England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/05/2012

The Chancellor :

Introduction
1. In December 2003 Olympic Airlines SA ("OA"), a company incorporated in Greece under Greek Law 2190/1920, commenced operations as a state-owned airline providing scheduled flights to destinations in Greece, Europe and beyond. One of those destinations was London Heathrow. By its decision made on 17th September 2008 (C(2008) 5073) the European Commission determined that OA had received illegal state aid incompatible with the EC Treaty and ordered its immediate recovery by the Greek State. On 28th September 2009 OA informed its area managers, including its area manager in London Mr Tom Savva, that it would cease all commercial operations as of 0001 EEST the following day, its flight operations being undertaken by an unconnected company, Olympic Air. On 2nd October 2009 OA was put into 'special' liquidation by the Court of Appeal in Greece. The Court appointed Ethniki Kephaleou SA as OA's liquidator. It is common ground that those proceedings are the main proceedings for the purposes of Council Regulation (EC) 1346/2000 ("the Insolvency Regulation").
2. OA had carried on business in England from its head office at 11 Conduit Street, London, W1S 2LP. In addition it had premises in Manchester and a ticket office at Heathrow. It had about 27 employees. The employees, or most of them, were members of the Olympic Airlines SA Pension and Life Assurance Scheme ("the Pension Scheme"). The ticket office at Heathrow was closed in November 2009. On 24th March 2010 the liquidator gave instructions to the area managers of OA for the evaluation and disposal of OA's assets at its branches abroad. On 5th May 2010 the liquidator instructed overseas branch managers in relation to a new liquidation procedure. The premises in Manchester were vacated by OA in May 2010 and the contents moved to the head office of OA at 11 Conduit Street. On 26th May 2010 detailed and lengthy instructions were given to branch managers abroad in relation to outstanding issues regarding the closure of their branches. On 17th June 2010 the liquidator informed the trustees of the Pension Scheme that the employment of UK staff would be terminated and OA's contributions to the pension scheme in respect of them would cease with effect from 14th July 2010. On 29th June 2010 Mr Platanias, the financial and purchasing manager of OA in the UK, instructed OA's bank to cancel all direct debits and standing orders with immediate effect. On 2nd July 2010 the liquidator wrote to all 27 employees of OA terminating their employment with effect from 14th July 2010. The services of the General Manager, Mr Savva, the financial and purchasing manager, Mr Platanias and an accounts clerk, Ms Revi, were retained on an ad hoc basis.
3. As I have already indicated the UK staff of OA were members of the Pension Scheme. The Petitioners were and are the trustees of it. According to the Actuary's Certificate dated 6th December 2010, as at 31st May 2010 there were 29 employees whose benefit accrual ceased on the liquidation of OA on 2nd October 2009. The rules of the scheme required it to be wound up in consequence of the liquidation of OA, the principal employer. The deficit in the scheme due from OA to the trustees under s.75 Pensions Act 1995 is in excess of £15m. On 20th July 2010 the trustees presented to this court a petition to wind up OA based on the debt due by OA under s.75 and the inability of OA to pay it. Their purpose is to ensure that responsibility for the pension scheme is assumed by the Pension Protection Fund under s.127 Pensions Act 2004, the liquidation of OA in Greece not being a qualifying insolvency event for the purposes of that section.
4. It is not disputed that jurisdiction to wind up OA as an unregistered company exists under s.221 Insolvency Act 1986. The petition is opposed by OA on the ground that, as it is already being wound up in Greece where its main interests are situated, jurisdiction to wind it up in the courts of any other Member State is limited by the Insolvency Regulation Article 3(2) to those in which it possesses an establishment as defined in Article 2(h). OA contends that it did not, on 20th July 2010, have such an establishment in England. Article 2(h) provides:

"'establishment' shall mean any place of operations where the debtor carries out a non-transitory economic activity with human means and goods."

If I conclude that I do have jurisdiction to wind up OA, counsel for OA does not contend that in the exercise of the court's discretion I should refuse to do so. Accordingly the only issue is whether under the Insolvency Regulation this court has jurisdiction to wind up OA. That depends on (1) the proper construction of the Insolvency Regulation and (2) its application to the facts of this case. I will deal with those issues in that order.

