Unlocking the potential of arbitration in cross-border insolvency disputes: SIAC’s proposal

Background

Arbitration offers a neutral, efficient, and specialized dispute resolution method for several categories of insolvency-related disputes. These include:

1. Disputed debts
2. Disputes between subsidiaries of the debtor company
3. Restructuring of debt (known as an informal or “out-of-court” workout) preceding the launch of formal insolvency proceedings before a court

The last category gives rise to particular difficulties in a cross-border scenario because domestic insolvency laws can vary across jurisdictions, with some regimes being more robust than others.

The well-known advantages of arbitration – speed, efficiency, flexibility and enforceability – are especially useful in the context of insolvency disputes, because timely restructuring through an informal workout may enable the distressed company to continue operating as a going concern rather than being wound up.

In December 2024, SIAC released its draft Insolvency Arbitration Protocol which aims to provide for efficient and timely arbitration of insolvency-related disputes. This is a welcome first step towards enhancing the use of arbitration in this field to resolve creditor/debtor disputes, and facilitate commercial negotiations on debt restructuring.

Breaking down the SIAC Draft Protocol

As suggested in our prior update, tailored arbitral rules should be adopted as a matter of course in an insolvency-related arbitration. SIAC’s Draft Protocol adapts the SIAC Rules with modifications for use in the insolvency context, and contains several key elements mentioned in our prior update, including:

1. The seat of the arbitration: unless otherwise agreed by the parties, the seat of arbitration is Singapore (Paragraph 7.1)
2. Applicable procedural rules: the SIAC Rules as modified by the Draft Protocol (Paragraph 3)
3. Law governing the arbitration agreement: unless otherwise agreed, the laws of Singapore (Paragraph 7.2)
4. Arbitrator powers: the powers are based on those in the SIAC Rules, but with the Draft Protocol going further to facilitate mediation by:
   1. giving the arbitrator the power to stay arbitration for up to three weeks (which can be extended) so that the parties can participate in mediation (Paragraphs 17-19).
   2. providing for any settlement resulting from mediation to be recorded as a consent award at the parties’ request, with an express obligation on the arbitral tribunal to ensure that such matters fall within the scope of the arbitration agreement as well as the tribunal’s jurisdiction, and is not contrary to any applicable law or public policy (Paragraph 20).
5. Confidentiality terms: the confidentiality provisions under the SIAC Rules apply, with the Draft Protocol allowing for anonymised or redacted versions of awards or updates of the arbitration to be disclosed in related court proceedings (Paragraph 28).

Other notable features include:

1. Broad application of the Protocol so that parties can submit their disputes to arbitration before, in parallel with, and after insolvency proceedings have commenced before a court (Paragraphs 1-2).
2. A sole arbitrator to be appointed by default, although three arbitrators can be appointed in certain circumstances (Paragraph 8).
3. Development of a SIAC Specialist Disputes Panel, from which parties can nominate their arbitrator/s (Paragraph 12), which is important given the specialization required to resolve many insolvency-related disputes.
4. Shortening of timelines, for example, the respondent has 7 days to file a response to the notice of the arbitration (Paragraph 6), a sole arbitrator is to be appointed within 14 days of the commencement of arbitration (Paragraph 9), and the final award is to be rendered within 6 months of the constitution of the arbitral tribunal (Paragraph 24).
5. Provisions for disclosure of the progress of arbitration and Tribunal rulings (with suitable redactions) in any relevant insolvency proceedings (Paragraph 28).

Some limitations

The foundation of arbitration is party consent, which means that parties who are not signatories to an arbitration agreement can usually not be compelled to join an arbitration, nor will they be bound by the resulting award which might include an agreed workout plan recorded in a consent award. The agreement to arbitrate under the SIAC Draft Protocol would also supersede any existing arbitration agreement or jurisdiction clause in contracts between creditors and debtors. Additionally, whilst the SIAC Draft Protocol requires the arbitral tribunal to seek the parties’ views on the joinder of third parties at the outset of the arbitration (Paragraph 21.2), without consent no such joinder can occur. Indeed, some commentators have suggested including “deemed” arbitral consent in insolvency legislation in order to overcome this difficulty. (link)

Moreover and in any event, agreements to arbitrate insolvency disputes, insolvency-related arbitrations, and resulting arbitral awards (including consent awards) need to be carefully evaluated from a legal perspective to ensure that the disputes referred to arbitration are actually arbitrable, and not at odds with public policy and applicable insolvency laws. The SIAC Draft Protocol alludes to this issue, by requiring arbitral tribunals to ensure that any consent award falls within their remit and is not contrary to local law or public policy.

Some limitations

The SIAC Draft Protocol is a welcome development and represents a first step towards facilitating the use of institutional arbitration in cross-border insolvency disputes. The regime proposed by the Draft Protocol would provide for efficient and timely resolution of insolvency disputes. This was recognized by the Singapore Court of Appeal in Sapura Fabrication Sdn Bhd and others v GAS and anor appeal [2025] SGCA 13.

In a postscript to its March 2025 judgment, the Court noted that the truncated timelines proposed in the SIAC Draft Protocol, once it comes into effect and is adopted, may mitigate the concern that permitting arbitration of insolvency-related claims could cause undue delay and expense, and distract from the insolvency proceedings. This in turn would likely encourage courts to be more permissive in exercising their discretion to carve out arbitration claims from the global moratorium that ordinarily applies when insolvency proceedings are initiated.

The consultation period for the Draft Protocol ended in January 2025, and we expect SIAC to issue the document in final form over the coming months.