On 25 April 2023, the court handed down its decision in Avanti Communications Ltd, Re [2023] EWHC 940 (Ch) which is the first case to discuss the differences between fixed and floating charges since the House of Lords judgment in Re Spectrum [2005] 2 AC 680.
It specifically discussed the degree of control required by a secured creditor to evidence a fixed charge.
Background
Avanti Group is a UK satellite operator. The company went into administration and its assets were sold to its secured creditor.
The assets included a satellite payload, equipment used in the operation of network and ground station facilities, satellite network filings and ground station licences which entitled the company to operate the ground station assets.
The administrators asked the court to determine whether assets sold were secured by fixed or floating charges. They adopted a neutral stance, HMRC (the largest preferential creditor) did not want to be heard, and the secured creditor argued that the assets were fixed charges.
Why does this matter?
Because it the assets sold were fixed charge assets then the sale proceeds would go to the secured creditor of the company. If the assets sold were floating charge assets then the sale proceeds would go towards preferential creditors (such as HMRC) and unsecured creditors.
What did the court say?
The charge over the assets was held to be a fixed charge (and not a floating charge).
The company had certain permissions to deal with the assets but that still did not prevent the assets being fixed charge assets, as those permissions were limited. The court did not agree that after Spectrum only a total restriction on any disposal of charged assets without consent would be sufficient to create a fixed charge.
Mr Justice Edwin Johnson commented:
I can see that it is helpful, in considering the question of whether a charge is fixed or floating, to look at the range of possibilities as a spectrum, with total freedom of management at one end of the spectrum and a total prohibition on dealings of any kind at the other end of the spectrum…what I cannot see is that a charge will only be fixed if it is located at the total prohibition end of the spectrum. The case law seems to support a more nuanced approach which depends on a combination of factors.
Here, the company was only able to deal with the assets on a limited basis and the assets were quite difficult to transfer in any event. There were restrictions in place for disposing of them. The assets weren’t fluctuating (like stock or book debts) and were not used in the ordinary course of the company’s business. They were used to generate income for the company.
When coming to its decision the court said that there was a two-stage process:
1) To review the debenture or charge documents to determine the intention of the parties from the language used.
2) The court must then consider the categorisation of the specific asset in question – it does not matter what label was attached to it in the charge documents. It will be a matter of law.
Comments
This is a helpful decision for creditors taking fixed charge security.
The full judgment can be found here: https://www.bailii.org/ew/cases/EWHC/Ch/2023/940.html