UK: Supreme Court Considers Place Of "Establishment" In Olympic Airlines Appeal

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

The Supreme Court was unanimous in its brief judgment, found here, that for the purpose of establishing secondary proceedings, Olympic Airlines did not have their place of "establishment" in the United Kingdom.

Facts

Olympic Airlines SA, the respondent, was wound up on the direction of the Athens Court of Appeal on 2 October 2009, its Centre of Main Interests in Greece.

The appellants, the Trustees of the company's pension scheme, presented a winding up petition against the company in England on 20 July 2010 on the ground that the pension scheme had a deficit of £16m. The winding up order was sought so that the company would qualify for entry into the UK Pension Protection Fund (the "PPF"), which required that the company be the subject of a "qualifying insolvency event" (as defined in section 121 of the Pensions Act 2004 (the "PA 2004")), namely the subject of a winding up order.

In June 2013 the Court of Appeal held that the company had not experienced an "insolvency event" for the purposes of section 121 of the PA 2004. Olympic Airlines did not have an "establishment" (as defined under article 2(h) of the EC Regulations 1346/2000 on Insolvency Proceedings (the "Insolvency Regulations") in the United Kingdom because by 20 July 2010 Olympic had ceased all commercial operations for ten months, with only ad-hoc staff remaining in a company which had no external economic function.

The Trustees of the scheme appealed to the Supreme Court to determine whether the company had its place of "establishment" in the United Kingdom. This appeal was driven by the wording in regulation 5A of the Pension Fund (Entry Rules) (Amendment) Regulations 2014 (SI 2014/1664) which deemed that a "European insolvency event" only took place on the fifth anniversary of the start of the insolvency proceedings. Applied to the facts in Olympic, the relevant "European insolvency event" occurred on 2 October 2014, as opposed to 29 May 2012 when the High Court ruled that the English courts had jurisdiction under the Insolvency Regulations. This distinction was important to the appellants because of the possibility that the PPF may require the appellants to "claw back" any overpaid benefits between the commencement of the Greek liquidation in 2 October 2009 and the date of the relevant "European insolvency event", being either 2 October 2014 or 29 May 2012.

Definition of "establishment"

In considering the definition of "establishment" under article 2(h) of the Insolvency Regulations, the Supreme Court read the definition as a whole noting that the activities of a debtor must consist of being (i) "economic", (ii) "non-transitory", (iii) carried on from a "place of operations", and (iv) using the debtor's assets and human agents.

The Supreme Court considered that the definition required "business activit[ies] consisting in dealings with third parties and not pure acts of internal administration".

At the time of the English winding up petition, Olympic occupied an office in London and had three employees who responded to instructions from the liquidator and staff in Athens and carried out administrative activities connected with the liquidation.

Decision

The Supreme Court noted that activities carried out in furtherance of a liquidation were insufficient to satisfy the "establishment" requirement emphasising that "such an activity would not be 'exercised on the market'" and ignored the requirement that there be "economic activities".

The Supreme Court was reluctant to draw a precise boundary between these extremes and determined that on any reasonable view, Olympic was not carrying on any economic activities as at the date of the winding up petition. The remaining employees of Olympic were simply carrying out internal administration and the company could not be said to have had an "establishment" in the United Kingdom.

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