UK Supreme Court Blog

EDITORS: Dan Tench, Emma Cross, Zainab Hodgson, Francesca Knight, James Warshaw and Natalie Haefner (CMS)
Hugh Tomlinson KC, Matthew Ryder KC, Nandini Bulchandani and Daniel Rudd (Matrix)

The case concerns the insolvency of Olympic Airlines (“OA”), which entered liquidation in Greece in 2009 and had operations in England with staff who were members of a defined benefit pension scheme.  The pension scheme, which at the time of the insolvency had a deficit of around £15 million, ordinarily would be eligible for Pension Protection Fund entry.  However, the argument was raised that liquidation in Greece alone did not constitute a “qualifying insolvency event” so as to enable the scheme to enter Pension Protection Fund and have members’ benefits paid in this way.  The trustees therefore sought to wind up OA in the English courts in order to gain this protection. The question for the court was whether OA’s operations in England met the requirement of an “establishment” under Council Regulation (EC) 1346/2000 so that secondary insolvency proceedings could be opened in England. The High Court found that the requirements for an “establishment” were met but the Court of Appeal overturned this decision, prompting an appeal to the Supreme Court.

Factual Background

OA’s operations in England consisted of a head office in London, premises in Manchester and a ticket office at Heathrow. The UK premises were shut down over time from November 2009. On 17 June 2010 the liquidator informed the trustees that the employment of UK staff would be terminated and OA’s contributions to the pension scheme would cease from 14 July 2010. The trustees subsequently presented a petition to the UK courts on 20 July 2010 to wind up OA based on their inability to pay the debt of the pension deficit – this was to ensure the pension scheme was assumed by the Pension Protection Fund. The final closure of the head office in London did not take place until December 2011, but the branch’s bank accounts were frozen at the end of August 2010. Evidence was also given of little contact with customers after June 2010, due to the knowledge of OA’s liquidation.

Law

As the main insolvency proceedings were taking place in Greece where OA’s main interests were situated, the jurisdiction of the courts to wind up in other Member States was limited under Article 3(2) of the EC Insolvency Regulation  to those in which OA possessed an “establishment”. “Establishment” is defined under Article 2(h) as: “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods.”

First instance

At first instance the Chancellor found in favour of the trustees and held that the English courts had jurisdiction to wind up OA. He found that insolvency proceedings were ‘opened’ on the date on which the petition for an order to wind up the company was presented to the Court, in this case 20 July 2010. He found that on this date there were a number of factors which pointed to OA being “established” in the UK, namely: (i) employees in the form of three individuals employed to carry out matters concerned with the winding up of the foreign branches; (ii) assets in the form of computers and office fixtures and fittings; (iii) a place of operations as lessee/ licencee of the London premises; and (iv) economic activity in the winding up of its affairs, by disposing of assets and distributing proceeds amongst creditors. He found that the activities were not transitory; although they would eventually come to an end there was no requirement for the activities to be permanent or external and market facing.   The Chancellor also found that requiring external market activities would be inconsistent with the general operations of companies in liquidation which “by definition do not engage in external market activities any longer”. Due to the findings that there was an “establishment” on 20 July 2010 jurisdiction was conferred on the English court to wind up SA.

Court of Appeal

The Chancellor’s decision was overturned at the Court of Appeal and OA’s appeal allowed. The Court of Appeal found that the airline failed to have an establishment within the meanings of the Regulations on 20 July 2010 and that there was no jurisdiction to commence secondary insolvency proceedings in England. The beneficiaries of the pension scheme were therefore unprotected under the Pension Protection Fund.

In coming to their decision, the Court of Appeal placed weight on commentary on the Regulations found in the Virgós-Schmit report. The report emphasised that a place of operations meant somewhere where economic activity was exercised “on the market, i.e. externally”. Weight was also placed on the US authority of In re British American Insurance Company Limited (425 BR 844 (SD Florida, 2010) which held that “operations” and “economic activity” amounted to “more than mere incorporation and record keeping”. The court highlighted that although such authority may not be binding, because the definition in question was part of an international code requiring autonomous meaning “it would need something special to make it necessary to strike out in a different direction”. The court also held that the Chancellor’s findings that companies in liquidation did not engage in external market activities was incorrect as insolvency proceedings could include instances where the company intended to trade out of its difficulties.

Supreme Court Appeal

On 2 February 2015 the trustee’s appeal was heard before Lord Neuberger, Lord Mance, Lord Sumption, Lord Reed and Lord Toulson. The question for the court is again the meaning of the concept of “establishment” in the EC Insolvency Regulation. We will follow up with a full case comment after the judgment has been handed down.