Background

In October 2009, the Greek courts ordered the winding up of the Greek national airline, Olympic Airlines. Olympic ran flights from UK airports, employing 27 employees in the UK, dealing with things such as ticket sales. In early 2010, the airline's Greek liquidator closed its Heathrow ticket office and main Manchester office and, on 14 July 2010, terminated the employment of all UK staff. Two people were later rehired to help finish the winding up of Olympic's UK operations. The employees were members of an underfunded UK defined benefit pension scheme.

Olympic operated through a UK branch and had no UK subsidiary company. Because of this, the Greek insolvency did not qualify the scheme for entry to the PPF. With the aim of qualifying for PPF protection, the trustees asked the English courts to appoint a UK liquidator to wind up Olympic's UK business. The issue for the court was whether, at the date of the trustees applying to the court for a winding up order (20 July 2010), Olympic's UK operations met the conditions in EU insolvency regulations, necessary for an order – in legal speak, whether Olympic met the test of having a UK establishment.

Ruling

For a non-UK company to have a UK establishment, it must meet several conditions. These are (i) it has a UK place of operations, (ii) it carries out economic activity there, (iii) the activity is non-transitory and (iv) the activity is carried out with human means and goods.

The court held that the conditions must be viewed holistically. In essence, to meet the conditions, a company must have a fixed place of business in the UK from which business is transacted with third parties. Whether the conditions are met will be fact specific. In this case, the court decided that, at the time the trustees applied for a winding up order, Olympic had ceased to carry on business in the UK. This was because its UK operations consisted of two employees helping to finish its winding up by dealing with internal administrative matters on an ad hoc basis – paying occasional bills and disposing of some low-value assets. Because of this, it did not meet the conditions needed for the court to be able to issue a winding up order.

Lessons for trustees

For schemes underfunded on a PPF basis which are sponsored by non-UK employers, trustees should monitor the financial position of the employer and the nature of its UK operations. Where the employer is in or at risk of getting into financial difficulty, the trustees need to be prepared to act quickly to apply to the UK court to wind up the employer's UK operation before it ceases to carry on business so as to meet the qualifying conditions for PPF entry.

Trustees of schemes which do not meet the conditions of having a UK establishment, for example because the UK operation is only for internal group purposes, should consider whether they need to take action to ensure that members will obtain at least PPF level benefits on an employer insolvency.  This action could include things such as immediate or accelerated funding, taking security over assets or obtaining a bank letter of credit. Trustees of employers with UK operations may also wish to consider taking similar steps so that they do not find themselves in the same situation as the Olympic trustees.

Finally, trustees should bear in mind that payment of the PPF levy does not guarantee a scheme is eligible for consideration for PPF entry.

The Trustees of Olympic Airlines SA Pension and Life Assurance Scheme v. Olympic Airlines SA