6. Effect of death, bankruptcy and winding up

6. Effect of death, bankruptcy and winding up

Death of a party 

Under section 22 of the Arbitration Ordinance (Cap. 609), the death of a party does not normally discharge an arbitration agreement. Unless the parties agreed otherwise, the arbitration agreement may still be enforced: 

• by the deceased party’s personal representatives; or 
• against the deceased party’s personal representatives. 

The personal representative may step into the position of the deceased party for claims that survive death. In this sense, the personal representative becomes a “derivative party” and may be required to continue or commence arbitration on behalf of the estate. 

However, section 22 does not keep alive a claim that the law says has already ended because of death. If the underlying legal right or obligation is extinguished by death (e.g. certain personal services), the arbitration agreement relating to that right will also cease to operate for that dispute. 

Bankruptcy of a party 

Bankruptcy does not automatically terminate an arbitration agreement. The effect depends on the role of the trustee in bankruptcy and whether the relevant contract is adopted. 

If the trustee in bankruptcy adopts the contract containing the arbitration agreement, the trustee will generally be bound by that arbitration agreement. 

If the trustee does not adopt the contract, the court may still order that the dispute be referred to arbitration, depending on the circumstances. 

Winding up and insolvency of companies 

An arbitration agreement is binding on liquidators as successors by operation of law. 

A winding up petition does not automatically override an arbitration. A winding up petition is not treated simply as an ordinary private claim between two parties. It is a class remedy for the benefit of all creditors. For this reason, the mandatory stay provision under section 20 of the Arbitration Ordinance does not apply in the same straightforward way as it would to ordinary court proceedings. 

However, the court generally respect the parties’ agreement to arbitrate. The modern approach is that, where the debt or dispute relied upon in support of a winding-up petition falls within an arbitration agreement, the court will usually give effect to that agreement and require the parties to resolve the dispute by arbitration, unless there are strong reasons not to do so. 

Strong reasons may include: 

• the alleged dispute being plainly insubstantial, frivolous, or an abuse of process; 
• a creditor community being at risk; or 
• insolvency affecting third parties. 

Court control over arbitration during winding-up 

Arbitration may, in principle, continue after a winding-up petition has been presented. However, the court has statutory control over proceedings against the company at different stages of the winding-up process. 

Under section 181(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), once a winding up petition has been presented, the Court of First Instance may restrain or stay proceedings, including arbitration proceedings, against the company. 

Once a winding-up order is made or a provisional liquidator is appointed, section 186 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, provides that no arbitration may be commenced or continued against the company except with the leave of the court. 

The overall position is therefore that arbitration agreements remain relevant and are generally respected in insolvency situations, including by liquidators. But the court retains ultimate control where a winding-up petition has been presented, and especially after a winding-up order or the appointment of a provisional liquidator, because the process then concerns not only the company and the petitioning creditor, but the interests of creditors as a whole.