High Court clarifies interplay between arbitration and insolvency

Speedread

In a judgment delivered last month (San Leon Energy PLC v Brightwaters Energy Limited [2026] IEHC 1), the Irish High Court (the Court) addressed the interplay between arbitration clauses and winding up petitions. The Court refused the plaintiff company’s application for an injunction to restrain a winding up petition brought against it by the defendant company, finding that there was no bona fide and substantial dispute about the debt relied upon in the winding up petition. The Court held that whether such a dispute exists is an Irish law issue to be decided by the Irish courts rather than by an arbitral tribunal. This applied even though the plaintiff’s obligation to pay the debt arose under a Nigerian law agreement with the defendant, which contained an arbitration clause. In reaching this conclusion, the Court endorsed the Privy Council’s approach in Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16, which rejected automatic stays of winding up petitions based on broad arbitration clauses where the debt is not genuinely disputed on substantial grounds. The judgment is a welcome confirmation that the Irish courts will not allow arbitration clauses to delay creditors from bringing a winding up petition against a debtor company where the underlying debt is not genuinely disputed.

Background

The plaintiff, San Leon Energy PLC (San Leon), held an interest in a Maltese company, Energy Link Infrastructure (Malta) Ltd (ELI), which owned a major project under construction to provide a pipeline from an onshore asset in Nigeria. ELI engaged with but then defaulted on payments due to the defendant, Brightwaters Energy Ltd (Brightwaters), a Nigerian company, in relation to the oil pipeline construction project. Brightwaters obtained a Nigerian consent judgment against ELI. In order to secure third-party refinancing from a Canadian investor to facilitate the resumption of construction and the completion of the project, San Leon then entered into a letter (the Agreement) with Brightwaters undertaking to settle the USD$16.6m debt in full on behalf of ELI within four business days. The Agreement contained an ICC arbitration clause and was governed by Nigerian law. However, the funds were never received by San Leon from the Canadian investor. When San Leon failed to pay under the terms of the Agreement, Brightwaters served a statutory demand letter on San Leon and threatened to bring a winding up petition. San Leon sought to restrain the winding up petition, arguing that its payment obligation was conditional on third-party refinancing that did not materialise and that the broad arbitration clause in the Agreement required any dispute arising from it, including the question of whether a dispute existed, to be referred to arbitration before the London ICC before any winding up petition could proceed.

Decision

Settled Irish position on winding up petitions

The Court applied the settled Irish test approved by the Supreme Court in Meridian Communications Ltd v Eircell Ltd [2001] IESC 42: a winding up petition is not a legitimate means of enforcing payment of a debt that is disputed in good faith and on substantial grounds. The Court referred to the test as refined in Truck and Machinery Sales Ltd v Marubeni Komatsu Ltd [1996] 1 IR 12; the power of the courts to restrain a winding up petition should be exercised only where a debtor company has established at least a prima facie case that presenting the petition would constitute an abuse of process. The Court noted that the Supreme Court has emphasised that: “Irish Courts should be slow to deprive petitioners of the right to exercise their statutory entitlement to bring a winding up petition.”

Significance of an arbitration clause

Both parties accepted that the winding up petition could not proceed if there was a bona fide and substantial dispute about the debt and that any such dispute would be determined through arbitration. The Court adopted the “compelling” reasoning of the Privy Council in Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16 (Sian). In Sian, the Privy Council held that previous English case law was wrong to stay winding up petitions where an insubstantial dispute was raised between parties to an arbitration agreement. Instead, a petition should be allowed to proceed unless the debt is genuinely disputed on substantial grounds. The Privy Council observed that typical arbitration clauses oblige parties to refer disputes to arbitration for resolution but winding up proceedings do not offend such clauses. This is because a winding up petition does not determine a creditor’s debt claim; the existence or amount of the debt is not an issue to be resolved in such winding up proceedings. If there is a genuine dispute about a debt, the creditor must first establish its claim to the debt, either by securing a court judgment or by an arbitral award.

The Court commented that “[a]rbitration law is about resolving genuine disputes outside courts, not providing a procedural obstacle to legitimate statutory procedures.” Applying the Sian principles, the Court held that the question of whether a genuine and substantial dispute existed was for the Irish courts to determine, rather than for an arbitral tribunal. The Court found no bona fide and substantial dispute regarding San Leon’s obligation to pay the debt to Brightwaters – the negotiations over the Agreement did not support San Leon’s argument that the payment obligation was conditional. As there was no bona fide and substantive dispute regarding the debt, the arbitration clause in the Agreement was not triggered. If San Leon’s commitment in the Agreement was intended to be conditional, the Court said that “it could and should have been expressly tied to receipt of the funds”.

Based on the evidence, the Court was not satisfied that it should restrain the winding up petition. Despite refusing the injunction, the Court noted that San Leon’s position was protected because it could ultimately defend any winding up petition on any factual and legal basis it wished to assert.

Key Takeaways

• The decision endorses the Privy Council decision in Sian, confirming that Irish law is in line with the position in England and Wales, and recognises that Irish courts will take a pragmatic approach, preventing arbitration clauses from being used to frustrate the statutory winding up process where a debt is clearly owed and not genuinely disputed.
• The judgment attempts to reconcile two competing public policy concerns: respecting party autonomy to resolve disputes through arbitration while protecting creditors’ ability to exercise their statutory entitlement to bring a winding up petition against a debtor company where a debt is clearly owed. This decision strikes a balance between these competing concerns, which provides reassurance to both creditors and debtors who are parties to an agreement with an arbitration clause. Creditors can pursue winding up petitions without delay even when arbitration clauses apply, if such debts are not genuinely disputed, while debtors retain the right to have genuinely disputed debts referred to arbitration. This balanced approach highlights the Irish courts’ commitment to upholding both statutory insolvency procedures and the integrity of arbitration clauses and the use of alternative dispute resolution procedures.

For further information in relation to this topic, please contact Sarah Murphy, Partner, Ciarán Ó Conluain, Partner, Marsha Coughlan, Partner, Maeve Brady, Senior Associate, Simon Barber, Lawyer (Qualified in New Zealand), Rachel Kemp, Senior Practice Development Lawyer, or any member of ALG's Disputes & Investigations, Arbitration or Restructuring & Insolvency teams.

Date published: 27 February 2026