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Re UKCloud: The importance of exercising control over a fixed charge asset

The recent case of Re UKCloud Ltd (in liquidation) [2024] EWHC 1259 (Ch) (24 May 2024) looked at whether a charge over Internet Protocol (IP) Addresses was a fixed or floating charge. Notwithstanding that the charging document purported to create a fixed charge over such asset, the High Court concluded that it was a floating charge primarily because the control provisions in the charging document were not complied with or enforced in practice.

The case is an important reminder for lenders that, in order for a charge to be characterised as a fixed charge, it is not sufficient that the charging document provides for control to be exercised by a chargeholder over the purported fixed charge asset. If there is an absence of evidence of control over the relevant asset being exercised in practice, there is a real risk that a court would re-characterise the fixed charge as a floating charge.


The company in question provided cloud computing services to customers in the UK and, as part of its business, held c.23,500 IP Addresses. Those IP Addresses allowed customers to access the cloud services and had a material value in the region of £700,000.

Prior to its compulsory liquidation, the company had granted security by way of fixed and floating charges over various property, assets and rights pursuant to a debenture. The debenture did not include an express fixed charge over IP Addresses, and neither were the specific IP Addresses listed in the debenture. Rather, the debenture purported to create a fixed charge over “all licences, consents and authorisations (statutory or otherwise) held or required in connection with the Company’s business”.

The liquidator of the company applied for directions pursuant to the Insolvency Act 1986 as to whether that charge was fixed or floating. If the IP Addresses were found not to be subject to a fixed charge, the sale proceeds would be used to settle in part expenses incurred in the liquidation, rather than paying the chargeholder (who was owed in excess of £6 million).

Fixed v floating charges – a brief recap

A floating charge sits above a fluctuating pool of assets. Its hallmark characteristic is that it gives the chargor the freedom to carry on its business in the ordinary course in relation to that pool of assets without the consent of the chargeholder, until a future step is taken by, or on behalf of, the chargeholder. In contrast, a fixed charge attaches immediately to the asset in question and the consent of the chargeholder is required to release the asset from the charge. The key characteristic of a fixed charge is that the chargeholder has control over the secured asset.

It follows that the inherent weakness of a floating charge from a lender’s perspective is that the chargor can dispose of the floating charge assets. Consequently, lenders often prefer to take fixed charges over specific assets, in addition to a floating charge to sweep up all other assets not subject to a fixed charge.

The distinction is an important one, as a fixed charge confers significant advantages on a chargor’s insolvency. A fixed chargeholder will get paid out of the proceeds of sale of the fixed charge assets before all other creditors, whereas a floating chargeholder is only paid after (i) fixed chargeholders (ii) expenses of the insolvent estate and (iii) preferential creditors (e.g. employees).

Case analysis

The High Court first had to determine whether IP Addresses fell within the charge over “all licences, consents and authorisations”. It was concluded that the natural and ordinary meaning of the language used in the debenture (in particular, the word “authorisations”) was sufficient to include IP Addresses, thereby evincing an intention to create a fixed charge over such asset. Whilst the Judge accepted that the lack of an express reference to IP Addresses in the charging clause pointed towards an intention to create a floating charge over IP Addresses, it was not conclusive.

The Court then turned to the question of whether the charge was fixed or floating. The Judge referred to the two-stage process set out by Lord Millett in Agnew v Commissioners of Inland Revenue [2001] UKPC 28 [2001] 2 AC 710:

  1. Firstly, construe the security document and seek to gather the intentions of the parties from the language used to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets.
  2. Secondly, characterise the charge and determine whether, as a matter of law, the rights and obligations relating to the charged asset are akin to a fixed or floating charge. 

In line with the first stage of the test, the Judge considered the nature of IP Addresses to determine whether they are susceptible to being subject to a fixed charge or only a floating charge. It was noted that “if an asset is part of the company’s circulating capital or is a fluctuating asset or body of assets, it is more likely that any charge to which it is subject will be floating rather than fixed”. The Judge acknowledged that IP Addresses did not readily fall under the “circulating” or “fluctuating” description, but it did not automatically follow that the charge applicable to them was fixed. The point was therefore inconclusive. 

Following the second stage of the test, the Judge looked at the issue of control. The approach of Edwin Johnson J in Re Avanti Communications Ltd [2023] EWHC 940 (Ch) was followed, who advocated a “nuanced” approach to determining whether a charge is fixed or floating depending on a combination of factors (including the exercise of control). In that regard, Edwin Johnson J explained that there is a “spectrum” of possibilities, from total freedom of management at one end to a total prohibition of dealings at the other end. He noted that it is not the case that a total prohibition on dealings is required for a charge to be characterised as a fixed charge.

Edwin Johnson J also noted in Re Avanti that “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 Judge in Re UKCloud pointed out that the terms of the debenture in this case provided for control to be exercised, but he concluded that the chargeholder did not exercise such control, or seek to do so, in practice. This absence of evidence of control over the assets meant that the Court found that the control provisions in the debenture were a “sham”, in the sense used in Re Avanti. In reaching that view, the Judge also took into account the ability of the chargor to carry on its business without the consent of the chargeholder. The charge over the IP Addresses was therefore held to be a floating charge.

Key takeaways

Lenders should take steps to mitigate the risk that a fixed charge is re-characterised by a court as a floating charge by ensuring that they are able to demonstrate that sufficient control is exercised over the asset in question. This goes beyond what the provisions of the charging document state – Re UKCloud has emphasised that a court will take into account post-contractual conduct, and so a lender must be able to show that such control is exercised in practice. A lender should therefore check that the borrower is in compliance with the control provisions in the charging document and enforce that control.

For more information, please do not hesitate to contact Cara Whiffin (Banking and Finance) or your usual Charles Russell Speechlys contact.

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