In April 2015, the Supreme Court dismissed an appeal bought by The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme ("the Scheme") and held that Olympic Airlines SA ("Olympic Airlines") did not have an "establishment" in the UK when the Trustees presented a winding up petition in England on 20 July 2010.
The significance of the decision is that without a "qualifying insolvency event", the Scheme would not enter the Pension Protection Fund ("PPF") and is of significance for any defined benefit pension scheme of a UK branch office of an overseas company.
Olympic Airlines entered a "special" liquidation in Greece on 2 October 2009; however, this was not a "qualifying insolvency event" under the UK legislation. In order for there to be a "qualifying insolvency event" there needed to be UK insolvency proceedings. This would require secondary proceedings, under the EU Insolvency Regulations, to wind up the UK branch office of Olympic Airlines. On 20 July 2010, the Trustees presented a winding up petition in England on the ground that Olympic Airlines was unlikely to meet its section 75 debt due to the Scheme. The Greek special administrator, however, challenged the winding up petition.
There were two possible dates on which the Scheme could enter a PPF assessment period:
20 July 2010
The date on which Trustees presented a winding up petition in England. This would be a "qualifying insolvency event" allowing the Scheme to enter a PPF assessment period. However, as these would be secondary proceedings under the EU Insolvency Regulations, whether there could be a winding up petition would depend on whether Olympic Airline's branch office represented an "establishment" in England.
2 October 2014
In 2014, following the Court of Appeal against the Trustees, an additional qualifying insolvency event was added by the Pension Fund (Entry Rules) (Amendment) Regulations 2014 (SI 2014/1664) which allowed Olympic Airlines to retrospectively fall into the PPF. Under these regulations a "qualifying insolvency event" is deemed to occur on the fifth anniversary of the commencement of the Greek proceedings, being the 2 October 2014.
The Supreme Court's Findings
Lord Sumption gave the decision of the Supreme Court. The key issue was whether the London branch office could be said to be an "establishment" under the EU Insolvency Regulations; meaning any place of operations where the debtor carries out a non-transitory economic activity with human means and goods. The judge concluded that this definition suggests the requirement for external business activity consisting in dealings with third parties.
At the time of the winding up petition, all but one of Olympic Airline's UK offices had closed and it only retained three employees to assist the Greek liquidator and complete administrative tasks. There were not business dealings with third parties and the judge, therefore, concluded that Olympic Airlines did not have an establishment in the UK on 20 July 2010 and that compensation was payable by the PPF only from 2 October 2014.
Clyde & Co Comment
This case is significant not only for the Scheme and the benefits it must pay, but also the wider implications for other schemes in a similar situation.
For the Scheme, the significance of the decision now concerns the date of entry to the PPF and whether benefits have been overpaid up until that point. At first instance and in the Court of Appeal, the decision also determined whether the Scheme would enter the PPF at all. But the change to the legislation removed the possibility that the Scheme would not qualify.
However, the changes to the legislation are a narrow fix designed to allow the Olympic Airlines Scheme only into the PPF. There still remains a risk for pension schemes – which have overseas companies participating, but no UK company - that they could find themselves without a qualifying insolvency event. The judgment does leave open the possibility that a UK branch office could still be an "establishment" if it was trading during an administration. However, trustees face a risk that any period of trading, in which to bring a winding up petition, could be quite short leaving them without any method of entry into the PPF. It is to be hoped that the Department of Work and Pensions now look find a more permanent solution to the "qualifying insolvency event" problem that this case has highlighted.