7 June 2024

Avoid “clouding judgment” when assessing the true nature of security

Written by Damian McElholm

As a follow-on to the previous article on determining the true fixed or floating nature of security (Pinpointing the true nature of security – how much… | Carson McDowell (carson-mcdowell.com)), further guidance has been provided following the decision of the English High Court (Chancery Division) in the recent case of Re UKCloud Ltd (in liquidation) [2024] EWHC 1259 (Ch).

In this article, we will briefly assess the steps to be followed when seeking to pinpoint the true fixed or floating nature of security in the context of modern business assets, particularly intangible ones like IP addresses, and will outline additional guidance for secured lenders and corporate borrowers to be cognisant of as a result of this recent decision.

Brief facts of Re UKCloud Ltd

UKCloud Ltd, a cloud services provider to central government departments and local authorities, held various assets critical to its operations, including certain internet protocol (IP) addresses. The IP addresses were essential for maintaining the company’s service and business continuity. On 25 October 2022, a winding-up order was made against UKCloud Ltd and the Official Receiver was appointed as its liquidator. Special Managers were also appointed to assist the Official Receiver with the liquidation process.

During insolvency proceedings, the characterisation of security over the IP addresses as either fixed or floating charges became a significant issue. UK Cloud Ltd owed significant sums to both its secured and unsecured creditors and certain IP addresses were estimated to have a value in the region of £700,000. If the IP addresses were deemed not to be subject to fixed charge security, their allocated sale proceeds amount was to be used to defray in part expenses incurred in the liquidation process.

Court's Analysis

The Court reaffirmed the use of the two-stage test established in Agnew v Commissioners of Inland Revenue [2001] UKPC 28, in order to determine the true nature of the charge over the IP addresses being:

  • Contractual Construction - Firstly, the language of the security document should be examined to seek to understand the intentions of the parties based upon the language which has been used.
  • Categorisation of Security - Secondly, an assessment needs to be made as to whether or not a chargor’s rights are consistent with either a fixed or a floating charge. This process involves evaluating the level of control retained by the chargor over the assets. A fixed charge typically implies significant restriction on the chargor's ability to deal with the assets without the chargee's consent. This aspect of the two stage test is strictly a matter of law and not of the proposed intention of the parties.

In Re UKCloud Ltd, the Court followed the "nuanced" approach advocated by Edwin Johnson J in Re Avanti, holding that the exercise of control is one of the key factors to be taken into account.

The Court scrutinised the extent of practical control exercised by the secured creditor over the IP addresses and analysed the wording of the contractual terms included in the underlying security document which related to control over those assets.

It concluded that the secured creditor did not exercise sufficient control over the IP addresses nor did it seek to exercise any such level of control. Furthermore, the Court noted that UKCloud Ltd was generally entitled to carry on its business without the consent of the secured creditor. As a result, the security granted over the IP addresses was deemed to amount to a floating charge rather than a fixed charge.

Key Factors for Secured Creditors and Chargors to consider

Three crucial factors for secured creditors and chargors to consider when seeking to implement fixed charge security over specific assets are as follows:

  • Practical Control over Assets - Secured creditors need to ensure they have practical and enforceable control over the specific assets if they are to be deemed to be subject to fixed charge security. This means incorporating and implementing mechanisms that significantly limit a chargor's ability to manage or dispose of the assets in question without the secured creditor’s consent.
  • Detailed Drafting - The language in finance documents should be crafted in a way which specifies the control measures which are due to operate in practice. Clear terms that define the extent of the chargor’s control and the conditions under which assets can be managed or disposed of should always be included.
  • Awareness of Asset Characteristics - Understanding the nature and role of the assets within the chargor’s overall business operations is critical. Intangible assets, like IP addresses, present unique challenges, and their role in the chargor’s business should be carefully considered when determining the appropriate type of charge to be put in place.


Re UKCloud Ltd underscores the evolving challenges in securing intangible assets by way of fixed charge security. Security documents must always be carefully drafted and standard charging provisions updated if required to capture assets by way of a fixed charge if that is the true intention of the parties.

If you would like any further information or advice, please contact Damian McElholm from the Banking & Finance team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.