The spectrum of control: the decision in Re Avanti Communications Limited

BY Tom Smith KC and Edoardo Lupi


A number of years ago the question of whether a charge (usually over book debts) was a fixed or floating charge was a staple of the diet of insolvency and restructuring lawyers. Subsequently, that issue tended to recede somewhat into the background. However, more recently it has again started to rear its head, often in the context of financing structures involving English law security in combination with notes under which the issuer group is allowed various permissions and exceptions in relation to the use of assets. In Re Avanti Communications Limited [2023] EWHC 940 (Ch) (“Avanti”), Edwin Johnson J considered whether a charge granted by Avanti Communications Limited (in administration) (the “Company”) as part of a security package shared amongst its lenders was properly characterised as fixed or floating. The Company’s principal activity had consisted in the operation of satellites, and the sale of satellite broadband and connectivity services.1

The characterisation issue centred on the question of control over the charged assets. The contractual documentation did not create a total prohibition on disposals of the charged assets by the Company nor, however, did it confer a general permission on the Company to dispose of them in the ordinary course of business. Accordingly, the key question of law for the Court was whether, on a proper construction, the degree of control conferred by the charge over the relevant assets sufficed to create a fixed charge.

The question as to the requisite degree of control for these purposes had not arisen for determination since the seminal judgment of the House of Lords in Re Spectrum [2005] 2 AC 680 (“Spectrum”). Perhaps because of the relative infrequency with which characterisation disputes have reached the courts since Spectrum, as well as the potentially significant ramifications for standard security documentation in similar terms,2 the decision in Avanti has elicited significant market interest.

Why does fixed/floating characterisation matter?

The concept of floating security was an innovation of equity lawyers and judges in the 19th Century responding to the increasing demand for loan capital in the context of industrial and commercial expansion.3 In the 1870s, the term ‘floating charge’ gained currency in contradistinction to what was then often referred to as a ‘specific’ or fixed charge.4 In essence, a floating charge is a form of security which is “ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect” until the occurrence of some crystallising event.5

Whilst the floating charge initially received enthusiastic judicial support,6 concerns soon developed. In Salomon v A Salomon & Co Ltd [1897] AC 22 53, Lord Macnaghten complained, “everybody knows that when there is a winding-up debenture-holders generally step in and sweep off everything; and a great scandal it is.” The floating charge holder not only enjoyed priority over the unsecured creditors in the event of a winding-up, but also over the company’s employees. Legislative intervention swiftly followed. By the Preferential Payments in Bankruptcy Amendment Act of 1897, in the event of winding-up, preferential creditors (including employees), were given priority over the floating charge holder. Materially similar provisions continue to exist under the Insolvency Act 1986 (“IA1986“).7 Since the late 1800s, further inroads have been made to the priority status of the floating charge holder: it now ranks below officeholders’ expenses, as well as the prescribed part set aside for unsecured creditors (now up to a maximum of £800,000).8 Recent legislative developments have meant that certain debts owed to HMRC now also take priority over it as secondary preferential claims.9

Conversely, the fixed charge holder takes the enforcement proceeds from the charged assets without those deductions. The balance for banks and other commercial lenders to strike has been between seeking to create fixed charges to enjoy these advantages and, at the same time, not imposing such restrictions on the chargor’s assets as to paralyse its business.

The factual circumstances in Avanti

In Avanti, the joint administrators applied for directions under paragraph 63 of Schedule B1 to the IA1986, seeking a determination as to whether some or all the relevant charged assets were secured by fixed or floating charges. All the relevant assets had already been disposed of prior to the hearing of the joint administrators’ application, and distributions had been made to the secured lenders on the footing that the charge was fixed, which it was stated as being on its face.

Funding arrangements had, however, been put in place with the secured lenders to ensure that in the event that the charge was re-characterised as floating by the Court, funds would be available to the joint administrators to pay the preferential creditors and the unsecured creditors (in respect of the prescribed part) in the amounts they would have been entitled to. This allowed the sale of the Company’s assets to proceed swiftly without affecting the assets’ value, while at the same time protecting the position of stakeholders in the event that the charge was re-characterised as floating.

