Olympic Airlines SA Pension and Life Assurance Scheme, The Trustees of the v Olympic Airlines SA [2015] UKSC 27

Trustees of Olympic Airlines' UK pension scheme sought a winding-up order in England to qualify for the Pension Protection Fund. The Supreme Court held that Olympic had no 'establishment' in the UK under EU Regulation 1346/2000, as only internal wind-down activities were occurring at its London office.

Facts

Olympic Airlines SA, a Greek company, was placed into liquidation by order of the Athens Court of Appeal on 2 October 2009. Its centre of main interests (COMI) was in Greece, where the main liquidation proceedings continued. The appellants were the trustees of the company’s UK pension scheme, which fell into a deficit of approximately £16 million on the company’s liquidation, recoverable from Olympic under section 75 of the Pensions Act 1995.

To enable the scheme to qualify for entry into the Pension Protection Fund under section 127 of the Pensions Act 2004, the trustees needed a ‘qualifying insolvency event’ to occur. The only available such event was a winding-up order made under the Insolvency Act 1986. The trustees accordingly presented a winding-up petition in England on 20 July 2010.

By EU Regulation 1346/2000, where a company’s COMI is in another Member State, an English court may only open secondary insolvency proceedings if the debtor possesses an ‘establishment’ within the UK. An ‘establishment’ is defined in article 2(h) as ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods.’

By 20 July 2010, Olympic’s commercial flight operations had ceased (from 29 September 2009), most UK staff had been dismissed, and only three individuals (a general manager, a finance/purchasing manager, and an accounts clerk) remained at the former UK head office at 11 Conduit Street, London. Their activities consisted of dealing with instructions from the Greek liquidator, paying bills (salaries, council tax, electricity, cleaning), reconciling bank statements, handling post, and supervising the disposal of remaining UK assets, which had no substantial realisable value.

Issues

The central legal issue was the meaning of ‘economic activity’ within the definition of ‘establishment’ in article 2(h) of EU Regulation 1346/2000, and specifically whether Olympic had such an establishment at 11 Conduit Street on the date of the petition so as to confer jurisdiction on the English court to open secondary insolvency proceedings.

Arguments

The trustees contended that the activities being carried out at 11 Conduit Street by the three retained employees, together with the disposal of remaining UK assets, were sufficient to constitute ‘non-transitory economic activity’ such that Olympic possessed an ‘establishment’ in the UK. The Chancellor had accepted this view at first instance, holding that ‘economic’ activity did not have to amount to ‘external market activity’.

Olympic argued that the activities carried out were no more than the internal administration involved in winding up the company’s UK affairs, which was insufficient to qualify as ‘economic activity’ on the market. The Court of Appeal had accepted this argument.

Judgment

The Supreme Court (Lord Sumption giving the leading judgment, with whom Lord Neuberger, Lord Mance, Lord Reed and Lord Toulson agreed) unanimously dismissed the appeal.

Lord Sumption held that the definition in article 2(h) must be read as a whole, the four elements (‘economic’, ‘non-transitory’, ‘place of operations’, and use of debtor’s assets and human agents) colouring each other. This connoted a fixed place of business engaged in dealings with third parties, not pure acts of internal administration.

Drawing on the Virgos-Schmit Report on the predecessor Convention (in particular paragraph 71), the Court accepted that the activities must be ‘exercised on the market (ie externally)’. The rationale was that foreign economic operators conducting activities through a local establishment should be subject to the same rules as national operators, so that creditors’ information costs and legal risks were equivalent. The Court of Justice’s observations in Interedil Srl (Case C-396/09), requiring a minimum level of organisation and that the existence of an establishment be ascertainable by third parties on the basis of objective factors, were consistent with this approach.

Lord Sumption acknowledged that some activities of a company in liquidation could satisfy the definition, such as where a liquidator carries on business with a view to disposal, or disposes of stock in trade on the market. However, where a company has no subsisting business, mere internal administration of its winding up would not qualify, as it would not be ‘exercised on the market’. To hold otherwise would mean the requirement of ‘economic activities’ added little or nothing to the rest of the definition, and the definition would almost always be satisfied by any debtor retaining premises with associated outgoings.

On the facts, Olympic was not carrying on any business activity at 11 Conduit Street on 20 July 2010. Its commercial activities had ceased months earlier. Mr Savva and Mr Platanias were merely handling matters of internal administration associated with the final stages of the disposal of the means of carrying on business. Accordingly, Olympic had no ‘establishment’ in the UK at the relevant time.

The Court declined to make a reference to the Court of Justice under article 267 TFEU, considering it acte clair that at least some subsisting business with third parties was required.

Implications

The decision clarifies the meaning of ‘establishment’ under article 2(h) of EU Regulation 1346/2000 (now superseded by Regulation 2015/848 but the definition is materially similar). To found jurisdiction for secondary insolvency proceedings in a Member State other than that of the COMI, the debtor must be carrying on some subsisting business activity directed externally to the market and involving dealings with third parties. Pure internal wind-down activities, such as paying ongoing premises costs, supervising asset disposal of negligible value, and handling correspondence with the foreign liquidator, will not suffice.

The judgment confirms a meaningful threshold for the existence of an ‘establishment’, preventing the requirement from being trivially satisfied by any continued occupation of premises. This is significant for cross-border insolvency practitioners, foreign liquidators, and creditors (including pension scheme trustees) who must consider where secondary proceedings can be opened.

The case had particular practical importance for the trustees because qualification for the Pension Protection Fund depended on a qualifying insolvency event in the UK. Although subsequent legislative amendment (the Pension Protection Fund (Entry Rules) (Amendment) Regulations 2014) addressed the trustees’ position prospectively, the timing of the deemed insolvency event remained relevant to the period over which the Board could potentially claw back overpaid benefits.

Lord Sumption was careful not to attempt a precise boundary between qualifying and non-qualifying activities, recognising the fact-sensitive nature of the inquiry. The decision therefore states a minimum requirement (some external market-facing business activity) but leaves open the precise nature and visibility of that activity in borderline cases.

Verdict: Appeal dismissed. Olympic Airlines SA did not possess an ‘establishment’ in the United Kingdom within the meaning of article 2(h) of EU Regulation 1346/2000 on the date of the winding-up petition, and the English court therefore lacked jurisdiction to open secondary insolvency proceedings.

Source: Olympic Airlines SA Pension and Life Assurance Scheme, The Trustees of the v Olympic Airlines SA [2015] UKSC 27