In the matter of Avanti Communications Limited (in administration)

The court applied the two-stage test for characterising security derived from Agnew v Commissioners of Inland Revenue and subsequent authorities. At the first stage the relevant charging provisions in the 2017 debenture and related security documents were construed to ascertain the rights and obligations created in respect of the Relevant Assets (HYLAS 3, network and ground station equipment, ITU satellite filings and Ofcom ground‑station licences). At the second stage the court categorised the security by reference to whether the chargor was free to deal with the charged assets and whether the chargee had meaningful control.

Key findings were that the Relevant Assets fell within the specific security clause of the debenture, that disposals were tightly constrained by the Debt Facility Documents (notably Schedule 12 of the super‑senior facility which required fair market value and a cash consideration and, for proceeds ≥ $1m, application of a multi‑tiered waterfall), and that only narrow exceptions permitted disposals in limited circumstances. The assets were income‑generating infrastructure rather than circulating trading stock and were inherently difficult to transfer. Taking the documents and the nature of the assets together, the court concluded the charges created were fixed charges when entered into and remained fixed at the time of the disposals.

The joint administrators of Avanti Communications Limited applied for directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986 asking whether certain assets sold by the company (HYLAS 3 payload, network and ground equipment, ITU satellite filings and Ofcom ground‑station licences) were subject to fixed or floating charges under the group debentures. The Lead Secured Creditors opposed only on the basis that the charges were fixed; no party advanced an argument that the assets were floating charged at the hearing.

The court set out the applicable law: the two‑stage characterisation process from Agnew (construction of the instrument to discover the rights and obligations; then legal characterisation of those rights), guidance from Re Spectrum and related authorities on the importance of control and the nature of the assets, and general contractual interpretation principles. The security documents comprised inter alia the 2017 debenture, the intercreditor agreement and the Finance Documents (notably Schedule 12 of the SSF Agreement) which together governed permitted disposals and the application of proceeds.

The issues framed were:

• First stage: do the Relevant Assets fall within the scope of the specific charging clause in the debenture and, if so, what rights and restrictions in the documents bear on dealing with them?
• Second stage: having ascertained those rights and restrictions, do they amount in law to a fixed or floating charge?

On the facts the court found the Relevant Assets were caught by the specific fixed charge wording in clause 3.1(b) of the 2017 debenture. The Finance Documents permitted disposals only in narrow, enumerated categories (limited value disposals, specified capacity disposals in the ordinary course, disposals of obsolete or no‑longer‑useful assets, and licences granted in the ordinary course) and otherwise required strict conditions including fair market value, cash consideration and, for proceeds of $1m or more, application of proceeds under a waterfall prioritising secured lenders. That scheme gave substantial control to the security holders and prevented the company from freely dealing with the assets in the ordinary course of business. The assets themselves were infrastructure used to generate income and were not circulating trading stock whose sale formed part of ordinary trading.

The court therefore categorised the security over those assets as fixed at creation and remaining fixed at the time of the transactions, and made a declaratory order to that effect. The judgment also addresses and rejects a submission that current authorities require an absolute prohibition on all dealings before a charge can be fixed, preferring a fact‑sensitive, nuanced application of the two‑stage test.

Application allowed. The court declared that the security created over the Relevant Assets by the 2013 and 2017 debentures was a fixed charge at the time of their creation and remained a fixed charge at the time of the Transactions. The rationale was that the charging language covered the Relevant Assets, the Finance Documents imposed meaningful restrictions and a proceeds waterfall (and only narrow exceptions to disposals), and the assets were non‑circulating, income‑generating infrastructure, so the overall scheme gave the chargees sufficient control consistent with a fixed charge.