Re Avanti ' Fixed / Floating Charge Security Under English Law

• Published date: 19 June 2023
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Charges, Mortgages, Indemnities, Insolvency/Bankruptcy, Fund Finance
• Law Firm: Duane Morris LLP
• Author: Mr Drew D. Salvest, Natalie A. Stewart and Rebecca Green
• topic: Commercial Litigation,Banking and Finance Law

In the recent case of Re Avanti Communications Limited (in administration)¹ (Re Avanti), the court considered the nature of fixed and floating charges. Whether a charge is fixed or floating has implications for both lenders and administrators in terms of determining to what extent a chargor can recover from the charged assets and to what extent a borrower can deal with its assets.

Background of case:

In Re Avanti, the administrators applied to the court to determine whether certain assets were subject to a fixed or floating charge pursuant to debentures granted by the relevant company. As all net proceeds from the sale of fixed charge assets are paid to secured creditors, and proceeds from the sale of floating charge assets are not paid to secured creditors until those who rank ahead of them under English insolvency law (such as administrator's costs and HMRC) have been paid in full, the characterization of the charge was crucial for determining whether the secured lenders would recover their secured debt in full. If the charges over the assets were fixed, secured creditors could recover the amount owed to them. If the...