Airline Insolvency

Re Swissair Schweirische Luftverkehr-Aktiengesellschft: Flightline Limited v Edwards & Another, Court of Appeal, 5 February 2003

Normally, a freezing order would not give the claimant any better rights over the defendant's assets in its subsequent liquidation. However, the decision in Flightline demonstrated how a claimant can, in certain circumstances, improve his position.

Flightline commenced an action for damages against SwissAir in January 2002 obtaining a freezing order on 16 January 2002 which was discharged on payment by SwissAir of £4,260,747.06 into an escrow account in the names of the parties' solicitors. SwissAir undertook that it would not withdraw or in any way dispose of or deal with any of its interest in the monies in the account up to a limit of £3.325 million pending an order of the court or written consent of both parties' solicitors.

On 4 April 2002, provisional liquidators were appointed to SwissAir. Flightline sought the court's permission under Section 130(2) of the Insolvency Act 1986 to continue its damages claim against SwissAir. The application was opposed by the provisional liquidators who argued that the sums in the escrow account were SwissAir's property and should be remitted to the provisional liquidators.

As a matter of general law, a freezing order does not confer any proprietary rights on the claimant. The claimant remains unsecured. On liquidation the injunction is discharged and the insolvent company's property is passed to the liquidator to be realised and distributed to unsecured creditors rateably.

The authorities are clear that if monies were paid into court either as a result of conditional leave to defend or as a Part 36 Offer, then those monies were effectively security for the claim whether or not the money was paid in involuntarily or voluntarily. If monies were paid into an escrow account in lieu of payment into court, then the money in that escrow account would have the same status as if it had been paid into court.

However, since a freezing injunction would not give a creditor a...