The Court of Appeal held that, while section 9 of the Arbitration Act 1996 did not apply to require the stay of a winding-up petition, it would be appropriate to dismiss or stay a petition pending resolution of a dispute over the petition debt where such dispute was within the scope of an arbitration agreement.
The Appellant petitioned to wind up the Respondent. The Appellant and the Respondent were the lessor and lessee respectively under a lease of commercial property. The Appellant claimed that the Respondent owed sums due to it under the lease. The lease contained an arbitration agreement. The Respondent objected to the petition on the grounds that the debt due was disputed and the dispute had to be referred to arbitration. (It was not in issue that the disputed debt fell within the arbitration agreement.)
On the application of the Respondent, the court ordered that the petition be stayed under section 9 of the Arbitration Act. The Appellant appealed.
The Court of Appeal dismissed the appeal, holding that:
(1) The mandatory stay provisions in section 9 of the Arbitration Act 1996 did not apply to the petition to wind up the Respondent on the ground of its inability to pay its debts and where the issue in dispute was whether the debt under the petition was due (Paragraphs 26, 38).
(2) As a matter of the exercise of its discretionary power to wind up a company under section 122(1) of the Insolvency Act 1986, it was right in the present case to dismiss or stay the petition so as to compel the parties to resolve their dispute by their chosen method of dispute resolution. It was entirely appropriate for the court, save in exceptional circumstances, to exercise its discretion consistently with the policy of the Arbitration Act (Paragraphs 39-41).
The Chancellor balanced the court’s statutory discretion to wind up companies in the public interest where they are not able to pay their debts with upholding the parties’ agreement and respect for the policy of the Arbitration Act. As the Chancellor noted, parties to an arbitration agreement would otherwise be encouraged to by-pass that agreement and the Arbitration Act by presenting a winding-up petition or to use the threat of liquidation to apply pressure on the alleged debtor.