcing its monetary award as an unsecured creditor.

The key issue was whether the trust amount belonged to Dalian or Duro.


The power to order security over a disputed amount in an arbitration

Dalian’s key argument was that Clyde & Co had express contractual and fiduciary obligations to pay the trust money to Dalian. Dalian argued that the funds comprising the trust amount were no longer the ‘property’ of Duro (within the broad meaning of Australia’s Personal Property Securities Act 2009 (Cth) (‘PPSA’) and Corporations Act 2001 (Cth) (‘Corporations Act’)). Rather, Dalian argued that, upon the making of the monetary award in Dalian’s favour, full beneficial ownership of the funds held by Clyde & Co vested in Dalian.

Duro’s argument was that, in seeking to implement the interim measures, all the Trust Agreement had achieved was to provide a fund held on trust exclusively and always for Duro (not for Dalian). In effect, (on Duro’s argument) the Trust Agreement was simply a means by which Duro’s assets were ‘frozen’ pending the outcome of the arbitration.

In this context, the Court made instructive comments on the power of arbitral institutions in Singapore to make orders or give directions to any party for ‘securing the amount in dispute’ under s 12(1)(g) of the Singapore International Arbitration Act (‘SIAA’). It rejected Duro’s argument and noted that the tribunal specifically chose to adopt relief by way of ‘security’ instead of lesser relief, such as freezing or asset preservation orders, that were also available under s 12(1) subparagraphs (h) or (i) of the SIAA. The Court considered that the reference to ‘security’ in the tribunal’s orders was a specific reference to the legislative wording ‘securing the amount in dispute’ in s 12(1)(g) of the SIAA.

The Court observed that the power under s 12(1)(g) of the SIAA extends further than to order security for a party’s costs (a more limited power that is a feature of the rules of Court in many jurisdictions). The Court found that the power under s 12(1)(g) of the SIAA was capable of being exercised in such a way as to create equitable rights over an amount of money placed in a trust amount.

What was the nature of the interests held?

Determining who was entitled to the trust amount after its creation depended on how the trust arrangements were construed and the nature of the equitable interests held by Duro and Dalian.

The nature of Dalian’s interest in the trust amount was (initially) a contingent equitable interest which had matured (upon Dalian obtaining the monetary award in its favour) into an absolute and unqualified beneficial entitlement in equity to receive the trust amount. The Court distinguished the holding of ‘security’ over a dedicated fund of money from a creditor’s claim against assets the subject of a freezing injunction. Crucially, the creditors claim against the assets the subject of a freezing injunction is a bare in personam claim whereas the security provided by way of the interim measures created (initially) a proprietary security interested and (after the monetary award) a perfected proprietary right vested to Dalian.

Did the appointment of voluntary administrators change anything?

Duro had a residual equitable interest in the trust money pursuant to the interim measures orders (i.e. the money would have been returned to Duro had Dalian been unsuccessful in the arbitration). Those circumstances gave rise to complex arguments as to whether the trust moneys constituted ‘property’ of Duro and/or a ‘security interest’ for the purposes of the PPSA and the Corporations Act.

The Court concluded that the trust amount was indeed a ‘security interest’ for the purposes of the PPSA (as it was a transaction that in substance secured payment or performance of an obligation). Dalian had not registered that security interest under Australia’s personal property security register. As a result, Dalian’s unregistered security interest under the PPSA was exposed to the potential vitiating effects of s 267 of the PPSA which vests unperfected security interests in the grantor (i.e. Duro) upon the grantor entering administration or an insolvency.

Fortunately for Dalian, Martin J held that Dalian’s security had ‘perfected’ upon the issuance of the monetary award which occurred before Duro went into voluntary administration. This was because the monetary award, supported by an order from the tribunal directing Clyde & Co to ‘immediately’ release the trust amount, transformed Dalian’s contingent equitable interest into a fully vested equitable entitlement to the trust amount. The circumstances satisfied the extended concept of possession in s 21(2)(b) and s 24(2) of the PPSA because Clyde & Co held the trust money (and actually possessed it in an bank account) from that point on exclusively for the benefit of Dalian. Duro’s residual equitable interest had been extinguished. On that basis, the Court rejected other arguments by Duro that the funds were captured by s 440B of the Corporations Act which would prohibit a transfer of any property in which Duro had an interest following the commencement of the voluntary administration without the consent of the administrator or the leave of the Court.


