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Avanti wins spectrum debt obligation case

April 16, 2024

The London High Court has ruled that Avanti Communications, a London-based speciality satellite operator, was correct in assessing its all-important spectrum as a relevant asset in its recent financial reconstruction.

The decision, by Mr Justice Johnson and published on April 12th by the National Law Review, was crucially important to Avanti. The Court’s background to the case revolves around Avanti’s decision on April 13th 2022 to enter Administration (in essence a form of bankruptcy) and near-immediate re-emergence via a ‘Pre-Pack’ sale of its assets back to a new owner (in this case the restructured Avanti Communications).

However, as part of the financial obligations the administrators of the company brought an application for directions from the Court to determine whether certain of Avanti’s assets which had been sold pursuant to the pre-pack arrangements were charged by way of fixed or floating charges in order that they can properly distribute the proceeds of the sale to the creditors of Avanti.

The assets in question comprised certain satellite equipment, certain equipment used in the operation of the network and ground station facilities, certain satellite network filings (which essentially comprised Avanti’s rights to use certain valuable orbital slots for its satellites), and certain ground station licenses issued by UK regulator Ofcom.

The difference that a characterization of ‘fixed’ or ‘floating’ can make to a creditor has always been significant but has now taken on new importance since the reintroduction of UK tax authority HM’s Revenue & Customs’ (HMRC) preferential status in respect of certain taxes in insolvency proceedings. This elevates HMRC’s claim such that it is now paid in priority to creditors holding a floating charge, and given that HMRC’s debts are often large, this had the potential to significantly deplete the pool of resources available for floating charge creditors.

In considering the facts of the case, the Court held that Avanti’s ‘Relevant Assets’ were subject to a fixed charge. In coming to this conclusion, the following factors were considered:

· The charging clause expressed the charge over the Relevant Assets to be a fixed charge (although it was noted that the description of the charge in the charging document is not, in itself, determinative);

· Avanti’s ability to deal with the Relevant Assets were “materially and significantly limited” including restrictions on disposal, including provisions that required any proceeds received by Avanti following a disposal (in excess of a $1 million threshold) must be used in paying down the secured debt;

· The Relevant Assets were income generating and did not represent circulating capital, fluctuating assets or stock in trade.

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