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The English High Court recently published its findings in the latest high-profile case relating to the characteristics of English law fixed and floating charges, and the differences between them, this time in relation to the assets of a UK-based satellite operator (which was in administration). 
This is a helpful example of the court’s application of the relevant case law in this area including the leading case, Re Spectrum Plus Ltd [2005] 2 AC 680, and is of note for finance lawyers, given its examination of the permitted disposal of assets expressed to be subject to fixed charge security. 
In this particular case, the assets secured by a purported fixed charge were certain “space assets” (including a satellite, satellite network filings, and registrations and ground station assets) and the judge’s finding that the charge was fixed rather than floating took into account the nature of those assets. This reflects our own experience on transactions involving these kinds of assets, which are often indivisible, relate to a specific area of network coverage and are generally difficult to transfer. 
<h4>Facts</h4>
On 25 April 2023, the English High Court handed down its judgment in In the Matter of Avanti Communications Limited (In Administration) and In the Matter of the Insolvency Act 1986 ([2023] EWHC 940 (Ch)), a case in connection with the administration of Avanti Communications Limited, an English company within the Avanti group of companies, a UK-based provider of satellite connectivity services. 
The administrators asked the court to determine whether the company’s secured creditors’ fixed charge over certain of the company’s assets (including satellite and ground equipment, satellite network filings and ground station licenses) created pursuant to an English law debenture should instead be recharacterised as a floating charge. They had sold the assets as part of a pre-pack sale of the company, and wanted this confirmation from the court before distributing the proceeds of that sale. 
The main issue before the court was that whilst asset disposals were restricted by the relevant debt documents, as is common in financing documentation of this nature, there was a narrow set of circumstances in which these were allowed (for example, where proceeds were then to be applied in mandatory prepayment or where the assets were of low value, obsolete or no longer of use to the company); the debenture further provided that the security agent was authorised to release the charged assets to facilitate such disposals. 
Edwin Johnson J, applying the principles from, amongst other cases, Re Spectrum Plus Ltd, concluded that the secured creditors did have a fixed charge over the assets despite the permitted release clauses, as (i) the debt documents restricted the company from disposing of the assets in the ordinary course of its business and (ii) they were distinct from fluctuating assets (such as book debts) which were more easily transferable, and could generate income for the company without needing to be sold. 
<h4>Takeaways</h4>
• This case provides an accessible summary of the relevant case law and commentary on fixed and floating charges and insight into the court’s approach to making a determination between them, in particular where some disposals of fixed charge security assets are permitted. 
• The test the court will apply is a two-stage test: 
<ul><li>First, if the relevant asset falls within the scope of the charging clause, it will assess the nature of the contractual restrictions and permissions on disposal imposed on that asset; and</li><li>Second, it will consider, as a matter of law (i.e. ignoring labels or descriptions in the relevant finance documents), whether the parties intended that the charged assets should be put under the control of the security beneficiary. </li>
</ul>
• There does not need to be a total prohibition on disposals of an asset for a fixed charge to exist over that asset; the court will consider various factors and then come to a determination.
• The court will more readily preserve a fixed charge over an asset which a chargor is prevented from disposing of in the ordinary course and which is, by its nature, difficult to transfer



May 2, 2023

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core/freeform

Characterisation of English Law Fixed and Floating Charges: It’s Not Rocket Science

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