The case highlights that, in a subsequent administration or insolvency, a freezing injunction does not confer any superior interest in favour of the party which obtained those orders above that of any other unsecured creditor, whereas a security may create proprietary rights that would more effectively place the Award-creditor ahead of other creditors.

Much credit needs to go to the Singapore seated arbitral tribunal (comprised of Sir Vivian Ramsay QC as a Chair, with Dr Michael Hwang SC and Dr Robert Gaitskell QC) for, in the first instance, crafting the interim measures in the form of a security interest rather than the more traditional freezing order and then, subsequently, making orders requiring the ‘immediate’ release of the trust money (perfecting the equitable transfer of the property to Dalian).

Dalian was ultimately fortunate that the monetary award (and order for the ‘immediate’ release of the trust money) occurred prior to Duro entering voluntary administration. Dalian had a security interest under the PPSA which remained unregistered. Dalian therefore faced the risk that it’s secured interest over the trust money would be relegated to no more than an unsecured claim (pursuant to 267 of the PPSA) upon Duro entering administration. It was only a fortunate sequence of timing which had the result that Dalian’s interest had transformed from a contingent equitable right in the form of a security interest into an equitably owned proprietary right before Duro entered administration.

The case therefore serves as a cautionary tale to parties who obtain interim measures of protection from an arbitral tribunal providing security over assets to which Australia’s PPSA applies that they should take steps to register their security interest to best preserve the protection they have obtained in the event of a voluntary administration or insolvency.

For further information, please contact Brenda Horrigan, Head of International Arbitration (Australia), Chad Catterwell, Partner, Harry Thompson, graduate, or your usual Herbert Smith Freehills contact.

Brenda Horrigan
Brenda Horrigan
+61 2 9225 5536

Chad Catterwell
Chad Catterwell
+61 3 9288 1498

Harry Thompson
Harry Thompson
+61 2 9322 4951




In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33, Justice Steven Chong, delivering the judgment of the Court, (1) overturned the decision of the High Court which allowed a creditor (VTB Bank) to proceed with its winding up petition against a debtor (AnAn), and (2) upheld the arbitration agreement pursuant to which the dispute underlying the debt should first be resolved.  In doing so, the Court of Appeal reaffirmed Singapore’s pro-arbitration stance while also recognising that special considerations may apply in the context of possible insolvency.

The Court of Appeal removed the “triable issue” standard that ordinarily applies to debtors who challenge a winding up application on the basis of an underlying dispute. The Court of Appeal found that where any such dispute is subject to an arbitration agreement, the standard to be applied should be the lower “prima facie” standard of review. This does not mean, however, that debtors will be permitted to defeat all winding up applications by raising disputes which are subject to arbitration agreements. A debtor must still prove its bona fides in alleging a dispute over the debt. Further, where the creditor has legitimate concerns over the solvency of the debtor company, the ‘triable issue’ standard is reintroduced: if the debtor is unable to prove any triable issues, the winding up application will be stayed, and not dismissed, offering the creditor some security over the management of the company’s assets until the arbitration is concluded. Alternatively, the debtor may be required to provide an undertaking to that effect until the arbitration is concluded.

The facts

VTB and AnAn entered into a ‘global master repurchase agreement’ (GMRA) under which AnAn would sell global depository receipts (GDRs) of certain shares and then repurchase the GDRs later at (higher) pre-agreed rates. The difference between the original sale price and the pre-agreed rates was in essence, interests and costs. Therefore, despite being structured as a sale and repurchase, the GMRA was in substance a loan arrangement between VTB (as lender) and AnAn (as debtor).

VTB alleged multiple events of default under the GMRA. In such circumstances, the GMRA entitled VTB to accelerate the repurchase of the GDRs at a designated value. VTB therefore sent a notice of default to AnAn, exercising this right and stating that a sum of approximately US$170 million was owed by AnAn. VTB then served a statutory demand for the sum (in essence, a demand for payment which, if not complied with, is taken as prima facie evidence of a company’s inability to pay debts, for the purposes of Singapore’s insolvency legislation).  When AnAn failed to pay the demand within the statutory timeline, VTB applied to the Singapore court to wind up AnAn on  the basis of alleged insolvency.