The Insolvency Regulation
5. The recitals to the Regulation point out that the proper functioning of the internal market requires cross-border insolvency proceedings to operate efficiently and effectively. They note that insolvency proceedings are excluded from the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters. The difference between main proceedings and secondary proceedings is explained in recital (12) in that main insolvency proceedings are universal in scope in relation to both assets and liabilities but that:

"To protect the diversity of interests, this Regulation permits secondary proceedings to be opened to run in parallel with the main proceedings. Secondary proceedings may be opened in the Member State where the debtor has an establishment. The effects of secondary proceedings are limited to the assets located in that State. Mandatory rules of coordination with the main proceedings satisfy the need for unity in the Community."

Recitals (17) and (18) point out that secondary proceedings may precede or follow main insolvency proceedings.

6. Article 1 provides that the Regulation applies to all insolvency proceedings with exceptions not material to this petition. I have already quoted the material definition contained in Article 2. Article 3 provides:

"International jurisdiction

1. The courts of the Member State within the territory of which the centre of a debtor's main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.

2. Where the centre of a debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State.

3. Where insolvency proceedings have been opened under paragraph 1, any proceedings opened subsequently under paragraph 2 shall be secondary proceedings. These latter proceedings must be winding-up proceedings.

4. Territorial insolvency proceedings referred to in paragraph 2 may be opened prior to the opening of main insolvency proceedings in accordance with paragraph 1 only:

(a) where insolvency proceedings under paragraph 1 cannot be opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor's main interests is situated; or

(b) where the opening of territorial insolvency proceedings is requested by a creditor who has his domicile, habitual residence or registered office in the Member State within the territory of which the establishment is situated, or whose claim arises from the operation of that establishment."

I observe, in passing, that the definition of 'establishment' in Article 2(h) has been used in UNCITRAL, the Model Law on Cross-Border Insolvency adopted by the General Assembly of the United Nations on 15th December 1997.

7. It is now established that insolvency proceedings are 'opened' for the purposes of the Regulation, as defined in Article 2(f) on the date on which the petition for an order to wind up the company is presented to the court. See Staubitz-Schreiber (2006) Case-1/04 and Interedil srl v Fallimento Interedil srl (2011) Case C-396/09 paragraph 55. It is common ground that OA must be shown by the trustees to have had an establishment in England for the purposes of the Insolvency Regulation on the day the petition was presented to this court, namely 20th July 2010. It is also common ground that in the context of the Insolvency Regulation the word 'establishment' as defined in Article 2(h) is to be given an autonomous and uniform interpretation throughout the Union.
8. Its meaning has been considered by the Court of Justice of the European Union in Interedil srl v Fallimento Interedil srl (2011) Case C-396/09. In paragraphs 60 to 64 the Court said

"60 By the second part of Question 3, the Tribunale di Bari asks, in essence, how the term 'establishment' within the meaning of Article 3(2) of the Regulation must be interpreted.

61 Article 2(h) of the Regulation defines the term 'establishment' as designating any place of operations where the debtor carries out a non-transitory economic activity with human means and goods.

62 The fact that that definition links the pursuit of an economic activity to the presence of human resources shows that a minimum level of organisation and a degree of stability are required. It follows that, conversely, the presence alone of goods in isolation or bank accounts does not, in principle, satisfy the requirements for classification as an 'establishment'.

63 Since, in accordance with Article 3(2) of the Regulation, the presence of an establishment in the territory of a Member State confers jurisdiction on the courts of that State to open secondary insolvency proceedings against the debtor, it must be concluded that, in order to ensure legal certainty and foreseeability concerning the determination of the courts with jurisdiction, the existence of an establishment must be determined, in the same way as the location of the centre of main interests, on the basis of objective factors which are ascertainable by third parties.

64 The answer to the second part of Question 3 is therefore that the term 'establishment' within the meaning of Article 3(2) of the Regulation must be interpreted as requiring the presence of a structure consisting of a minimum level of organisation and a degree of stability necessary for the purpose of pursuing an economic activity. The presence alone of goods in isolation or bank accounts does not, in principle, meet that definition."

