In the matter of Avanti Communications Limited (in administration)

The characterisation of a charge as fixed or floating requires a two-stage enquiry. The court first construes the security documents to ascertain the parties’ rights and obligations. It then categorises the security as a matter of law, regardless of the parties’ label.

A charge over specific income-generating infrastructure may be fixed even though limited disposals are permitted. The decisive question is the nature and extent of the chargee’s control, considered with the nature of the assets, the restrictions on disposal and the chargor’s ordinary business. A total prohibition on dealings is not invariably required.

The joint administrators of Avanti Communications Limited applied for directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986. They sought determination of whether satellite, network, licensing and related assets were subject to fixed or floating charges under the company’s debentures.

The assets had been transferred or sold in intra-group and administration transactions on the basis that the security was fixed. The issue affected distributions to secured, preferential and unsecured creditors. The court had to determine the nature of the contractual restrictions on dealings with the assets and then apply the legal principles governing fixed and floating charges.

1. Two-stage enquiry. The court adopted the approach in Agnew v Commissioners of Inland Revenue: first construe the charging instrument to identify the rights and obligations created; then categorise the security as a matter of law. The parties’ labels assist construction but do not determine the legal character of the charge.
2. First stage. The relevant assets fell within the fixed-charge wording of the 2017 Debenture. The Security Documents imposed substantial restrictions on disposal. Permitted disposals were confined principally to specified exceptions, disposals meeting value and cash-consideration requirements, and disposals whose proceeds were subject to a contractual waterfall applied towards the secured debt.
3. The asset-sale exceptions did not generally permit disposal of the assets in the ordinary course of the company’s trading business. The capacity exception concerned dealings in satellite capacity and associated services, rather than disposal of the infrastructure used to generate that capacity. The licence exception concerned the grant of licences or sublicences in the ordinary course of business, not disposal of licences held by the group.
4. Second stage. The court rejected an absolute rule that only a total prohibition on dealings can support a fixed charge. The authorities required a nuanced assessment of all the circumstances, including the extent of the chargor’s freedom to deal, the chargee’s control, the nature of the assets and the nature of the chargor’s business.
5. The assets were income-generating infrastructure, not circulating capital or fluctuating trading stock. They did not need to be sold in the ordinary course of business to generate income and were inherently difficult to transfer. The restrictions gave the chargees significant control and materially limited the company’s ability to deal with the assets.
6. The charges over the relevant assets created by both Debentures were fixed when created and remained fixed at the time of the transactions. A declaration was made to that effect.