AnAn resisted the winding up application by challenging both the substance and the quantum of the alleged debt. AnAn argued that VTB was not entitled to the accelerated debt and that it was, in any case, not entitled to the quantum of the debt claimed.  For example, AnAn argued that there were genuine disputes including (amongst others) whether VTB had followed the agreed procedure for obtaining bids from appropriate markets before relying on the new value of the GDRs.

In resisting a winding up application, a debtor must ordinarily raise “triable issues” (i.e. the existence of a substantial and bona fide dispute over the debt claimed) in order to obtain a stay or dismissal of the application. This ‘triable issue’ standard is an exacting one: mere assertion of a dispute will not suffice. Put simply, the court must critically consider and be convinced that the debtor has a credible defence to the dispute, such that the matter requires further examination and the winding-up should be stayed or dismissed.

However, AnAn argued that where the (alleged) matters in dispute were subject to an arbitration agreement, a lower standard of review (than that of a triable issue) should be applied: the court should only consider if (i) there exists a dispute over the debt; and (ii) that the dispute falls within the scope of the arbitration agreement.  If the answer to both questions is ‘yes’, the court should stay or dismiss the winding up application in favour of the dispute being determined by arbitration.  AnAn argued that the merit of the debtor’s case on the disputed debt, or indeed, whether there existed any ‘triable issues’ at all, must be determined by the arbitral tribunal in accordance with the parties’ arbitration agreement.


The Court of Appeal’s decision

The High Court rejected AnAn’s arguments. On appeal, however, the Court of Appeal agreed with AnAn and adopted the “prima facie” standard of review in place of the triable issue standard that would otherwise normally apply. The Court of Appeal’s reasons included (amongst others):

(1) Coherence of the law across regimes

The adoption of the prima facie standard of review in this context is consistent with the standard adopted for stay applications for all other court proceedings under Singapore’s arbitration regime: court proceedings are stayed so long as claims with prima facie merit fall within the scope of a valid arbitration agreement.

(2) Party autonomy in selecting arbitration as the dispute resolution mechanism

The lower prima facie standard of review also avoids the risk of claimant creditors exercising a tactical choice to bypass their arbitration agreements.  If the higher ‘triable issue’ standard applied in the context of winding up applications, a claimant creditor would have the option of pursuing a winding up application over a disputed debt that it should properly have pursued in arbitration, pressuring the debtor to prove the existence of substantive defences according to a higher standard (or to settle the claim) in order to avoid summary liquidation and reputational damage.

Further, as the Court of Appeal noted, arbitration could have been preferred by the parties for a multitude of reasons, including finality and confidentiality, even in determining debt claims. That agreement to arbitrate should be respected regardless of the merits of the dispute i.e. regardless of whether the debtor’s case appears weak, as long as it met the prima facie standard. The fact that the ‘triable issue’ standard would require the court to critically consider the merits of the company’s defences would itself be contrary to the parties’ arbitration agreement: only the arbitral tribunal should assess the merits of any dispute arising under the contract.

Under the lower prima facie standard of review, the court is merely required to determine whether it appears, on a prima facie basis, that (i) there is an arbitration agreement; and (ii) the dispute of the debt is caught by the arbitration agreement. If so, the court must not undertake a review of the merits of the dispute; a stay or dismissal of the winding up application should be granted in favour of such arbitration.[1] A winding up application should only follow once the arbitration determines the debt to be owing and unpaid.

Grounds for refusal of a stay: avoiding debtor’s abuse of process

As an important safeguard, however, the Court of Appeal also held that the lower standard of review does not entitle the debtor to an automatic stay once it alleges the prima facie existence of a dispute: the bona fides of the debtor in raising the dispute remains a relevant factor to avoid any abuse of process. Various jurisdictions have adopted different ‘tests’ for ensuring that a debtor does not raise an entirely meritless dispute over the debt in order to buy time under a process of arbitration and avoid liquidation.

