The insolvency regime comes face-to-face with the arbitration regime in cases where a debt is disputed but is subject to an arbitration agreement. In such cases, Malaysian courts have previously followed the English position in Salford Estates (No 2) Ltd v. Altomart Ltd (No 2), namely, that a court should not order the liquidation so long as the disputed debt is ‘prima facie’ disputed. The Privy Council’s decision in Sian Participation Corp (In Liquidation) v. Halimeda International Ltd has now rejected the Salford Estates test and imposed a higher threshold, namely, that the debt must be disputed on genuine and substantial grounds as demonstrated by the debtor. Fortuitously, just two weeks prior to Sian, the Malaysian Court of Appeal had also rejected the Salford Estates position and imposed the higher threshold of a bona fide dispute on substantial grounds. The Privy Council’s decision in Sian is thus now the final blow to the Salford Estates test in Malaysia. Further, the astute reasoning of the panel in Sian will helpfully inform future judicial deliberations on the interaction between the domestic insolvency and arbitration regimes.
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