Re Alitalia Linee Aeree Italiane and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 18 January 2011 |
| Neutral Citation | [2011] EWHC 15 (Ch) |
| Court | Chancery Division |
| Date | 18 January 2011 |
| Docket Number | Case No: 11695/2009 |
[2011] EWHC 15 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before: Mr Justice Newey
Case No: 11695/2009
IN THE MATTER OF ALITALIA LINEE AEREE ITALIANE S.p.A.
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
AND IN THE MATTER OF EC REGULATION ON INSOLVENCY PROCEEDINGS 1346/2000
Mr Stefan Ramel (instructed by Osborne Clarke) for the Applicants
Miss Lexa Hilliard QC and Miss Georgina Peters (instructed by Addleshaw Goddard LLP) for the Respondent
Hearing date: 30 November 2010
Mr Justice Newey :
Introduction
This case concerns the relationship between (a) "secondary proceedings", as defined in the EC Regulation on Insolvency Proceedings 1346/2000 ("the Insolvency Regulation"), opened in this jurisdiction and (b) insolvency proceedings in respect of the same company opened in the member state of the European Union (here, Italy) in which the company's "centre of main interests" (or "COMI") was situated.
The particular point raised by the case is whether assets in this jurisdiction should be applied in discharge of liabilities which are not preferential as a matter of English domestic law but which would be accorded priority under Italian law.
Factual background
The company at issue is Alitalia Linee Aeree Italiane S.p.A. ("Alitalia"), the well-known airline. By August 2008 Alitalia was heavily insolvent, as a consequence of which, on 29 August, the President of the Italian Council of Ministers issued a decree admitting the company to Italy's extraordinary administration procedure. On 4 September the Court of Rome admitted Alitalia to the extraordinary administration procedure for large companies. The Respondent to the present application, Professor Fantozzi, was appointed as administrator.
As Professor Fantozzi explains in his evidence, Italy's extraordinary administration procedure was introduced following the collapse of Parmalat S.p.A. and is intended to facilitate the reorganisation of large insolvent companies. The procedure applies only to companies having more than 500 employees and indebtedness in excess of €300 million. It enables a company's business to be restructured on the basis of a two-year plan proposed by the administrator.
It is common ground between the parties that Alitalia's COMI was in Italy and so that the administration there represented "main" proceedings for the purposes of the Insolvency Regulation.
On 31 October 2008 Professor Fantozzi received an offer for assets and contracts of the Alitalia group, of which Alitalia was part, from a company called Compagnia Aerea Italia S.p.A. ("CAI"). The price was to be in excess of €1 billion.
Matters were, however, complicated by a ruling from the European Commission, issued on 12 November 2008, that Alitalia had received unlawful state aid from the Italian Government. In a second decision of the same date, the Commission held, in broad terms, that if the proposed sale to CAI contained elements which gave rise to a state of "economic continuity" between Alitalia and CAI, the Italian Government would be obliged to recover the unlawful state aid from CAI. However, the Commission decided that there would be no such "economic continuity" if CAI assumed only those staff of Alitalia indispensable to its operational activity, without any automatic transfer of employment contracts.
In the circumstances, CAI re-submitted its offer on 19 November 2008, making it clear that the offer was for the purchase of specified assets and contracts, not for the business as a going concern. Professor Fantozzi accepted that offer on the following day, and a further contract was entered into on 12 December.
To avoid "economic continuity", and so to facilitate the sale to CAI, Professor Fantozzi had to terminate the contracts of all Alitalia's existing employees. A consultation process was embarked on with representative employees across more than 40 countries. The process led to compromise agreements being entered into in January 2009 with, among others, 46 employees based in England and Wales. The agreements provided for the employees to be paid sums by Alitalia in two tranches. The sample agreement I have been shown, which is dated 20 January, stated that the first tranche (the "termination payment") would be paid within 28 days and that the second tranche (the "protective award payment") would be paid within 14 days of 13 April provided that, among other things, no proceedings had been brought in the Employment Tribunal. I was told that these latter payments were equal to the relevant employees' gross basic pay for 90 days and were made essentially for failure to inform and consult employees in the manner prescribed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE").