For example, the English courts, which also adopt the lower prima facie standard of review, require “wholly exceptional circumstances” to be proven before refusing a stay in favour of arbitration: such circumstances have been stated to be so rare as to be “difficult to envisage”. The result, as the English courts have described, is to place a “very heavy obstacle in the way of a party who presents a petition claiming sums due under an agreement that contains an arbitration clause … where there is an arbitration clause, it is sufficient to show that the debt is ‘disputed’ and for that it is sufficient to show that the debt is not admitted”.

The position in Singapore diverges here in favour of the creditor’s interests: the Court of Appeal held the standard of “wholly exceptional circumstances” is pitched too high, leading at times (as seen in some English cases) to situations where a debtor is able to stay a winding up proceeding to pursue arbitration even though it had previously admitted liability to the debt, although denying such liability at the winding up application.

In Singapore, as decided in AnAn v VTB, stays or dismissals of insolvency proceedings in favour of arbitration will be granted unless there is an ‘abuse of process’. Examples of when this “high threshold” is met include:

  • where the debt is admitted on both liability and quantum;
  • where the debtor has waived or may be estopped from asserting his rights to insist on arbitration, such as where the parties have subsequently agreed that the dispute may be resolved by litigation; or
  • where there exist substantiated concerns which justify the invocation of the insolvency regime: for example, where the assets of the debtor company have gone missing or where there is a proper basis to conclude that there had been fraudulent preferences.

This test therefore reserves to the Singapore courts the flexibility to determine each application in its context. The Court of Appeal has stressed, however, that the ‘abuse of process’ control is not an avenue for creditors to introduce arguments challenging the merits of the underlying dispute. Consequently, an argument that there has been an abuse of process because the dispute alleged by the debtor is “so obviously lacking in merit” will not succeed on that ground alone.

Recognising creditors’ interests: avoiding an abuse of process by choosing to stay and not dismissing the winding-up application

Ordinarily, the court should dismiss the entire winding up application in favour of arbitration, given that the stay of a winding up application itself carries severe reputational consequences for the company.

However, in certain scenarios, if the winding up application is dismissed, that too could lead to an unfair result. As examples, the Court of Appeal suggested:

  • a company which does not appear to be immediately insolvent; but
  • if faced with a substantial claim, would become insolvent; and
  • which has been able to raise a prima facie dispute but not triable issues over the debt.

If the winding up application is dismissed in favour of arbitration, that company would continue to trade (without restraint) until the conclusion of the arbitration. Having then been unable to raise triable issues in relation to the dispute, the arbitration may be resolved in favour of the creditor, but by that time the assets of the company have been further depleted. Similar situations arise where a company faces multiple debt claims, each arbitrable and each independently capable of bankrupting the company. Dismissal of the winding up applications in favour of arbitration in these scenarios adds to the risk of recovery for the otherwise innocent creditor.

Singapore has chosen to adopt a middle ground: any dismissal of a winding up application would require the prompt resolution of the dispute which is to be referred to arbitration, to militate against any undue delay or risk of recovery of a legitimate debt. In this regard, the Court endorsed the approach considered in Hong Kong i.e. to only dismiss an application where the debtor company shows that it had taken steps to commence arbitration in relation to the disputed debt. Further, a debtor who has not satisfied the court that there are triable issues in its dispute over the debt can only expect a short adjournment to commence the arbitration; if sufficient evidence to establish a genuine dispute is still absent, it should expect to have to give an undertaking to proceed with the arbitration. Such orders are to be made on a case by case basis by the court hearing the winding up application.

Therefore, even in applying the prima facie standard of review, where an applicant creditor is able to demonstrate legitimate concerns about the solvency of the debtor company, and that no triable issues have been raised by the debtor, the court offers a control mechanism by ordering a stay instead of a dismissal of the winding up proceedings. The creditor will have the liberty to apply to the court to proceed with the winding up if it is shown that the debtor company has no genuine desire to arbitrate, is taking active steps to stifle or delay the arbitration, or is paying off other creditors to the detriment of the claimant.


The Singapore Court of Appeal’s approach is potentially complex in that it may sometimes require the court to apply multiple standards to the issues before it; for example (as discussed above), whether the issues raised by the debtor satisfy a prima facie test but fail to amount to triable issues.  Nevertheless, it is a measured approach which aims to balance competing interests by ensuring that the creditor’s interest in enforcing its rights to payment is protected, while also reaffirming Singapore’s stance of minimal curial intervention where parties have agreed to arbitrate their disputes. The safeguards that have been introduced (unlike other jurisdictions) also provide certainty to both creditors and debtors as to the limits of their case even under the lower prima facie standard of review.

