Singapore Court of Appeal Confirms Discretionary Approach to Arbitration Carve-Outs in Insolvency Proceedings

The Singapore Court of Appeal (“<span class="news-text_medium">SGCA</span>”) has upheld a Singapore High Court (“<span class="news-text_medium">SGHC</span>”) decision to carve out an arbitration during insolvency proceedings. The SGCA determined that, while there is no mandatory obligation for courts to grant a carve-out for arbitration in insolvency proceedings, they retain discretion to do so, referencing the factors outlined in <span class="news-text_italic-underline">Wang Aifeng v Sunmax Global Capital Fund 1 Pte Ltd and another [2023] 3 SLR 1604</span>.

The appellants, Sapura, were undergoing various restructuring proceedings in Malaysia. The SGHC recognised the third set of those proceedings as a “foreign main proceeding” under the Insolvency, Restructuring and Dissolution Act 2018 and the UNCITRAL Model Law on Cross-Border Insolvency. Accordingly, an automatic moratorium on other proceedings applied and the respondents, GAS, sought a carve-out to continue ongoing arbitration proceedings against Sapura. The SGHC granted a discretionary carve-out recognising, obiter dicta, a mandatory requirement to enforce arbitration agreements.

The SGCA affirmed the SGHC's discretionary carve-out, noting, among other things, that GAS's claims were complex, vigorously disputed and involved potential set-off rights. It rejected the claim that "exceptional circumstances" were required for a carve-out, holding that this would unjustifiably skew the assessment towards a negative outcome. Instead, the court should exercise its jurisdiction according to the <span class="news-text_italic-underline">Wang Aifeng</span> factors, including:

• the timing of the carve-out application;
• the nature of the claim; and
• existing remedies.

Other considerations include the merits of the claim, the existence of prejudice to creditors or restructuring proceedings and other factors, such as opening the floodgates of litigation.

The SGCA disagreed with the SGHC's recognition of a mandatory basis for a carve-out. It declined to revisit <span class="news-text_italic-underline">AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158</span>, noting the contrary decision in <span class="news-text_italic-underline">Sian Participation Corp (in liquidation) v Halimeda International Ltd [2024] UKPC 16</span>. Additionally, unlike AnAn, the facts at hand directly engaged the insolvency regime's policy concerns. In this case, a mandatory requirement to enforce the arbitration agreement would undermine the effectiveness of the moratorium.

This decision clarifies the relationship between arbitration and insolvency proceedings, affirming the court's exercise of a discretionary jurisdiction instead of the automatic prioritisation of arbitration agreements. SIAC's Insolvency Protocol, which streamlines arbitration timelines in insolvency contexts, was also highlighted for its potential effect on the courts' future assessments on carve-outs.

<span class="news-text_medium">Case:</span> <span class="news-text_italic-underline">Sapura Fabrication Sdn Bhd and others v GAS and another appeal [2025] SGCA 13</span> (21 March 2025) (Steven Chong JCA delivering the judgment of the court).