UK: Olympic Airlines Fails To Land In The PPF

Last Updated: 2 January 2014
Article by Marcus Kealey

The recent Court of Appeal decision in Olympic Airlines1highlights the current gap in UK pensions legislation by which insolvency proceedings commenced in other EC member states are not recognised as qualifying insolvency events for the purposes of PPF entry.


The UK Pension Protection Fund ("PPF") compensates members of eligible salary related schemes where:

  •  the scheme's sponsoring employer has become insolvent; 
  • the scheme has insufficient assets to cover members' benefits; and 
  • the scheme meets the PPF entry criteria. 

In general, the PPF pays compensation equal to: 

  • The full amount of pensions in payment to members who are above the scheme's normal pension age at the date that the scheme enters a PPF assessment period; 
  • 90% of a member's pensions in payment if the member is under the scheme's normal pension age at the start of the PPF assessment period; and 
  • 90% of a member's entitlement if the member is an active or deferred member before the insolvency of the employer. 

However, in very general terms the PPF operates a compensation cap (which is revised annually). This currently stands at £34,867.04. 90% of the cap for a member under normal pension age at the start of the PPF assessment period is therefore £31,380.33.

Olympic Airlines

Olympic Airlines SA ("Olympic") was a Greek incorporated and state-owned airline which commenced operations in December 2003. Olympic carried on business in the UK from a London based head office but also had premises at Heathrow and Manchester and employed 27 UK based employees.

On 2 October 2009 Olympic was put into liquidation in Greece and a Greek liquidator was appointed. On 24 March 2010 the Greek liquidator gave instructions for the disposal of the airline's assets at its branches abroad. This triggered a series of events in the UK which included:

  • vacating the Manchester premises in May 2010;
  • cancelling all the direct debits at the airline's UK bank on 29 June 2010; and
  • termination of all UK employees' employment with effect from 14 July 2010.

Time for action...

On 20 July 2010, the trustees of the Olympic UK Pension and Life Assurance Scheme petitioned for the winding-up of the airline in the UK Courts. Under UK law the PPF can assume responsibility for a scheme only where the scheme's employer suffers a "qualifying insolvency event". Unfortunately, Olympic's liquidation in Greece did not constitute a qualifying insolvency event for the purposes of UK law, hence the trustees' had to petition for the winding-up of Olympic's UK branch (the "Secondary liquidation").

EU Regulations (implemented in UK national law) set out various criteria which must be satisfied if a Secondary liquidation is to be granted. The key requirement is that the foreign company must maintain an "establishment" in the UK at the date the petition for the Secondary liquidation is presented, in other words 20 July 2010 in this case.

Under the EU Regulations a foreign company maintains an "establishment"  in another country if it: (i) maintains a place of operations at which it carries on an economic activity; (ii) on a non-transitory basis (i.e. permanent) and where the company uses human resources and goods. The recent Court of Appeal decision in Olympic Airlines held that on 20 July 2010 Olympic Airlines did not have an establishment in the UK because it was not carrying on an economic activity at that date. The Court gave the following reasons:

  • by 20 July 2010 the airline had already been in liquidation in Greece for 10 months;
  • all UK commercial operations (e.g. flights and selling tickets) had ceased almost 10 months prior to 20 July 2010;
  • 27 UK employees had been dismissed and paid off with monies acquired from the Greek liquidator before 20 July 2010;
  • after the dismissal of the 27 employees only 2 ex-officers were employed on an ad-hoc basis for the purposes of the winding-up of the UK operations after 20 July 2010;
  • the funds to pay those 2 ex-officers probably originated from the Greek liquidator;
  • the London head office had no assets of any value;
  • the airline's UK bank accounts showed little or no "economic activity" other than to assist the Greek liquidator after 20 July 2010; and
  • no customers had any contact with the UK operation since 20 July 2010.

The upshot of the decision was that the Olympic UK Pension and Life Assurance Scheme was ineligible for entry into the PPF and as a result, the Olympic scheme's members did not qualify for compensation under the PPF.

Overseas' parent companies

The Court of Appeal's decision has inevitably caused a degree of nervousness for UK based schemes who rely on the financial strength of overseas' parents. Should they be nervous?

  • Arguably yes as there is currently a significant (and unjust!) gap in UK pensions legislation which does not recognise insolvency proceedings in other EC member states as qualifying insolvency events for the purposes of PPF entry.
  • To that end, trustees of defined benefit schemes whose sponsoring employer's financial health depends on the fortunes of a foreign parent should keep a close eye on that foreign entity and its financial covenant.
  • Trustees might also consider seeking some form of security or guarantee from the foreign parent in respect of its obligations toward the UK based scheme.
  • Trustees should also ensure that the UK based sponsoring employer is aware of its duty to notify the Pensions Regulator on the occurrence of the events specified under the Pension Regulator's notifiable events regime.

In response to the Olympic decision, the Pensions Regulator has updated its Statement "Identifying your statutory employer".  The Statement now provides additional guidelines for trustees who deal with overseas employers. As to the Olympic case, we understand that the scheme's trustees are set to appeal the decision to the Supreme Court.

We will continue to monitor the situation and keep you updated as matters progress. 


1.Olympic Airlines SA Pension & Life Insurance Scheme v Olympic Airlines SA[2013] EWCA Civ 643

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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