The court established that in winding-up proceedings involving a disputed debt under an arbitration agreement, the higher threshold of a genuine dispute on substantial grounds must be applied, ensuring the protection of creditors' collective interests.

JUDGMENT

Nallini Pathmanathan FCJ:

Introduction

[1] The evolution and expansion of commercial arbitration, globally, have brought to the fore conflicts between arbitration and other areas of the law. The present appeal relates to the tension between the winding-up process in insolvency and arbitration when the debt which comprises the basis for the winding-up petition is subject to an arbitration clause.

[2] In the instant case, the Appellant, V Medical Services (M) Sdn Bhd ('the Company') sought a Fortuna injunction to restrain Swissray Asia Healthcare Co Ltd ('Swissray') from bringing a winding-up petition on the grounds that there subsisted a dispute in relation to the debt which comprised the subject matter of the winding-up petition.

[3] The core of the Company's argument was that, in light of the subsistence of an arbitration clause in relation to the debt founding the basis for the winding-up petition, the applicable test to determine whether a Fortuna or restraining injunction ought to be granted to preclude the presentation of the winding-up petition and defer/accede to arbitration, was the lower threshold test enunciated in Salford Estates (No 2) Ltd v. Altomart Ltd (No 2) [2014] EWCA Civ 1575 ('Salford'). The test in Salford prescribes that the winding-up court should, save in wholly exceptional cases, exercise its discretion consistently with the legislative policy embodied in the statute relating to arbitration, such that, upon a prima facie consideration of the matter, if it appears that the debt is denied or disputed simpliciter, then the matter ought to proceed to arbitration in accordance with the agreement made between the parties. This is a lower standard of review than that conventionally applied in the court hearing the winding-up petition ('Companies court') when adjudicating on winding-up.

[4] In response to the Company's claim for a Fortuna injunction, Swissray countered the test in Salford, maintaining that the proper test to be utilized was the conventional test long applied in winding-up proceedings - namely the existence of a disputed debt on genuine and substantial grounds. However, in the instant case, Swissray further contended that in light of clear admissions and acknowledgments, there was no genuine dispute as to the existence of the debt. As such, Swissray maintained that the winding-up petition should proceed, notwithstanding the existence of an arbitration clause.

[5] The approach in the Companies court, when exercising its powers under the winding-up regime, is that the existence of an arbitration clause/agreement ought not, of itself, interfere with the threshold test applied in the winding-up regime, namely, that a debt which is genuinely disputed on substantial grounds is a sufficient basis for the grant of a Fortuna or restraining injunction or the stay or dismissal of a winding-up petition. This is a higher threshold than that enunciated in Salford. It envisages a greater judicial scrutiny of the debt comprising the basis for the winding-up petition. The test is whether the debt is genuinely disputed on substantial grounds (see Stonegate Securities Ltd v. Gregory [1980] 1 All ER 241) ('Stonegate')).

[6]Salford on the other hand, pronounces minimal curial consideration or intervention, in line with the policy articulated in the legislation relating to arbitration. The net result is that a denial of the debt simpliciter may well be sufficient to warrant the exercise of the court's discretion in favour of arbitration, such that a winding-up petition is stayed, dismissed, or an injunction prohibiting the initiation of a winding-up petition is allowed.

[7] To that extent, the approach adopted appears to give rise to tension between the winding-up regime and arbitration because the threshold tests in each are different.

[8] For the purposes of this appeal, the precise issue that arises for consideration is this:

What is the test a court should adopt when a defendant in a winding-up petition, disputes