Judgment hand down: in the matter of Avanti Communications Limited

Members of South Square have appeared in relation to an application for directions by administrators regarding the proper characterisation of security over certain assets. In a significant judgment, Edwin Johnson J considered the proper approach to the characterisation of security, applying Re Spectrum [2005] 2 AC 680] and Re Agnew [2001] 2 AC 710 to asset classes other than book debts. The judgment seems likely to have significant ramifications for structured and asset-backed finance arrangements utilising industry standard forms.

 

In a judgment handed down on 25 April 2023 Edwin Johnson J held that the charges granted by Avanti Communications Ltd (“Avanti”) over its HYLAS-3 satellite, network and ground stations, orbital slots and certain other related assets (called “the Relevant Assets” in the judgment) were fixed, and not floating, charges. Avanti had originally granted charges described as ‘fixed’ charges  over these assets in support of certain lending facilities. Some of the relevant finance documents were based on LMA standard forms.  Avanti subsequently went into administration in April 2022. The Joint Administrators subsequently sold the Relevant Assets as part of a pre-pack sale in administration.

 

The Joint Administrators subsequently applied to the court under paragraph 63 of Sch B1 for a determination as to whether the Relevant Assets were secured by fixed or floating charges at the time of creation (and, consequently, at the time of the pre-pack sale). This in turn would determine whether it was certain preferential creditors or certain Lead Secured Creditors who were entitled to the proceeds of the sale. The Joint Administrators adopted a neutral position, putting all relevant arguments before the court, while the Lead Secured Creditors were given permission to appear at the hearing given their economic interest in the matter.

 

Edwin Johnson J held that all of the Relevant Assets were secured by fixed charges at the time the security was created. In doing so he gave extensive consideration to the leading authorities, including Re Spectrum [2005] 2 AC 680, Re Cosslett [2002] 1 AC 336 and academic works by Professor Roy Goode, Professor Louise Gullifer, Professor Sarah Worthington (an Academic Member of South Square). Of particular interest was the Judge’s finding that: (1) there is no rule that a charge can only be fixed if there is something akin to a total prohibition on dealings with the asset, rather, it depends on all the circumstances, and (2) there was no ability for Avanti to deal with the Relevant Assets in its ordinary course of business, and on a proper construction of the contractual provisions in this case its freedom to deal with the Relevant Assets was materially and significantly limited.

 

Tom Smith KC and Edoardo Lupi, instructed by James Watson and Shayan Farooqi at Simpson Thacher & Bartlett LLP appeared for the Joint Administrators.

 

David Allison KC and Rabin Kok, instructed by Ian Clarke and Arwyn Davies at Kirkland & Ellis LLP appeared for certain Lead Secured Creditors, including HPS Investment Partners.

Read the full judgment here.

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