The assets comprised in the sale to CAI were transferred on 12 January 2009. The employment of all employees (including those in England and Wales) was terminated on the same date.
By now, winding-up proceedings had been instituted in this jurisdiction. A winding-up petition was presented on 27 November 2008 by the trustees of the Alitalia Italian Airlines Pension and Assurance Scheme, founded on indebtedness put at £20,631,000. The trustees had informed Professor Fantozzi in a letter dated 5 November that they had resolved to bring secondary insolvency proceedings "with a view to triggering a relevant insolvency event for the purposes of commencing an assessment period under the regulations governing the Pension Protection Fund". A winding-up order was made on the petition on 22 January 2009.
Alitalia had two bank accounts in this jurisdiction: a current account and a business premium account to which balances were swept on a daily basis. Both accounts were held with Barclays Bank. The company had used the accounts for trading purposes before it was put into administration, and they continued to be so used after it had gone into administration. As Professor Fantozzi points out in his evidence, it would have been open to him, following his appointment as administrator of Alitalia, to transfer the funds in the Barclays accounts out of the jurisdiction. The money was left in the accounts, as Professor Fantozzi explains, with a view to its being used to make payments to the employees based in England and Wales and to other local creditors.
The first tranche of the payments due to employees under the compromise agreements was made from the current account with Barclays in early February 2009. These sums totalled some £576,175.23. The second tranche of payments, amounting in aggregate to £363,522, has not been made and is now long overdue. The present application is concerned with whether, as Professor Fantozzi wishes, the sums in the Barclays accounts can be used for this purpose. In this connection, Professor Fantozzi has said the following:
"It is confirmed that under Italian law, if the sums due to the Former Employees under the Compromise Agreements are not paid from assets in the UK, then I will be obliged to use the funds otherwise available to me to pay the Former Employees in full."
Alitalia has immense debts. In September 2008 it was estimated that the company had liabilities of more than €2.836 billion, and some 13,000 claims against the group have so far been lodged. It is not at present expected that unsecured creditors will receive any dividend.
The Applicants ("the Liquidators"), who are, respectively, a director of, and a partner in, PricewaterhouseCoopers LLP, were appointed as joint liquidators of Alitalia in England and Wales with effect from 16 June 2009. They issued the application which is now before me on 12 January 2010. The application seeks, in particular, a declaration that the second tranche of payments to employees based in England and Wales:
"insofar as they are a debt of Alitalia which is provable by the former Alitalia employees in the English Proceedings [i.e. the winding-up proceedings in England and Wales], are unsecured and shall rank pari passu with all other debts of Alitalia for the purposes of the English Proceedings".
Professor Fantozzi's contention, however, is that the second tranche of payments should be made from the Barclays accounts.
As at 30 June 2009, the funds held in the Barclays accounts amounted to £739,926.70.
The framework
The Insolvency Regulation provides for "main" insolvency proceedings to be opened in the member of the European Union ("Member State") in which the debtor has his COMI. "Secondary" proceedings can, however, be opened in another Member State if the debtor has an "establishment" there. Under Article 3 of the Insolvency Regulation, secondary proceedings must be "winding-up proceedings" and their effects are restricted to the assets of the debtor in the Member State where the secondary proceedings have been opened.
Recitals (11) and (12) to the Insolvency Regulation explain what is intended as regards secondary proceedings. They state:
"(11) This Regulation acknowledges the fact that as a result of widely differing substantive laws it is not practical to introduce insolvency proceedings with universal scope in the entire Community. The application without exception of the law of the State of opening of proceedings would, against this background, frequently lead to difficulties. This applies, for example, to the widely differing laws on security interests to be found in the Community. Furthermore, the preferential rights enjoyed by some creditors in the insolvency...
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