Case: (The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme (Appellants) v Olympic Airlines SA (Respondent)  UKSC 27)
The Supreme Court has dismissed the pension scheme trustees’ appeal in the Olympic Airlines case, agreeing with the Court of Appeal that the High Court had been wrong to find there was an ‘establishment’ for the purposes of opening secondary proceedings under the EC Insolvency Regulation. The Supreme Court’s decision confirms that it is necessary to show at least some subsisting business with third parties in order to demonstrate the existence of an establishment. The decision potentially leaves the trustees vulnerable to having to claw back certain benefits paid to members.
Olympic Airlines SA went into main winding-up proceedings in Greece on 2 October 2009. The deficit in the UK pension scheme stood at around £16 million and the company's pension scheme trustees therefore presented a winding-up petition to the English court on 20 July 2010. If the company could therefore be wound-up in England, this would be a “qualifying insolvency event” and the scheme would qualify for entry into the Pension Protection Fund (PPF).
The UK branch of the Greek airline had been in a state of wind-down at the time of the petition to open secondary proceedings. At the time of the petition to open secondary proceedings, the only office remaining open in the UK was mostly involved in providing administrative assistance to the liquidator in the Greek main proceedings. It was not taking on new business and there was no market trading taking place.
The High Court initially held that an establishment existed, holding that the “economic activity” referred to in the definition of an “establishment” did not require external market activity at the date of the request to open those secondary proceedings. The Court of Appeal overruled that decision, with the result that the beneficiaries of the pension scheme were left without protection.
The Court of Appeal relied in part on the reference to activities "exercised on the market" (i.e. external, market facing activity) which appeared in the 1996 Virgós-Schmit Report, a commentary which preceded the EC Insolvency Regulation. The Report was never formally adopted, but in practice has been used as an interpretative guide to the Regulation. The trustees appealed to the Supreme Court.
The Supreme Court’s judgment focuses on the meaning of “economic activity” within the EC Insolvency Regulation and, referring to the ECJ’s decision in Interedil Srl (2011), Lord Sumption notes that the “activities should be sufficiently accessible to enable third parties…to be aware of them”. This required more than simply “a brass plate on a door”. As such, a company only engaged in the internal administration of its winding-up would not have an establishment for the purposes of opening secondary proceedings in the UK.
The impact of this judgment is likely to be limited for the parties as the UK Government has already intervened to make sure the pension scheme does not lose out in this case. An additional “insolvency event” has been prescribed for the purposes of PPF eligibility in cases where main proceedings have been opened in another member state and secondary proceedings were opened in the UK but then set aside: see the (Pension Fund (Entry Rules) (Amendment) Regulations 2014 (SI 2014/1664)). This niche additional insolvency event was intended to provide relief in this particular case. The judgment still has relevance to the trustees because, under this new law, the insolvency event is deemed to occur on the fifth anniversary of the Greek proceedings and not when the High Court first made its winding-up order. The result could be that the PPF may require the trustees to claw back overpaid benefits between the commencement of the Greek proceedings and the deemed date of the winding-up proceedings.
The wider relevance of this judgment is also likely to be limited in the longer term, but it is of importance now. The recast EC Regulation on Insolvency Proceedings will change the date for assessing whether an establishment exists under English law. The new definition of ‘establishment’ is expected to be “any place of operations where the debtor carries out or has carried out in the three months prior to the request to open main insolvency proceedings a non-transitory economic activity with human means and assets” (emphasis added). This means that the date for assessing whether there is an establishment engaged in “market activity” will no longer be the date when an application to open secondary proceedings is made; instead the court must ask whether an establishment existed in the run up to the opening of main proceedings. The recast EC Insolvency Regulation is expected to be formally adopted later this month and will come into force two years later.