Arbitrating against a distressed or insolvent party

Although the challenges brought by the COVID-19 pandemic have, and continue to, put exceptional pressure on supply chains, the reality is that the insolvency of a business partner is a risk even in normal times. When that business partner is on the other side of pending arbitration proceedings, questions arise as to how the insolvency affects the substantive claim as well as the underlying procedure.

This alert will outline some of the challenges of arbitrating against a party who is financially distressed or in insolvency proceedings, explore how the position of the solvent party might be improved by monitoring a distressed business partner, and discuss some alternatives to pursuing claims in arbitration. We will orientate our discussion towards the legal position in England and Wales, but the general principles will apply to insolvency and arbitration in many other jurisdictions.

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