Olympic Airlines SA Pension & Life Insurance Scheme v Olympic Airlines SA

For secondary insolvency proceedings under the Insolvency Regulation (Council Regulation (EC) 1346/2000), an establishment requires, at the date the court’s jurisdiction is invoked, a place of operations where non-transitory economic activity is carried on with human and physical resources. The activity requires an external or market-facing function. An office, residual assets, or a skeleton staff conducting only the winding-up does not suffice. Liquidation does not itself prevent an establishment where genuine trading or other external activity continues. Earlier and later events may illuminate the critical date, but later winding-up activity cannot create jurisdiction. On the facts, no English establishment existed.

Olympic Airlines SA, incorporated in Greece, entered special liquidation there after ceasing commercial operations. The trustees of its English pension and life assurance scheme presented a petition for an English secondary winding-up because the Greek liquidation did not qualify for Pension Protection Fund protection under section 127 of the Pensions Act 2004. By the critical date, most English employees had been dismissed, while two former officers remained at the London office on ad hoc contracts dealing with the liquidator’s requirements and residual administration.

The Chancellor held that an establishment existed: [2012] EWHC 1413 (Ch). The airline appealed, arguing that internal activity involved in winding down the business was not economic activity within article 2(h). The central issue was whether the English operations satisfied the establishment requirement for jurisdiction under article 3(2).

Sir Bernard Rix gave the leading judgment. Sir Stephen Sedley and Lord Justice Moore-Bick agreed.

1. Appeal allowed. There was no jurisdiction on 20 July 2010 to commence secondary insolvency proceedings in England.
2. Article 2(h) of the Insolvency Regulation requires a place of operations where non-transitory economic activity is carried on with human and physical resources. The definition must be interpreted autonomously. The Virgós-Schmit Report was an authoritative, although non-binding, commentary, as recognised in In re Stanford International Bank Ltd [2011] Ch 33 and Shierson v Vlieland-Boddy [2005] EWCA Civ 974.
3. The purpose of secondary proceedings, including protection of local interests, prevents the definition from extending to any former office with residual assets and caretaker activity. Economic activity means activity exercised externally on the market. A dormant branch, an unstarted branch, or a branch reduced to economic inactivity is insufficient. This approach was consistent with Interedil SRL (in liq.) v Palimento Interedil SRL Case C-396/09 and the objective, third-party-ascertainability requirement.
4. The question is determined when the insolvency court’s jurisdiction is invoked. Earlier and later events may illuminate the position at that date. Liquidation does not automatically prevent an establishment, since a debtor may continue genuine trading and secondary proceedings opened before main proceedings need not be winding-up proceedings. The mere process of winding-up, however, is not economic activity.
5. By the critical date, commercial operations had ceased, the English workforce had been dismissed, and only two former officers remained on ad hoc contracts. Their activities consisted of winding-up administration, with no finding of customer dealings or any external economic function. The facts substantially resembled Re Office Metro Ltd [2012] EWHC 1191 (Ch) and In re British American Insurance Company Limited 425 BR 844. The airline therefore had no establishment. The English winding-up was consequently set aside in jurisdictional terms, despite the court’s regret that scheme beneficiaries would remain without Pension Protection Fund protection.

• Court of Appeal (Civil Division): [2013] EWCA Civ 643. Appeal allowed; no English jurisdiction existed to commence secondary insolvency proceedings.
• High Court of Justice, Chancery Division: [2012] EWHC 1413 (Ch). The Chancellor held that an establishment existed at the relevant date.