In light of this decision:

  • Claimants should carefully consider whether there are strategic advantages in pursuing a winding up application rather than an arbitration where the claim, is in substance, a debt claim, given the low standard of proof required in order to enforce the arbitration agreement.
  • Debtor companies should similarly be aware of their rights to insist on arbitration rather than litigate their disputes through insolvency proceedings, as well as the consequence of admitting liability or quantum of a debt.
  • A debtor presented with a winding up application would also do well in considering the need to argue both the prima facie and triable issue standards in order to have the application dismissed, rather than stayed.
  • Importantly, all parties should carefully consider their arbitration agreements and whether to include any carve outs for debt recovery and/or insolvency proceedings relating to specific obligations under the contract.

For more information, please contact Alistair Henderson, Partner, Gitta Satryani, Of Counsel, Daniel Waldek, Of Counsel, Reshma Nair, Associate, or your usual Herbert Smith Freehills contact.

Alastair Henderson
Alastair Henderson
+65 68688058

Gitta Satryani
Gitta Satryani
Of Counsel
+65 68688067

Daniel Waldek
Daniel Waldek
Of Counsel
+65 686 88068

Reshma Nair
Reshma Nair
+65 68688002

[1] Indeed, the Court of Appeal described the arbitration of any disputed debt as a “necessary precondition” to engaging the insolvency regime: the presentation of an unsatisfied statutory demand only leads to the presumption of insolvency; where that presumption is disputed, the debt is only established to be due and owing to the creditor by way of arbitration (and cannot be determined by the court) – an important characterisation at law that further supports the need for a lower standard of review.

No If, No But – Will an arbitration agreement always trump a winding-up petition?

In But Ka Chon v Interactive Brokers LLC [2019] HKCA 873, the Hong Kong Court of Appeal dismissed an appeal to set aside a statutory demand arising out of online forex futures trading debts. In doing so, Vice-President Kwan of the Court of Appeal made obiter comments on the circumstances in which a winding-up petition would be set aside where the parties to a contract had agreed to arbitration for dispute resolution.


Mr But’s margin account with Interactive Brokers (“IB“) suffered a large loss when the Swiss Franc/Euro exchange rate was unpegged in 2015. IB issued a margin call but Mr But did not inject funds into his account to resolve the margin deficit. IB accordingly proceeded to liquidate Mr But’s assets and positions and served a statutory demand on Mr But for the balance of the deficit plus interest at margin interest rates.

Mr But sought to set aside the statutory demand on the basis of (i) a counterclaim for misrepresentation and (ii) that the dispute should be arbitrated pursuant to an arbitration clause in his contract with IB. The application failed and Mr But appealed to the Court of Appeal.

Decision in the High Court

The High Court noted that the judgment in Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (known as the “Lasmos case“) had departed from previous authorities and had adopted a new approach. This was to generally dismiss winding-up petitions where three requirements were met:

  1. the company disputes the debt relied on by the petitioner;
  2. the contract under which the debt is alleged to arise contains an arbitration clause that covers any dispute relating to the debt; and
  3. the company takes the steps required under the arbitration clause to commence the contractually mandated dispute resolution process (which might include preliminary stages such as mediation) and demonstrates this to the Court.

The effect of the Lasmos case is that, where these three requirements are met, the company is entitled to have the petition dismissed without having to show that the petitioning debt is bona fide disputed on substantial grounds. Where there is an arbitration clause, it is sufficient to show that the debt is “disputed” and for that it is sufficient to show the debt is not admitted.

The High Court in But Ka Chon did not challenge the Lasmos approach, but simply found that the new approach was inapplicable to the instant case because the lower court judge had already adjudged on the dispute by way of Mr But’s claim that he had been induced by IB’s misrepresentations to enter into the contract. The misrepresentation claim was of no merit. There was therefore no genuine dispute to be arbitrated.

The judge also found that, even had the Lasmos approach been applicable, Mr But had not satisfied the third requirement in the Lasmos approach because he had not taken any steps to commence arbitration. The lower court judge therefore declined to set aside the statutory demand.