The Relevant Assets

The charged assets in question were made up of four categories: (a) a satellite known as ‘HYLAS 3’; (b) certain equipment used in the operation of network and ground station facilities which, in broad terms, supported the operation of the group’s satellites; (c) so-called ‘satellite network filings’ which entitled the Company to use particular orbital slots in relation to its satellites;10 and (d) certain licenses issued by Ofcom entitling the group to operate the network and ground station facilities (together, the “Relevant Assets”). Edwin Johnson J held that, on their face, all the Relevant Assets fell within the scope of the fixed charge created under the relevant debenture. However, that was not the end of the matter. Whilst the labels the parties use may be taken into account for certain purposes as part of the two-stage exercise described below, they are not by any means dispositive.

The contractual provisions

The contractual documentation in Avanti included three different facility agreements, an intercreditor agreement governing the priority of the indebtedness under those facilities, and a shared security package. As the judge put it,11 the documentation was “complex and detailed” and “not easily summarised”. In short, the scheme thereunder operated in such a way as to (a) prohibit any ‘Asset Sales’ by the chargor, unless the chargor received fair market value for the charged assets and applied the proceeds of the sale if equal to or in excess of $1 million to discharge the outstanding indebtedness owed to the chargee; but (b) permit disposals, where they fell within the express carve-outs to the definition of ‘Asset Sale’. There were four potentially relevant carve-outs to the Asset Sale definition. They permitted disposals by the chargor where: (i) the sale involved assets with a maximum fair value of $2 million; (ii) the charged asset had become “damaged, worn-out or obsolete”; (iii) the charged asset was not “useful” to the conduct of the Avanti group’s broader business in the judgment of the Company’s parent; or (iv) the disposal involved the sale of satellite capacity in the ordinary course of business.

As to the observance by the chargor of these contractual restrictions in practice, whilst the role of post-contractual conduct remains somewhat unclear following Lord Millett’s comments on the subject in Agnew v Comr of Inland Revenue [2001] 2 AC 710,11 the evidence before the Court in Avanti was that the contractual restrictions had in fact been observed by the chargor. Thus, the Company had in fact sought the chargee’s consent when it wished to make any disposal of assets with a fair market value exceeding $2 million.13


The question as to the requisite level of control to create a fixed charge required the judge to consider and apply the House of Lords’ decision in Spectrum. That case was the culmination of a line of cases which considered the controversial question of whether certain standard form documentation created a fixed or floating charge over book debts.14 Save for one notable exception,15 the majority of the leading cases in this area have concerned book debts, as opposed to the sort of asset classes in issue in Avanti. The particular legal nature of book debts, which prevents them being enjoyed in specie and makes it commercially nonsensical to distinguish the debts from their collected proceeds,16 meant that the focus in Spectrum was on the arrangements governing the bank’s control of the collections.

The contractual arrangements in Spectrum prevented all dealings with the book debts other than their collection and required the collected proceeds to be paid into a designated account with the chargee bank. The key questions for decision were: (a) whether, as a matter of construction, the arrangements in respect of the account meant that it was ‘blocked’ or not, and (b) if the chargor could freely draw on the account into which it had paid collections, whether this was capable in law of being a fixed charge.17

As to question (a), their lordships held that the account was not blocked. Slade J had misconstrued the effect of the arrangements in relation to the designated account in the earlier case of Siebe Gorman, which involved materially the same contractual wording as that in issue in Spectrum.18 On a proper construction, the bank’s debenture placed “no restrictions19 on the use that the chargor could make of the balance in the designated account. As to (b), the hallmark of a floating charge, and a characteristic inconsistent with a fixed charge, is that the chargor is left to use the assets subject to the charge and withdraw them from the security. Accordingly, the chargor’s ability to draw freely from the designated account was inconsistent with the charge in Spectrum being fixed. Siebe Gorman was overruled and Hoffmann J’s decision in In re Brightlife Ltd [1987] Ch 200 was confirmed.

