Foreign winding up – jurisdiction to open secondary proceedings – EU Regulation on Insolvency Proceedings – Article 3 – establishment – economic activity

The Greek courts wound up Olympic Airlines on 2 October 2009. The appellant trustees of Olympic’s pension scheme presented a winding up petition in England on 20 July 2010. An English winding up order was necessary in order for the pension scheme (with a deficit of £16m) to qualify for entry into the Pension Protection Fund under section 127 of the Pensions Act 2004.

The question arose as to whether the English courts had jurisdiction to make a winding up order. It could only do so if Olympic had an “establishment” in the jurisdiction within the meaning of Article 3 of the EU Regulation (1346/2000) on Insolvency Proceedings. On the date of presentation Olympic maintained a small office in London, with three employees whose work consisted of nothing more than assisting the Greek liquidator in winding up the company’s affairs.

The Supreme Court, dismissing the appeal, agreed with the Court of Appeal (but not the Chancellor, who gave judgment at first instance) that Olympic had no “establishment” at the relevant time. Relying on the text of the report accompanying the Regulation, the Supreme Court held that an “establishment” required activities that were economic, non-transitory, carried on from a place of operations and using the company’s assets and human agents.

Some activities in liquidation, such as the carrying of business by a liquidator, will be sufficient to amount to the company having an “establishment”, however where a company has no subsisting business it was not the case that the mere internal administration of its winding up would qualify. That was the case here, no relevant business was being carried on at the date of the presentation of the petition. Accordingly, the English courts had no jurisdiction.

As a postscript, before the hearing of the appeal Parliament amended the relevant “insolvency event” under the Pensions Act 2004 to permit, in this specific instance, Olympic’s pension scheme to qualify for the Pension Protection Fund, even if no English winding up order was made. However, the decision remained important for certain technical reasons governing the amount of overpaid benefits the scheme would have to clawback.

In a short and clear judgment the Supreme Court highlighted the important economic factor at the heart of the meaning of “establishment” in the Insolvency Regulation.