Olympic Airlines SA Pension and Life Assurance Scheme v Olympic Airlines SA (Supreme Court) – 29 April 2015


Olympic Airlines (“OA”), a Greek company, went into liquidation in 2009.  OA’s UK operation had a DB scheme (the “Scheme”) with a section 75 debt in excess of £15 million.

The PPF provides compensation to members of eligible DB pension schemes, when there is a “qualifying insolvency event” in relation to the employer, and where there are insufficient assets in the pension scheme to cover the PPF level of compensation.  The Scheme’s trustees applied for a UK court order for the winding up of OA so that this would be the “qualifying insolvency event” for the purposes of PPF entry.

The High Court made the winding up order but this was overruled by the Court of Appeal (“CA”).

The case was appealed to the Supreme Court.

Facts

As a Greek company, OA was subject to Greek law.  This meant that its liquidation was not a “qualifying insolvency event” and did not trigger PPF entry for the Scheme.  The trustees applied to the court to wind up OA so that there would be a “qualifying insolvency event” and the members of the Scheme would be eligible for PPF compensation.

EU insolvency law allows secondary insolvency proceedings to be brought which run in parallel with the main proceedings.  Secondary proceedings may be issued in the Member State where the debtor has an “establishment”, i.e. “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods”.

OA carried on business in England from its head office in London.  In addition, it had premises in Manchester and a ticket office at Heathrow.  On 17 June 2010, the Greek liquidator informed the Scheme’s trustees of the Scheme that the employment of UK staff would be terminated and OA’s contributions to the Scheme in respect of them would cease with effect from 14 July 2010.  On 2 July 2010, the liquidator then wrote to all 27 employees of OA terminating their employment with effect from 14 July 2010.  However, the services of the General Manager, the financial and purchasing manager and an accounts clerk were retained on an ad hoc basis.

On 20 July 2010, the trustees presented a petition to wind up OA based on the debt it owed to the Scheme under section 75 of the Pensions Act 1995.  OA contended that it did not have an “establishment” in the UK for the purposes of EU Insolvency law.

Court of Appeal

The CA concluded that, for an “establishment” to exist, the relevant “economic activity” had to consist of more than the activity involved in winding up the company’s affairs, and that the three remaining employees were doing no more than that.

Supreme Court

After the CA decision, the law was changed to prescribe an additional “insolvency event” which would trigger PPF entry (“the New Insolvency Event”).  This event was designed to cater exclusively for the circumstances of OA.

Agreeing with the CA’s reasoning, The Supreme Court concluded that OA did not have an “establishment” in the UK at the relevant date.  The last of OA’s business activities had ceased some time before that.  The appeal was dismissed.

Despite the introduction of the New Insolvency Event, it remained important for the Supreme Court to determine what connection a foreign company (whose main interests are in another EU member state) has to have with the UK to entitle an English court to wind it up.

Where the New Insolvency Event applies it is deemed to occur on the fifth anniversary of the commencement of the Greek proceedings, ie. on 2 October 2014.  This is more than four years after the date of the winding up order made by the High Court.  This matters, because of the possibility that the PPF might require the trustees of the Scheme to claw back any overpaid benefits between the commencement of the Greek liquidation proceedings and the relevant “insolvency event”.

The Supreme Court’s decision means the New Insolvency Event applies for the purposes of PPF entry and potential clawback of overpaid benefits.

Comment

While, ultimately, the Scheme has gained entry into the PPF.  This case remains an important reminder of the potential pitfalls of the PPF entry requirements and the need, in particular, for trustees of Schemes with sponsors based outside the UK to closely monitor their position.