Decision in the Court of Appeal

The Court of Appeal agreed with the rationale of the judge below and found that it did not need to determine whether the Lasmos approach or previous approaches were applicable to the instant case. It held that, if the Lasmos approach was applicable, the third requirement of Lasmos would in any event not have been complied with based on the fact that Mr But had not demonstrated his genuine intention to arbitrate for more than two years after having first raised the possibility of commencing arbitration, and that no Notice of Arbitration was ever served on IB. The appeal was therefore dismissed.

Obiter commentary on the Lasmos approach

The Court of Appeal also made the following obiter observations on the Lasmos approach given the importance of this issue to insolvency proceedings:

  1. Insolvency petitions do not fall into Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration (which is adopted in section 20 of the Arbitration Ordinance). There is no automatic, mandatory or non-discretionary stay on insolvency petitions where there is an underlying arbitration agreement.
  2. The Court has a discretionary power under insolvency legislation whether to dismiss or stay a petition where the alleged debt arises out of a transaction containing an arbitration agreement. The Court will consider all relevant circumstances, including the financial position of the company, the existence of other creditors and the position taken by them.
  3. The creditor has a statutory right to petition for bankruptcy or winding-up on the ground of insolvency.
  4. The Lasmos case decided (following the English case Salford Estates (No 2) Ltd v Altomart Ltd (No2) [2015] Ch 589) that the discretion under the insolvency legislation should be exercised only one way (i.e. that the petition should “generally be dismissed” save in “exceptional” or “wholly exceptional” circumstances, upon satisfaction of the three requirements). It is settled law that the “petitioning debt not being admitted” means a dispute sufficient for the purpose of arbitration, without regard to the quality of the dispute or substantive merits.
  5. The Lasmos approach constitutes a substantial curtailment of the creditor’s statutory right to petition for bankruptcy. Separately, in the case of Sit Kwong Lam v Petrolimex Singapore Pte Ltd [2019] HKCFI 920, it has also been held that an arbitration clause which purports to restrict or fetter a creditor’s statutory right to petition would not be allowed by the Court for public policy reasons.
  6. The Eastern Caribbean Court has refused to adopt the Salford approach, as the BVI Court’s statutory jurisdiction to wind up a company based on its inability to pay its debts as they fall due unless the debt is disputed on genuine and substantial grounds is too firmly a part of BVI law to now require a creditor exercising the statutory right to prove exceptional circumstances to establish his status to wind up a company. The statutory jurisdiction is satisfied once the creditor is applying on the basis of a debt that is not disputed on genuine and substantial grounds. The position is the same as regards the insolvency legislation in Hong Kong.
  7. The Court of Appeal therefore has reservations if the discretion under the insolvency legislation should be exercised only one way to substantially curtail the right of the creditor to present a petition.
  8. Considerable weight should be given to the factor of arbitration in the exercise of the Court’s discretion.
  9. Discretion should not be exercised in a way that would inevitably encourage parties to an arbitration agreement to seek to bypass the arbitration agreement/legislation by presenting a winding-up petition. The Court is not powerless to deal with such tactics. The discretion should also not invariably be exercised in favour of the creditor where the Court is satisfied that there is no bona fide dispute on substantial grounds.
  10. Possible ways of exercising this discretion include requiring the debtor to establish in the normal way that there is a bona fide dispute on substantial grounds, failing which, the debtor can only expect a short adjournment to enable it to commence arbitration.\
  11. The debtor cannot simply put up its hands and say: “You, the court, have no jurisdiction because of my contract.” That is not what the contract says, and the Court is entitled to be satisfied that there is a proper dispute


The Court’s obiter comments indicate the Court already has the tools it needs to deal with the tension between the creditor’s right to petition for a debtor’s bankruptcy and the parties’ rights to agree to arbitration in a contract. Vice-President Kwan’s analysis suggests that she believes that the Lasmos Case propounded an overly one-sided exercise of the Court’s discretion. She has reiterated that, where the Court is satisfied there is no bona fide dispute on substantial grounds, the discretion should not invariably be exercised in favour of the creditor.

Gareth Thomas
Gareth Thomas

Simon Chapman
Simon Chapman

Philip Lis
Philip Lis

Jacob Sin
Jacob Sin