The liquidator of UKCloud Ltd (the Company) applied to the court for directions as to whether a debenture granted by the Company created a fixed or floating charge over certain internet protocol (IP) addresses. The lender argued that it had a fixed charge.

Fixed or floating?

There was no express fixed charge over the IP addresses in the debenture, only a fixed charge over “all licences, consents and authorisations”. The judge accepted that the language used was evidence of an intention to create a fixed charge but it was not determinative and consideration must also be given to the nature of the IP addresses and the question of control:

• Circulating capital: The IP addresses were not part of the Company’s circulating capital and did not fluctuate, a characteristic commonly associated with a floating charge, but the judge found that the point was inconclusive and it did not follow that the charge was fixed.

• Control: A critical issue was whether the lender exercised practical control over the IP addresses and the approach in Re Avanti Communications Ltd (see Alert) was followed. The judge found that the control provisions had not been exercised by the lender.  The agreement, therefore, constituted a "sham", and the charge was re-characterised as a floating charge.

Key takeaways

Lenders should ensure that practical control is exercised over an asset to avoid a fixed charge being re-characterised as floating. Care should also be taken as to the assets included within the fixed charge provision, as the court accepted the "all or nothing" approach, applying the same characterisation to all assets covered by the clause.

UKCloud Ltd (In Liquidation) [2024] EWHC 1259 (Ch).

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.