Reversing an earlier ruling, the Court of Appeal has delivered a judgment with important implications for UK pension schemes sponsored by overseas employers. The effect of the ruling is that, in some cases, members may not be entitled to PPF protection where the employer becomes insolvent.

Background

In October 2009, the Greek national airline, Olympic Airlines, went into liquidation following a ruling from the European Commission that it had received illegal state aid. Olympic ran flights from UK airports, employing 27 employees in the UK, who dealt 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.

Importantly, 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 Pension Protection Fund. To make the scheme eligible for PPF protection, the scheme trustees asked the court to appoint a UK liquidator to wind up Olympic's UK business.

Ruling

To succeed with their application, the trustees needed to show that Olympic had a UK establishment at the time they applied to the court – in legal terms, that Olympic had a UK place of operations where it carried out a non-transitory economic activity with human means and goods.

The Court of Appeal decided that Olympic did not have a UK establishment at the time the trustees applied to court. This was because Olympic had ceased to carry out any market-facing economic activities – its two employees who were helping to finish winding up its UK operations were involved only with internal administrative matters on an ad hoc basis – paying occasional bills and disposing of some low-value assets. These activities were not enough to count as a non-transitory economic activity.

The effect of the ruling is that the scheme's members are ineligible for PPF protection.

Lessons for trustees

This ruling will be of concern to scheme trustees and members whose schemes are sponsored by overseas employers and are not funded to pay at least PPF benefits.

Trustees should check what activities non-UK sponsors carry out in the UK and monitor their financial position carefully. Trustees of schemes sponsored by overseas companies that carry out no or only occasional market-facing economic activities in the UK should consider putting protection in place. This could include security over assets and group or bank guarantees. It is unclear whether Olympic was paying PPF levies but the payment of these is not a guarantee that a scheme is eligible for PPF protection.

Trustees of the Olympic Airlines SA Pension & Life Insurance Scheme v. Olympic Airlines SA