Arbitration Tribunal is competent even in the event of insolvency proceedings

In a recent case the Arbitration Tribunal of the Buenos Aires Stock Exchange (the “BASE Tribunal”) resolved it continued to be competent to resolve a matter even in the event one of the parties of the arbitration agreement underwent insolvency proceedings (concurso preventivo).

This resolution is very significant given that it introduces a new exception to the bankruptcy law in connection to joinder of claims in case of insolvency proceedings. Bankruptcy Law provides that all economic claims against the insolvent party should be resolved by the Judge who is in charge of the insolvency proceedings.

The BASE Tribunal based its decision on precedents from the Supreme Court of the Republic of Argentina issued in bankruptcy cases in which it had ruled that once the arbitration tribunal was formed or if the arbitrators where chosen before the declaration of bankruptcy, the arbitration clause agreed by the debtor should be respected and the arbitration jurisdiction upheld.

The BASE Tribunal considered that a different interpretation would allow one of the parties to elude the arbitration jurisdiction that it had previously accepted by voluntarily filing insolvency proceedings. In such case, the arbitration agreement would be rescinded by the sole decision of the insolvent party, which would conflict with the principles of good faith and compliance of prior commitments.

In a similar case, which has not yet finalized, the International Chamber of Commerce resolved that it was competent to participate in an arbitration action against a company which was undergoing insolvency proceedings, given that the parties had previously agreed to submit disputes to arbitration jurisdiction.

Consequently, once the arbitral award is rendered by the agreed arbitration tribunal, if the award results in a credit against the insolvent party, such credit shall be filed like any other credit in the insolvency proceedings. However, the existence and amount of the credit will be determined by the arbitration tribunal chosen by the parties in their arbitration agreement.