9. I have also been referred to a number of academic commentaries and other works on the meaning of the word 'establishment' in the context of the Insolvency Regulation. They are The Virgos-Schmit Report 1996 OJ L 6500/96 paras 24-33 and 71-80, which preceded the promulgation of the Insolvency Regulation; Virgos and Garcimartin on The European Insolvency Regulation: Law and Practice paras 289-302; Fletcher on Insolvency in Private International Law 2nd Ed. (2007) paras 7.39-7.56; Moss, Fletcher, Isaacs on The EC Regulation on Insolvency Proceedings (2009) 2nd Ed. 2009 paras 3.23 and 8.33-8.47 and Sheldon on Cross-Border Insolvency 3rd Ed (2012) paras 2.47-2.52. It is clear from all or most of these works that the word "goods" at the end of Article 2(h) should be understood to refer to assets generally, see also Re Office Metro [2012] EWHC 119 [19]. That apart, and with the greatest respect to the various editors I do not think that any of these commentaries adds anything to the words of the definition as explained by the Court of Justice of the European Union in Interedil. Each of them, save the last, was written before the judgment of the Court of Justice in Interedil. The last duly refers to Interedil but does not claim to add anything to the effect of that decision. In a number of them the authors illustrate their point by some paraphrase of the definition or part of it. Whilst helpful to their explanation of the definition I must be careful to apply the definition not the paraphrase. For these reasons I do not find it necessary to refer to any of these publications.
10. Both parties sought to refer me to decisions of national courts of other Member States. They were Rapla Invest AB Tallinn District Court 14^th June 2006, NV Interstore v Megapool BV Ghent Commercial Court February 2006 and Batteriservice & Transport Ltd Court of Appeal in Sweden February 2006. I do not consider that they can be or are of any assistance. First, they cannot be authoritative on the autonomous and uniform interpretation of the Insolvency Regulation which I have to apply; that is a matter for the Court of Justice. Second, a comparison with the facts of previous cases in which the same provision was applied is seldom of any value in determining the proper application of that provision to the different facts of the instant case even where both are decisions of courts of the same Member State. Such a comparison with a decision of a court of another Member State can be of no greater value and is liable to be positively misleading due to the application of different provisions of the national law to the underlying facts which may not be apparent from the reports. Accordingly, I do not consider that it is necessary to refer to any of those decisions either.
11. In the light of all this material it is clear that to be an establishment for the purposes of the Insolvency Regulation the following qualities must be present on the date the petition was presented:

(1) a place of operations, at which -

(2) the company carries out an activity which is:

(a) economic, and

(b) non-transitory,

(3) with

(a) human means, and

(b) assets.

As the Court of Justice held in Interedil this involves a structure with a minimum level of organisation and a degree of stability necessary for the pursuit of an economic activity.

