Under the Sword of Damocles: Navigating the Conflict Between Arbitration and Insolvency

The aim of this thesis is to analyze the interaction between corporate restructuring in Sweden and international arbitration, specifically examining whether arbitration can be initiated or continued when one party is undergoing corporate restructuring in Sweden, and whether a creditor can circumvent a stay of enforcement by attempting to enforce an arbitral award in a foreign court. The conclusion of the thesis is that Swedish law does not prohibit the continuation of pending arbitral proceedings during restructuring and that if certain conditions are met, a company undergoing restructuring may initiate arbitral proceedings. However, in international arbitrations seated in EU Member States, Article 18 of the EIR provides that the effects of insolvency proceedings on pending arbitral proceedings shall be governed solely by the lex loci arbitri, which can lead to situations where the national legislation of a different Member State requires a stay of arbitral proceedings for a Swedish debtor despite Swedish law containing no such requirements. Meanwhile, Article 7 of the EIR states that lex fori concursus governs whether the debtor can initiate arbitral proceedings. For arbitral proceedings seated outside of EU Member States, there is no definitive international legislation regarding which law should be applied in the situations above. An assessment would have to be made on a case-by-case basis of the seat’s domestic conflict-of-law rules. Regarding enforcement, the following conclusions are drawn. Whether enforcement of an arbitral award against a Swedish debtor undergoing restructuring in a foreign court violates public policy under Article V(2)(b) of the New York Convention varies across jurisdictions. In certain States, national remedies are available for debtors in order to prevent enforcement without having to rely on the application of the New York Convention. Finally, it is welcome that further harmonization of the relevant legal frameworks is being pursued, as the current lack of clear, statutory guidelines forces parties, tribunals, and courts to navigate uncertain terrain. Establishing clearer and more uniform rules regarding the effects of insolvency proceedings on arbitration could significantly reduce unpredictability.