Pension scheme trustees succeed in battle to open secondary insolvency proceedings against bankrupt Greek airline

In October 2009 the Greek airline, Olympic Airlines SA ("OA"), entered "special liquidation" in Greece after the European Commission ordered it to repay illegal state aid from the Greek Government. OA employed about 27 employees in the UK, who participated in an occupational pension scheme. In June 2010 OA's liquidator informed the scheme's trustees that the UK employees' employment would be terminated and that pension contributions would cease from July 2010. The deficit in the scheme was calculated at GBP 15 million on a Section 75 employer debt basis, but there was little prospect of recovering this amount through the primary insolvency proceedings in Greece.

There was a further difficulty facing the trustees in that PPF protection was not triggered by an employer liquidation outside the UK as this did not constitute a "qualifying insolvency event" for PPF eligibility purposes. In order to ensure that the scheme was eligible to enter the PPF the trustees petitioned the High Court for secondary insolvency proceedings to be opened in July 2010. OA opposed this on the basis that they did not have an "establishment" in England in July 2010 as required by the Insolvency Regulations.

The Chancellor allowed the petition and exercised his discretion noting that doing so would allow the scheme to enter into the PPF. On the main issue he found that economic activities of a "non-transitory" nature were being carried out in England at the relevant date, owing to a number of factors including the existence of three employees who were in the process of liquidating OA's assets in the UK.

The case illustrates a potential problem which could face trustees of a scheme with an overseas employer which goes through primary insolvency proceedings outside the UK and so potentially is not eligible to enter the PPF. In these circumstances, trustees may need to seek to open secondary proceedings in the UK and whether they can do this will depend upon whether they can show that there was an "establishment" in the UK at the appropriate time.