Whilst the above holdings were sufficient to dispose of the appeal, various dicta in Spectrum20 were interpreted by a number of leading academics as supporting a view that “only total prohibition of all dealings and withdrawal without permission is enough to create a fixed charge” (Goode & Gullifer, Legal Problems of Credit and Security (7th ed.), at para 4-023). Similar statements are to be found in a number of other textbooks.21 That view was not, however, shared universally. For example, the editors of Lightman & Moss, the Law of Administrators and Receivers of Companies (6th ed.), at para 3-021,22 envisaged a lower threshold of control as being sufficient: “Any unfettered or significant commercial freedom in the chargor to deal with a fluctuating class of assets without the consent of the chargee will be inconsistent with the existence of a fixed charge over those assets”.

In Avanti, faced with these rival interpretations of the decision in Spectrum, Edwin Johnson J ultimately rejected the binary approach to the question of control described by the first set of academics. He did not agree that Spectrum could be so interpreted (“The speeches of their Lordships in Re Spectrum do not seem to me to support an absolute approach to this question”). Instead, the judge favoured an approach which had regard to a ‘spectrum’ of possibilities as to control “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”.23 As a matter of law, the judge held that he could not see that a charge will only be fixed if it is located at the total prohibition end of the spectrum.

Whilst the judge declined to identify the point on the spectrum of control where a floating charge gives way to a fixed charge, or vice versa, he held that the case law supported a more nuanced approach requiring a number of factors to be taken into account.24 He was clear, however, that a permission to deal with a charged asset in the ordinary course of business – often identified as the hallmark of a floating charge25 – was inconsistent with a charge being fixed in law.

The Two-Stage Enquiry

The judge proceeded to consider the two-stage enquiry described by Lord Millett in Agnew to determine the characterisation issue.

At the first stage, which requires the court to construe the charge and contractual documentation to ascertain the nature of the rights and obligations the parties granted each other in respect of the charged assets, the principal issue of construction was as to the scope of the carve-outs to the Asset Sale definition, and their applicability to the Relevant Assets.

Taking them in turn, the judge held that: (a) the fair value carve-out would not have permitted the Company to dispose of the Relevant Assets free of the restrictions, in light of the relatively high value of the same, as evidenced by the price they were ultimately sold for; (b) the obsolescence carve-out was of limited reach as regards the Relevant Assets, particularly given that some of those assets were intangibles, like the satellite network filings; (c) the circumstances in which the usefulness carve-out might be engaged were relatively limited; and (d) the capacity carve-out permitted the group to deal in the sale of satellite capacity in the ordinary course of business, as opposed to the assets required to generate that capacity; accordingly, the capacity exception did not lead to the conclusion that the underlying charged assets could themselves be disposed of without restriction.

At the second stage, which requires the court to embark on the characterisation exercise in view of the rights and obligations ascertained at the first stage, the judge applied his conclusions as regards the spectrum of control described above. The judge noted that if the statements in the academic commentaries as to the need for a total prohibition were correct, then the charge in Avanti could not have been fixed as the contracts did permit “certain dealings with the Relevant Assets”.26 The question was thus one of degree.

Having regard to his findings at the first stage, the judge reasoned that, whilst not constituting a total prohibition, the contractual framework nevertheless left the Company’s ability to deal with the Relevant Assets “materially and significantly limited27 and that all the Relevant Assets were subject to “considerable restrictions”.28 In particular, the judge emphasised that the exceptions to the Asset Sale definition provided no opportunity for disposal in the ordinary course of business of the Relevant Assets themselves.29

Accordingly, when answering the overarching question as to “whether the chargee is in control of the charged assets (Re Cosslett (Contractors) Ltd [1998] Ch 495, 510 per Millett LJ), the judge held that the chargee in Avanti was in control to the requisite extent.

