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Insolvency litigation in the UK


Failed airline gets its slots back

When an insolvent airline had its UK airport slots withdrawn, Freshfields helped its administrators recover them.

Monarch Airlines Limited (MAL) went into administration on 2 October 2017. Its administrators planned to exchange its most valuable asset – its take-off and landing slots at UK airports – with other airlines to realise value for MAL’s creditors.

Summer slots lost

Airport Coordination Limited (ACL), which co-ordinates slot allocation for UK airports for the purposes of various EU regulations, was due to allocate slots for summer 2018 at the end of October 2017.

However, two days before the slot allocation date, ACL informed MAL that it had decided not to allocate MAL’s summer 2018 slots to it. This was because, as it was insolvent and in administration, MAL was no longer an ‘air transport undertaking’ and so not an ‘air carrier’ for the purposes of the relevant EU and UK regulations.

As a result, ACL said it had decided MAL was not entitled to its slots. This meant ACL would have simply returned MAL’s slots to a pool for reallocation to other airlines 48 hours later. Once allocated to other airlines, the slots could not be regained, and so they – and therefore value for creditors – would have been lost.

To prevent this outcome, on 26 October 2017 Freshfields and the administrators applied urgently for judicial review of ACL’s decision.

We applied urgently for judicial review of ACL’s decision.

Our application was heard by a divisional court, which unanimously upheld ACL’s original decision.

A tight connection

Following this setback, under intense time pressure and amid much publicity, the administrators needed to consider carefully whether to risk further creditor money on an appeal. In such circumstances, a strong relationship and trust between a client and its advisers are key. 

Within hours of the divisional court’s judgment, the administrators decided to seek an urgent appeal.

Showing the courage of their convictions, and their trust in the advice they were receiving, the administrators acted decisively. Following rapid consultation with stakeholders, they made up their minds and within hours of the divisional court’s judgment, we had applied – again on an urgent basis – for permission to appeal.

Extraordinarily, the Court of Appeal heard that application and the appeal itself two days later.

Airlines’ business prospects not in slot co-ordinators’ purview

The divisional court had agreed with ACL that MAL was no longer an ‘air carrier’ under the relevant EU regulations because, as an insolvent airline, with little or no chance of resuming operations, it could no longer be described as an ‘air transport undertaking’.

We argued before the Court of Appeal that this approach imposed a burden on airport slot co-ordinators to investigate an airline’s prospects of continuing to fly. No provision was made for such a responsibility in the relevant EU regulations, it would have cut across other regulators’ responsibilities and slot co-ordinators are neither appropriately resourced nor well-placed to undertake such investigations.

Failed airlines still entitled to hold slots

On 22 November, the Court of Appeal agreed, and unanimously allowed MAL’s appeal.

It ruled that an undertaking is still ‘an undertaking’ for the purposes of EU and UK law, even if it is a failed undertaking. And so a failed ‘air transport undertaking’ – ie a failed airline – with little or no prospect of resuming operations should still be considered an ‘air carrier’ for the purposes of the EU regulations. 

In practice, the Court of Appeal’s decision meant that even an insolvent airline retains its entitlement to receive its airport slots. 

The Court of Appeal’s decision meant that even insolvent airlines are entitled to airport slots.

As such, the Court ordered ACL to allocate MAL its slots immediately. This was a fantastic result for our client, allowing it to provide a significantly increased return to creditors.

The decision was also significant for the aviation sector: it is the first English decision considering the relevant EU slot regulation in 20 years – and the first time it has ever been considered at appellate level. 

The Court of Appeal’s decision provided clear guidance on the role and responsibilities of airport slot co-ordinators in the EU. Importantly for airlines, it also confirmed their ability to trade airport slots and raise capital using their slots as security.

Full-throttle litigation

Another remarkable aspect of this matter was the speed at which it progressed. The Court of Appeal overturned ACL’s original decision less than a month after it was made – we had condensed into a matter of weeks a trial and appeal process that typically takes years.

The speed at which the case progressed was remarkable.

As our client commented: ‘Quality of advice combined with speed of execution are key attributes of a successful administration transaction. Freshfields’ legal team provided both in spades.’

Our work was also recognised more widely, being commended by the Financial Times Innovative Lawyer Europe awards 2018.