The High Court has delivered a significant judgment on the characterisation of fixed versus floating charges. 

Background

Administrators appointed to Avanti Communications Limited effected a pre-pack sale of its business and assets, including the "Relevant Assets": the satellite, network and ground stations, orbital slots and other related assets.  

Fixed or floating charge?

The Administrators sought directions from the Court as to whether security granted over the Relevant Assets constituted fixed or floating charges at the time of creation.  The Administrators adopted a neutral stance on the application, and the secured creditors were given leave to appear. A 'fixed charge characterisation' would allow the secured creditors to recover in full, whereas a 'floating charge characterisation' would reallocate part of the recoveries to UK tax authorities as preferential creditor and unsecured creditors (up to the 'prescribed part' of £800,000).

Decision

In a detailed judgment, Edwin Johnson J held that the Relevant Assets were subject to a fixed charge.  In doing so, he considered: 

• the charging clause expressed the charge over the Relevant Assets to be a fixed charge (although this is common, and not determinative) 
• that the Relevant Assets were subject to certain restrictions on disposal. However, it was not necessary that there be a total prohibition on all dealings in the asset without permission, but rather that the case law supported a more nuanced approach to characterisation, which depends on a combination of factors 
• the combination of factors in the present case gave the secured creditors very significant control such that Avanti was not free to deal with the Relevant Assets in the ordinary course of its business
• as to the nature of the assets – they did not resemble circulating assets of a company, but rather were income-generating infrastructure. 

Key takeaway

The judgment provides helpful and detailed guidance for future disputes as to the proper characterisation of security. 

Find out more

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

For further reading on this significant judgment see our Lending Focus article here.

Avanti Communication Limited, Re [2023] EWHC 940 (Ch)