Olympic Airlines judgment prompts calls for slack in PPF rules

The case centred on the level of PPF compensation members of the Olympic Airlines UK scheme were entitled to after the parent company became insolvent in Greece.

Lawyers disagreed whether the case had wider implications for other schemes. However some said the government action last year allowing Olympic members entry into the PPF should be widened to apply to other UK schemes with overseas sponsors.

Penny Cogher, head of pensions at law firm Charles Russell Speechlys, said the problem had been caused by an inconsistency in the PPF entry requirement.

“It would be nice if the amendment was made; some of the schemes are still paying a PPF risk-based levy,” she said.

Cogher said that while entry into the PPF would reduce member benefits, it is preferable to the scheme being an unsecured creditor of the Greek sponsor.

Parent company Olympic Airlines went into liquidation in Greece in October 2009, but rules meant this did not trigger an assessment for its UK scheme to enter the PPF.

The following July, trustees petitioned the High Court to wind up the company, allowing the insolvency event to qualify in the UK, therefore allowing the scheme entry into the pensions lifeboat.

While the company is liable to pay the scheme’s £16m deficit, a summary of the case from the Supreme Court this week stated it is “unlikely to be able to do so”.

The trustees won’t know the extent to which there could be a clawback [of benefits]

Jo Ratcliffe, Walker Morris

However, members of the UK scheme are eligible for compensation from the PPF for the shortfall, payable from the date of the qualifying insolvency event on October 2 2014, when an amendment to entry regulations was passed by pensions minister Steve Webb.

But the trustees wanted compensation to be payable from July 2010, when the petition was first presented to the High Court.

The case for change

David Pollard, partner at law firm Freshfields Bruckhaus Deringer, said: “If you go into insolvency where your centre of main interest is, there are limits against having the same insolvency process in another member state,” adding, “You can if it has an establishment in another base.”

As of July 20 2010, Olympic Airlines had ceased commercial operations and terminated contracts with all its UK staff except for the general manager, purchasing manager and an accounts clerk at head office, who were retained to carry out instructions from the liquidator and other administrative duties.

But in June 2013 the Court of Appeal ruled this did not constitute an “establishment” in the UK and did not give the court jurisdiction for a winding-up order.

Pollard said: “The government looked at this last year and put an amending legislation through, but it can only apply to Olympic Airlines,” adding that the UK regulations are too restrictive.

A spokesperson for the Department for Work and Pensions said: “Any future changes to legislation in this area will be for the new government to consider.”

Jo Ratcliffe, partner at law firm Walker Morris, said trustees facing uncertainty around an insolvency event should seek both actuarial and legal advice on what level of benefits they should pay.

“The trustees won’t know the extent to which there could be a clawback [of benefits],” she said.