The Court of Appeal held that the respondent's claims against the appellant were completely founded on the avoidance provisions in the Bankruptcy Act and the Companies Act. The Court of Appeal relied upon cases from various common law jurisdictions which dealt with the scope of an arbitration clause. These cases supported the view that an arbitration clause should be broadly construed.

However, the Court of Appeal held that a broad construction is more suitable in private remedial claims and that the reasoning behind the broad construction of arbitration clauses cannot be applied to avoidance claims pursued during insolvency proceedings.

The Court of Appeal held that "since avoidance claims can only be pursued by the liquidators or judicial managers of insolvent companies, there is no reason to objectively believe that a company's pre-insolvency management would contemplate including avoidance claims within the scope of an arbitration agreement." Therefore, the Court of Appeal found that unless an arbitration clause expressly includes avoidance claims, such claims will not fall within the scope of an arbitration clause.

The Court of Appeal then dealt with the question of the arbitrability of insolvency related claims. The case of Four Pillars Enterprises Co Ltd v Beirsdorf Aktiengesellschaft [1999] 1 SLR (R) 382 is the only other Singapore case that had previously dealt with whether an insolvency-related dispute can be arbitrated. The court in Four Pillars held that a winding-up petition did not fall within the scope of the arbitration clause. However, it did not offer much guidance on the arbitrability of insolvency-related disputes.

The High Court in the present case had held that the AA does not make any explicit reference to the concept of arbitrability. The Court of Appeal disagreed with this position, stating that a reference to the concept of arbitrability is made in section 48(1)(b)(i) of the AA, which states that the court has the power to refuse to enforce an arbitral award if the subject matter of the dispute is not arbitrable. However, neither the AA nor the Singapore International Arbitration Act shed any light on which disputes are arbitrable and which are non-arbitrable.

After reviewing several cases decided by the Singapore, English and Australian courts, the Court of Appeal found that the insolvency regime's objective of facilitating claims by a company's creditors against the company and its pre-insolvency management overrides the freedom of the company's pre-insolvency management to choose the forum where such disputes are to be heard. The Court of Appeal therefore came to the conclusion that courts should treat disputes arising from the operation of statutory provisions of the insolvency regime per se as non-arbitrable even if the parties expressly include them within the scope of the arbitration agreement.

The Court of Appeal also considered arbitrability, where the disputes relate to pre-insolvency rights and obligations of the insolvent company. They held that these issues were more difficult: although the dispute is binding on the official liquidators (as they "step into the shoes" of the company), there were some policy issues that justified not compelling the liquidator to resolve the dispute in arbitration.

First, it is the creditors of the insolvent company who are most interested in the outcome of a dispute in which the insolvent company is involved. These creditors are not party to the arbitration agreement and therefore, it would be difficult to make the liquidator (who represents the creditors) give up its rights to judicial remedies in favour of arbitration.

Second, it is a well established principle that a company cannot contract with some of its creditors for the non-application of certain insolvency rules. Under the Companies (Winding Up) Rules (Cap 50, Rule 1, 2006 Rev Ed), the creditors are required to adhere to a proof of debt process. If a creditor wishes to challenge a liquidator's decision in this process, it may apply to the court to reverse the liquidator's decision. Allowing an insolvent company's creditor to arbitrate a dispute against the company would effectively allow the company to contract out of the proof of debt process.

Therefore, the Court of Appeal held that where the arbitration agreement affects the substantive rights of other creditors, it must not be enforced. However, if the agreement is only to resolve the prior, private inter se dispute(s) between the company and another party, then the terms of the arbitration agreement should usually be observed.