The Facts
12. The evidence before me consisted of a formal witness statement of David Archer, a director of the corporate trustee of the pension scheme on behalf of all the trustees in support of the petition. A formal witness statement of Mr Athanassios Mavrommatis the chief executive officer of the liquidator was filed formally opposing the petition. Mr Archer was not ordered to attend for cross-examination. Mr Mavrommatis was but the petitioner does not dispute the civil evidence act certificate to the effect that he cannot attend due to a slipped disc. In the light of the evidence both written and oral I have received from the remaining witnesses I have no need to place any weight on the contents of the witness statement of Mr Mavrommatis. The principal witnesses were Mr Vasilis Platanias for the trustees and Ms Maria Assimakopoulou for OA. Both made witness statements and both were cross-examined on them. Neither sought to contradict the basic underlying facts to which I have referred in paragraphs 1-3 above.
13. Mr Platanias was the financial and planning manager of OA in London. He retired in February 2010 but was retained on a short term ad hoc contract with effect from 1st March 2010. When the contracts of employment of the UK Staff of OA were terminated with effect from 14th July 2010 his ad hoc contract continued. He was paid £2,500 per month. He attended the offices of OA in Conduit Street daily until 14th July 2010 and thereafter as required. He paid suppliers and utility bills, reconciled bank statements, copied and sent relevant documents and records to the liquidator in Athens and dealt generally with the post and telephone calls. He pointed out that OA had assets in England comprising a current and deposit account, computers and office furniture and fixtures and fittings. Mr Platanias was a signatory to the letter to Ms Assimakopoulou and others in Athens dated 1st June 2010 reporting on the disposal of OA's assets in England pursuant to the new liquidation procedures notified to them on 5th May. They came under general headings of Furniture, Computer Equipment and One Car. The letter concluded with an estimate of the cost of forwarding the fixed assets to Athens in the sum of €20,000. Only the van was disposed of for £1,600 and, seemingly, was not an asset of OA anyway. Mr Platanias agreed that the rest had no worthwhile second hand value.
14. The documentary evidence shows that it was to Mr Platanias that the bank manager turned when, on 24th June 2010 there were insufficient funds in OA's account to make the BACS payroll payment. It was Mr Platanias who, on 29th June 2010 wrote to the bank to cancel all standing orders and direct debits. He was responsible for working out the amounts due to employees as at 14th July so that the appropriate amount might be remitted to OA in England from the liquidator in Athens. Mr Platanias did not complete the disposal of assets until well after the date of the presentation of the petition. Such assets included not only the office fixtures and fittings but computerised accounting records. The telephone and internet services of OA in the office in Conduit Street continued until the end of 2010. Mr Platanias put the time of the final closure of the office in Conduit Street as December 2011. In cross-examination counsel for the OA sought to minimise the functions and responsibilities of Mr Platanias. In my judgment he did not succeed. Mr Platanias struck me as a truthful witness seeking to assist the court. I accept his evidence. His functions and responsibilities appear to me to be exactly what is to be expected from one responsible to an overseas liquidator for winding up the affairs of a foreign branch of a formerly substantial overseas trading company.
15. Mr Tom Savva did not give evidence. He was the former general manager of the London Branch of OA and the area manager for the UK. He had retired in August 2008 but was re-engaged by OA on the terms of an ad hoc contract similar to that with Mr Platanias. e haHHHe passed on to the employees in England the information of the impending liquidation in Greece sent to him on 28th September 2009. Like Mr Platanias he was paid monthly both before and after the petition was presented to this court by the trustees on 20th July 2010. The documentary evidence shows in respect of Mr Savva the same pattern as in the case of Mr Platanias. He attended the offices of OA at 11 Conduit Street three or four days a week to deal generally with what required attention, not least instructions or requests from the liquidator in Athens.
16. The principal witness for OA was Ms Maria Assimakopoulou. She had been the Chief Financial Officer of OA since May 2004. She has been retained by the liquidator on a full time basis in the same capacity. She works in Athens. She indicated that OA's deficiency with regard to creditors is approximately €500m. She explained that OA had 30 branches in all. It was not until March 2010 that the liquidator turned his attention to the branch in London. She was the link between the liquidator and Mr Savva the general manager of the London office. She doubted whether there was much contact with former customers after June 2010 because they would have known that OA was in liquidation. She explained that the offices in Conduit Street were owned by an associated company Olympic Airways SA and leased from that company by OA. At least some part of the overheads such as council tax, electricity and cleaning was paid by OA in respect of periods after 14^th July 2010.
17. I accept that Ms Maria Assimakopoulou was a truthful witness also. There was little if any conflict between her evidence and that of Mr Platanias. If and in so far as there is any material conflict I prefer the evidence of Mr Platanias as to what was actually happening in the office in Conduit Street and that of Ms Assimakopoulou as to events in Athens and communications between the liquidator in Athens and either Mr Savva or Mr Platanias in London.
Submissions of counsel and conclusion
18. Counsel for the trustees accepted that the relevant date was 20^th July 2010 so that he had to establish that OA had an establishment in England on that day. But he rejected the suggestion that it was but a snapshot; the facts on that date need to be evaluated by reference to what went before and what followed after. He relied on the facts that:

(1) OA had employees, Mr Savva, Mr Platanias and Ms Revi, so as to satisfy the requirement for the use of "human means".

(2) OA had assets or goods in the form of computers, office fixtures and fittings, a motor vehicle and bank accounts.

(3) OA had a place of operations as it was the lessee or licensee in possession of the office at 11 Conduit Street.

(4) OA was conducting an economic activity in its employment of Mr Savva, Mr Platanias and Ms Revi and the winding up of its affairs by disposing of its assets and distributing the proceeds amongst its creditors.

(5) Those activities, though they would not be perpetual, were not, on 20^th July 2010, transitory.

