Key point

  • Secondary proceedings under the European Insolvency Regulations can only be opened where the debtor has an "establishment" at the relevant time, meaning a place of operations where the debtor carries on non-transitory and market-facing activity with human means and goods

The facts

Olympic Airlines SA ("Olympic"), a company incorporated in Greece, was put into special liquidation in Greece on 2 October 2009. Olympic had carried on business in England from premises in London, Heathrow and Manchester. It employed about 27 people and operated a pension scheme (the "Scheme"). The trustees of the Scheme issued a winding up petition against Olympic on 20 July 2010 in the English High Court, the proposed winding up being secondary proceedings within the meaning of the European Insolvency Regulation ("EIR"). The purpose of the proposed winding up was to ensure that the Pension Protection Fund could take responsibility for the Scheme's deficit of more than £15 million under section 127 of the Pensions Act 2004 (the liquidation in Greece not being sufficient for this purpose).

Pursuant to the EIR, secondary insolvency proceedings can only be commenced where the debtor has an "establishment", meaning a place of "operations where the debtor carries on a non-transitory economic activity with human means and goods". The High Court concluded that an establishment could exist where the economic activity being carried out was not market facing as long as there was some economic activity ascertainable by third parties (following the case of Interedil Srl (in liquidation) v Fallimento Interedil Srl and another). The judge also reasoned that most companies in liquidation do not carry out market facing activities, and that therefore, if the definition of establishment required outward facing activity, no company in liquidation could have an "establishment" for these purposes. As at the date of the winding up petition, Olympic employed two contractors who worked from the London office in order to wind down Olympic's English operations. The judge concluded this was sufficient for an establishment as economic activity was being carried on, albeit not market facing. The judge therefore made the winding up order, and Olympic appealed.

Decision

The Court of Appeal allowed the appeal against the winding up order. It held that for the purposes of the EIR, secondary proceedings could only be opened where the debtor carries on non-transitory market-facing economic activity with human means and goods. Secondary proceedings are not limited to liquidation proceedings, and therefore the definition of "establishment" should not be limited to a liquidation context. The judge in the lower court had omitted to take into account relevant case law and commentary (in particular the Virgos-Schmidt Report on the Convention on Insolvency Proceedings). On the date of the winding up petition, Olympic was no longer carrying on market facing activity, and therefore did not have an establishment in England. Accordingly, the English court did not have jurisdiction to make a winding up order.

Comment

Proposals were announced in late 2012 to amend the EIR, including a proposal to amend the relevant date for these purposes, from the date of opening of the secondary proceedings to the date of opening of the main proceedings. Such an amendment may resolve the difficulties highlighted by this case.

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