Vol 11 (2014) - Issue 6

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Pension Protection Fund Changes Following Olympic Airlines Case

The regulatory amendments drawn up by the Secretary of State for Work and Pensions following the outcome in Trustees of Olympic Airlines SA Pension & Life Assurance Scheme v Olympic Airlines SA have been drafted narrowly and may end up protecting no one other than the beneficiaries of the Olympic Airlines pension scheme.
Trustees of Olympic Airlines SA Pension & Life Assurance Scheme v Olympic Airlines SA also provides useful commentary on the meaning of establishment for the purposes of Council Regulation EC 1346/2000 on insolvency proceedings (the 'Insolvency Regulation') and demonstrates the importance of early presentation of a winding up petition where the entity in question is the subject of main insolvency proceedings in another Member State.

The issue
In the UK there is a lifeboat fund for members of eligible pension schemes called the Pension Protection Fund ('PPF'). The PPF is funded by certain schemes paying a levy each year. The money from these levies is then used to pay PPF compensation to members of eligible schemes. The aim of the PPF is to protect members of pension schemes funded by insolvent employers so those members do not 'lose out' on their pensions. Entry into the PPF is, understandably, limited and there are many conditions that must be met before a scheme (and therefore its members) will qualify for PPF compensation. One condition is that the employer sponsoring the vulnerable pension scheme must have suffered a qualifying insolvency event. A qualifying insolvency event has a strict meaning and is defined in s121 Pensions Act 2004. The definition sets out certain insolvency events which will count as qualifying insolvency events for the purposes of the Pensions Act 2004 and the PPF. This includes the winding up of a company by the Court under Part 4 or 5 of the Insolvency Act 1986.
In the recent case of Trustees of Olympic Airlines SA Pension & Life Assurance Scheme v Olympic Airlines SA, the High Court decided that it had jurisdiction to issue a winding up order in relation to Olympic Airlines (the 'Airline') on the petition of the Airline's pension scheme trustees on the basis that the Airline had an establishment in England within the meaning of the Insolvency Regulation. The Court of Appeal overturned that decision on the basis that the meaning of 'establishment' for the purposes of the Insolvency Regulation required more economic activity then the mere process of winding up a business. The Court of Appeal's decision denied the UK beneficiaries of the Olympic Airlines SA Pension & Life Assurance Scheme (the 'Scheme') entry into the PPF. This was because absent a winding up order in the UK, no qualifying insolvency event had occurred in relation to the Airline for the purposes of the Pensions Act 2004.

Background
The Airline was a Greek state-owned airline which commenced operations in Greece in 2003. It flew to many European destinations, including London Heathrow, and carried on business in England from a head office in Conduit Street, London, which it leased from an associate company. It also had premises at Heathrow and Manchester Airports and employed about 27 employees in England. Most of those employees were members of the Scheme.

Timeline of events:
– On 2 October 2009, following the decision of the European Commission that the Airline had received illegal state aid from the Greek State, it entered 'special' liquidation in Greece. This 'special' liquidation constituted 'main proceedings' for the purpose of the Insolvency Regulation.