19. Counsel for OA did not challenge the use of human means or the existence of assets. In his submission there was no sufficient place of operation or non-transitory activity because the operations of OA in England at the relevant time were not external or outward facing to the market. He maintained that an establishment predicated activities as an emanation of the operational structure of OA. He contended that the only activity carried on by OA at the relevant time was the internal running down of its business. He made no submissions in relation to what the position might have been before 20^th July 2012, in particular down to 14^th July. Whatever the position then, there was, in his submission, no establishment on or after 20^th July 2010.
20. As I have indicated before, I have to apply the words of the Insolvency Regulation in accordance with the autonomous and uniform interpretation indicated by the Court of Justice in Interedil srl v Fallimento Interedil srl in the paragraphs I have quoted in paragraph 8 above. I start from the proposition that the liquidation of an insolvent company and the winding up of its affairs is not, as such, incompatible with the possession of an establishment. That is clear from the Insolvency Regulation as a whole and recital (12) in particular. If a company in liquidation could not have an establishment then there would be no scope for the secondary proceedings the Insolvency Regulation clearly envisages. Nor is there any suggestion in the recitals or elsewhere that such a secondary proceeding is confined to companies whose pre-liquidation business is continued by the liquidator. So the fact that OA was put into liquidation on 2^nd October 2009 is consistent with the continuation of the establishment of OA in England that clearly existed before then. At the other end of the process of liquidation there will come a time when the company's assets have all been disposed of and the proceeds distributed amongst the creditors so that all that remains, under English law, is the formal act of dissolution. At that time, at least, the company will no longer have an establishment. That point had certainly not been reached by OA on 20^th July 2010.
21. I accept that, in this case, the relevant time when the existence or not of an establishment has to be judged is Tuesday 20^th July 2010 for that is when this petition was presented to the court. I also accept that the facts as established at that date need to be evaluated in the light of what came before and what followed after. Thus, until Thursday the previous week OA had a work force of 27 other employees and for many months thereafter it had a fully equipped office with computers, telephone and internet facilities and a skeleton staff of two with a third for the first three weeks. In that period the remaining staff were reconciling accounts, dealing with creditors, responding to enquiries from the head office in Athens and dealing with anything else which required attention. What they were not doing, and had not done for many months, was selling air tickets.
22. In those circumstances it is clear that OA satisfied each of the conditions I have enumerated in paragraph 10(1) and (3) above. Equally it is clear that such activities were not transitory. They may not have been permanent, as counsel for OA suggested, but permanence is not a requirement of the definition. The remaining question is whether OA's activities carried on at that place and with those means were not only non-transitory but 'economic' too. The submissions for OA presuppose that that word implies some external market activity. I do not accept that submission. First, the word 'economic' does not, at least in English, carry any external market overtones. I acknowledge that that is not the test for a term of a Commission Regulation requiring an autonomous and uniform interpretation throughout the European Union. But, second, external market activities are inconsistent with the generality of companies in liquidation which, by definition, do not engage in external market activities any longer. It is not necessary to consider whether the continued employment of Mr Savva and Mr Platanias was itself an economic activity because their employment and the functions they discharged, in my judgment, plainly, were.
23. That is not to say that the activities of OA did not have to be outward in the sense of enabling the existence of its establishment to be ascertainable by third parties on the basis of objective factors. That requirement is apparent from the judgment of the Court of Justice in paragraph 63 of its judgment in Interedil srl v Fallimento Interedil srl which I have quoted in paragraph 8 above. It is not disputed that by 20^th July 2010 the sign outside the office in Conduit Street proclaiming it to be the office of Olympic Airlines SA had been removed. But OA remained in possession and occupation of it for some months thereafter. That was ascertainable by anyone who went there and talked to Mr Savva or Mr Platanias, rang up on the telephone numbers of OA or wrote to OA at the Conduit Street address. In that sense, at least, OA in London continued to appear to be, as it was, an emanation of OA in Greece. In the words of the Court of Justice in Interedil srl v Fallimento Interedil srl on 20^th July 2010 OA had a structure both physical and organisational and the degree of stability required to complete the winding up of OA in England with the human means and other assets then available to it.
24. For all these reasons I conclude that OA did have an establishment in England on 20^th July 2010 thereby conferring jurisdiction on this court to order its winding up in England under Article 3(2) Insolvency Regulation. As I have indicated, counsel for OA has made no submissions on the question of whether I should, in the exercise of the court's discretion, make the order sought. I have no doubt but that I should. Not only are the trustees of the Pension Scheme indisputable creditors for a substantial amount which OA cannot pay but only a winding up order will suffice. That is for two reasons. First, s.121(3) Pensions Act 2004 does not list a winding up outside the UK as an "insolvency event" sufficient to trigger the duty to assume responsibility imposed on the Pension Protection Fund by s.127 of that Act. Secondly, Article 3(2) Insolvency Regulation precludes any secondary proceeding which is not a winding up proceeding.
25. For all these reasons I will make the usual compulsory order.