What constitutes a fixed charge?

Administrators applied to court for directions as to the nature of security over high value satellite technology that it sold, as part of a “credit bid” process to secured lenders. The secured lenders provided the sale consideration through the provision of debt instruments designed to return to preferential creditors and unsecured creditors, what they would have received, if the assets were covered by floating, rather than fixed, charge security.

The judge provided a useful and concise review of case law on the question of what constitutes fixed and floating security over an asset and concluded, on the facts and from the documents, that the assets sold were covered by fixed charge security.

Having considered the various authorities on the question of the nature of security over assets, the judge found that the assets that were “sold” were covered by the fixed charge security under the relevant security documents.

The next question was then whether the secured lender had exerted sufficient control over the assets. The first part to that question involved the judge considering the control mechanisms in the security documents and concluding that they were sufficient to establish control of the assets and that there was no evidence that those control mechanisms had not previously been observed.

The judge then looked back at the legal authorities and the suggestion in legal texts that control had to be complete control. The judge disagreed with this statement, on his review of the caselaw and found that, just because the borrower had some ability to deal with the fixed charge assets, did not destroy the fixed charge, finding that that ability was materially and substantially impaired resulting in a finding that they were covered by a fixed charge.

In the matter of Avanti Communications Limited (in administration) [2023] EWHC 940 (Ch)

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