The judgment handed down on 6 June 2013 by the Court of Appeal in the case of The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme v Olympic Airlines SA [2013] EWCA Civ 643 reversed a High Court decision made in May 2012 that a winding up order could be granted in the UK in respect of Olympic Airlines, the Greek national airline, which was in liquidation in Greece as a result of it receiving illegal state aid and the privatisation of the airline business.

The effect of the judgment overturning the High Court’s decision to allow secondary insolvency proceedings of Olympic Airlines in the UK under the Insolvency Regulations is that the pension scheme is no longer eligible for entry into the PPF. This could have a devastating impact upon the level of benefits paid to the scheme members due to a severe funding deficit of more than £15m and the risk that the trustees will be required to claw back benefits already paid to members.

The Court of Appeal determined that on 20 July 2010, the date on which the trustees petitioned for a winding up order, the activities being carried out in the UK were insufficient to be deemed an “establishment” for the purposes of the Insolvency Regulations. Essentially the company was too far advanced in winding up its UK operations to be able to satisfy the requirement.

As foreign liquidation proceedings do not count as a “qualifying insolvency event” for the purposes of s.127 of the Pensions Act 2004. The High Court decision to grant a winding up order in the UK in May 2012 meant that the pension scheme qualified for entry into the PPF assessment period. The PPF had allowed the pension scheme to remain in the assessment period pending the outcome of the Court of Appeal hearing but the decision to retrospectively rescind the winding up order means that the PPF is proceeding on the basis that the winding up order was never granted and therefore the pension scheme must be wound up without the support of the PPF. This is a blow for the members of the Scheme.

The decision has revealed that there is a significant gap in the legislation and that the UK legislation is potentially incompatible with EC legislation. This is of particular relevance to companies in which the parent is based overseas but there is a UK branch that sponsors a UK pension scheme, which is a common company structure. The gap should be bridged.