Nigeria: Insolvency Law and Arbitration: Like Oil and Water?

Abstract

Formal insolvency law proceedings are usually collective and centralised in nature, overriding certain pre-insolvency agreements in order to achieve specific down objective(s) for the benefit of all creditors. In contrast, arbitration favours privity of contracts and party autonomy. Parties’ agreement to arbitrate their dispute is considered as sacrosanct regardless of the circumstances. There is therefore a potential for conflict when a dispute touches on these two regimes. In In re United States Line, 197 F. 3d 631 at 640 (1999), a US court described such as “a conflict of near polar extremes” given that the insolvency policy “exerts an inexorable pull towards centralisation while arbitration policy advocates a decentralised approach towards dispute resolution.” This article examines the possible legal implications of formal insolvency proceedings on arbitration agreements, as well as the possible impact of arbitration agreements on insolvency proceedings. The analysis is limited to compulsory winding-up proceedings and where the seat of arbitration and the place of opening of insolvency proceeding is Nigeria. Different considerations will apply in cross-border insolvencies and international arbitral proceedings.