The future

At what point on the spectrum a fixed charge becomes floating is a question that may require further elaboration from the courts in the future. The judge in Avanti declined to express a definite view. As a matter of law, however, Edwin Johnson J considered that where a chargor’s control was “materially and significantly limited” that would suffice. Put another way, “some ability30 to deal on the chargor’s part was not incompatible with fixed security on the facts in Avanti. It is unclear, however, whether the judge was prepared to go quite so far as the editors of Lightman & Moss and accept that the tipping point for characterisation purposes is where the chargor has “significant commercial freedom” to deal with the charged assets.

The more “nuanced” approach favoured in Avanti, which rejects a binary approach to the question of control and requires the Court to have regard to a number of relevant factors, is perhaps not as surprising as has been suggested in some market commentary on the decision. In one of the earliest cases on floating charges, In re Florence Land and Public Works Co, Ex p Moor (1878) 10 Ch D 530, 537, Sir George Jessel MR observed: “The question we have to decide must be decided, like all other questions of the kind, having regard to the surrounding circumstances under which the instrument was executed, and especially the respective positions of the parties who were the contracting parties, to carry out whose agreement that instrument was executed.”

Following the decision in Avanti, it seems probable that this area will see an uptick in litigation. Where there is not a total prohibition on disposals on the one hand, nor an ordinary course of business permission on the other, the courts may well find themselves being asked to consider cases on the margins and to scrutinise the scope of contractual permissions to determine where the case falls on the spectrum of control.


1The authors acted for the joint administrators of the Company. A group of lead secured lenders were represented by David Allison KC and Rabin Kok, both also of South Square.

2The lead secured creditors submitted that the contractual documentation in Avanti was substantially modelled on precedents created by the Loan Market Association.

3Spectrum at [95].

4See In re Colonial Trusts Corpn, Ex p Bradshaw (1879) 15 Ch D 465, 468, 469 and Moor v Anglo-Italian Bank (1879) 10 Ch D 681, 687.

5Illingworth v Houldsworth [1904] AC 355.

6See Tailby v Official Receiver 13 App Cas 523, 545.

7See s.175(2)(b) IA1986.

8Since 6 April 2020, pursuant to the Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020.

9Since 1 December 2020 pursuant to the Finance Act 2020, s. 98 and The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020.

10The juridical nature of satellite network filings was discussed in Avanti at [9].

11Avanti at [52].

12See Agnew at [48]; Spectrum at [160]; and Avanti at [38].

13Avanti at [106].

14See Siebe Gorman. [1979] 2 Lloyd’s Rep 142; In re Brightlife Ltd [1987] Ch 200; In re New Bullas Trading Ltd [1994] 1 BCLC 485, and Agnew v Comr of Inland Revenue [2001] 2 AC 710, 722.

15Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council [2001] UKHL 58, which concerned two very large coal washing plants.

16Agnew at [46].

17Spectrum at [83] (per Lord Scott).

18Spectrum at [142] (per Lord Walker) and at [61] (per Lord Hope).

19Spectrum at [117] (per Lord Scott).

20See, for example, the references to assets under a fixed charge being “finally appropriated” (at [111]) or “permanently appropriated” (at [138]) as security for the payment of the debt.

21See also The Law of Security and Title Based Financing (3rd ed.) para 6.129; and Professor Sarah Worthington and Ina Mitchkovska, ‘Floating charges: the current state of play’ 9 JIBFL 467, which stated: “The charge is fixed if and only if the chargor is required to preserve the charged assets, or their permitted substitutes, for the benefit of the charge. Without this requirement, the charge is floating”.

22Cited with approval by the judge in Avanti at [28] and [117].

23Avanti at [118].

24Avanti at [119].

25See Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, 295; Agnew at [13].

26Avanti at [108].

27Avanti at [125].

28Avanti at [89(1)].

29Avanti at [123].

30Avanti at [121].

The content of the Digest is provided to you for information purposes only, and not for the purpose of providing legal advice. If you have a legal issue, you should consult a suitably-qualified lawyer. The content of the Digest represents the views of the authors, and may not represent the views of other Members of Chambers. Members of Chambers practice as individuals and are not in partnership with one another.
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Tom Smith KC
Edoardo Lupi
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