The ongoing COVID-19 pandemic has profoundly reshaped the global business landscape. Some companies that only months ago seemed unstoppably profitable have been brought to an existential brink by extended lockdowns, supply chain failures, and other obstacles caused by the pandemic. Other companies who have experienced less disruption (or in some cases windfalls) stand at the threshold of opportunity even as they prepare themselves for the challenges of the 'new normal'.

At present, global businesses face huge amounts of uncertainty owing to the Covid-19 crisis that is influencing the global economy in an unprecedented manner. From contractual supply chain issues, which have led to the activation of force majeure clauses, among others, to employment issues, insurance disputes, and the real and imminent threat of insolvency of counterparties, businesses need to take quick, effective steps to avoid trouble in these difficult times.

The COVID-19 pandemic has placed significant pressure on businesses and the economy. Even fundamentally healthy and viable businesses are seeing their financial resources stretched thin due to factors such as weakening demand, increasing late payments, and disruptions in supply chains.

Directors will play an important role in ensuring that their companies emerge from the COVID-19 pandemic in a strong and sustainable position.

Recent decisions of the Hong Kong and Singapore courts show different approaches to the issue of when a winding-up petition will be allowed to proceed in circumstances where there is an arbitration agreement.

Market conditions and Covid-19

The Covid-19 pandemic and the response to it, including global lockdowns, has caused substantial disruption to business operations and trade which has resulted in significant cash flow and financial challenges for many businesses. As a result, in a number of cases, financing covenants have been breached which have triggered defaults under financing arrangements.

A Singaporean Court in Anan Group (Singapore) PTE Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33 has recently confirmed the Court’s approach in assessing arbitration clauses when an application has been brought to put a company into liquidation. 

The parties in this case are parties to an arbitration agreement.  The respondent applied to put the appellant into liquidation.  The Court considered that the winding up proceeding should be stayed with the underlying dispute to be resolved through arbitration.

The COVID-19 pandemic has led to a significant strain in the global markets. As "stay-at-home" orders are implemented globally, many economies have closed off, which has severely impacted numerous businesses. Inevitably, some companies have liquidated and many others are at risk of insolvency.

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.

Smitha Menon, Clayton Chong and Muhammed Ismail Noordin, WongPartnership LLP

This is an extract from the second edition of GRR's The Art of the Ad Hoc. The whole publication is available here.

In brief

Simplified Insolvency Programme (“SIP”)