Chris Lewis & Reshma Jogia consider the case of Re UKCloud Ltd (in liquidation) [2024] EWHC 1259 (Ch) and the importance of lenders ensuring control over secured assets.
UKCloud Ltd was a cloud storage and sharing platform used by numerous UK local authorities and central government departments, in 2022 it went into compulsory liquidation. Following it going into compulsory liquidation, the liquidator sought directions from the court on whether a charge over internet protocol (IP) addresses, was a fixed or a floating charge.
Typically, a floating charge is granted over assets which tend to change from time-to-time – an example being stock or cash, allowing a chargor to dispose of them without the lender’s consent. A fixed charge tends to be over ‘tangible’ assets – such as property, plant and machinery – those which aren’t expected to change or the control of them is not likely to change.
In this case, the debenture stated that there was a fixed charge over ‘all licences, consents and authorisations (statutory or otherwise) held or required in connection with the company’s business or use […] and all rights in connection with them.’ Due to the nature of the company’s business, IP addresses were perhaps more important here and the assessment of whether an asset has a fixed charge over it, came down to the issue of the lender’s control over the IP addresses.
A sham
The High Court looked to Re Avanti Communication Ltd – ‘if a stipulation in the charging documents is not adhered to in practice, the agreement may be held to be a sham and characterised as a floating charge.’ The court looked at whether the lender had exercised sufficient control over the IP addresses.
The court held that the charge created was a floating charge over the IP addresses – due to the issue of control/the lack of. The court found that despite the terms of the debenture, (when it comes to control) – no control had been exercised when it came to the IP addresses – meaning the control provisions were actually a ‘sham’ as stated in Re Avanti.
Summary
It is not sufficient for a charge document to simply refer to an asset being subject to a fixed charge and a lender has to actually demonstrate the exercise of adequate control over such asset. This will go not only to the drafting of a charge document to ensure that adequate provisions around control are built in, but also ensuring that the control provisions are complied with in practice. Or else what purports to be a fixed charge may in fact only be a floating charge.
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