UKCloud Ltd, In the Matter Of (Re Insolvency Act 1986) [2024] EWHC 1259 (Ch)
- 24 May 2024
In this case, the court addressed the issue of whether a debenture granted by the company to Harbert European Specialty Lending Company II SARL (‘Harbert’) created a fixed or floating charge over certain internet protocol (‘IP’) addresses.
Background
UKCloud Ltd, a subsidiary of Virtual Infrastructure Group Ltd, provided cloud computing services to government entities, utilising IP addresses for service delivery. IP addresses are unique identifiers that enable data routing across networks. The company held numerous IP addresses, primarily IPv4 addresses, which are finite and in high demand. The company’s use of IP addresses was governed by agreements.
UKCloud Ltd faced financial difficulties and entered into a loan agreement with Harbert, secured by a debenture. The company was subsequently wound up, and the Official Receiver was appointed as liquidator.
The dispute arose regarding the classification of the charge over the IP addresses as fixed or floating, as this determination would impact the distribution of assets to creditors.
Legal Principles
The court emphasised that the label used in a debenture to describe a charge was not conclusive and therefore the court had to ascertain the nature of rights and obligations the parties intended to create.
A fixed charge involves the permanent appropriation of assets as security. A floating charge, on the other hand, allows the chargor to deal with the charged assets in the ordinary course of business until crystallisation.
The court highlighted key distinctions between fixed and floating charges, emphasising the element of control over the charged assets. If the chargor can freely deal with the assets without the charge holder’s consent, it indicates a floating charge. The court also addressed the “all or nothing” principle, stating that all assets within a charging clause must be subject to either a fixed or floating charge, not a combination of both.
Decision
The court ultimately concluded that the charge over the IP addresses was a floating charge. This determination was based on several factors, including the absence of evidence that Harbert exercised control or sought to exercise control over the IP addresses. It was relevant to consider post-contractual conduct, and the control provisions in the debenture were a ‘sham’, not in the sense of a fraud but in the sense used in Re Avanti demanding consideration of whether control rights in a charging document have been adhered to in practice. While the IP addresses were not explicitly mentioned in the debenture, the court determined that they could fall within a clause that purported to grant a fixed charge over ‘all licences, consents and authorisations’ of the company. However, the court also considered the “all or nothing” principle and concluded that certain assets covered by this clause could not realistically be subject to a fixed charge, thus necessitating the classification of the entire charge over all assets covered by it as floating. The debenture also contained a clause granting floating security over all property, assets and rights not caught by the fixed charges.
It is worth noting that ICC Baister emphasised how difficult he had found it to resolve this case.