Secondary insolvency proceedings


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The Supreme Court has considered the meaning of “economic activity” and “establishment” for the purpose of deciding whether there can be secondary insolvency proceedings in the UK pursuant to European Regulation 1346/2000.

In Trustees of Olympic Airways Pension and Life Assurance Scheme v Olympic Airlines SA [2015] UKSC 27, the court had to decide whether the activities of Olympic Airways in England were sufficient to justify a winding up order in England where the main insolvency was in Greece.

At the relevant time, Olympic Airways had ceased flight operations and their office in the UK consisted of three staff members who had been retained on short term contracts to deal with communications from the Greek liquidator and supervise the disposal of UK assets.

In order to allow secondary insolvency proceedings in the UK, brought by the trustees of the pension scheme who had a claim for a deficit of £16 million, the trustees had to show that the airline had an “establishment” in the UK.  According to the definition in article 2(h) “establishment” required a “place of operations” where the debtor carried out “non-transitory economic activity with human means and goods”.  The High Court originally made a winding up order, the Court of Appeal overturned it and so the matter went to the Supreme Court.

The court held that the definition of “establishment” had to be read as a whole, not broken down into discrete elements.  There had to be the use of the debtor’s assets and its human agents, which suggested a business activity consisting of dealings with third parties, not merely acts of internal administration.  The 1996 Virgos-Schmit report had referred to activities that had to be “exercised on the market” and the ECJ case of Interedil (C-396/09) had referred to activities that had to be sufficiently accessible to enable third parties, such as creditors, to be aware of them.  Accordingly, the activities of Olympic Airways had not been sufficient to justify the secondary insolvency proceedings.

The court observed that it might be sufficient where, for example, an overseas liquidator was disposing of stock in trade on the market or continuing the business with a view to its disposal.  However, the mere internal administration of its winding up would not suffice.

Paul Howcroft, Partner, Fladgate LLP (phowcroft@fladgate.com)

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