Avanti Communications Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Edwin Johnson |
| Judgment Date | 25 April 2023 |
| Neutral Citation | [2023] EWHC 940 (Ch) |
| Docket Number | Claim Number: CR-2022-001108 |
| Court | Chancery Division |
[2023] EWHC 940 (Ch)
Mr Justice Edwin Johnson
Claim Number: CR-2022-001108
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY & COMPANIES LIST (ChD)
Rolls Building
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
Tom Smith KC and Edoardo Lupi (instructed by Simpson Thacher & Bartlett LLP) for the Joint Administrators of Avanti Communications Limited
David Allison KC and Rabin Kok (instructed by Kirkland & Ellis LLP) for the Lead Secured Creditors (HPS Investment Partners LLC and Solus Alternative Asset Management LP)
Hearing date: 25 th January 2023
Remote hand-down: This judgment was handed down remotely at 10.00am on 25 th April 2023 by circulation to the parties and their representatives by email and by release to the National Archives.
Introduction
This is my reserved judgment on an application made by the joint administrators of Avanti Communications Limited ( “the Company”). The joint administrators ( “the Joint Administrators”) were appointed on 13 th April 2022 pursuant to paragraph 22 of Schedule B1 to the Insolvency Act 1986 ( “the 1986 Act”). The Company and its holding company Avanti Communications Group plc, which is also in administration, formed part of the Avanti group of companies ( “the Group”).
By the application ( “the Application”), which is made in the administration proceedings, the Joint Administrators and the Company (together “the Applicants”) seek a determination of whether certain assets which have been sold by the Company were secured by fixed or floating charges. This issue ( “the Characterisation Issue”) matters because it affects what is payable, and what has been paid to creditors. It is also, as I understand the position, the last outstanding matter which needs to be resolved in the administration of the Company. The Application is made as an application for directions pursuant to paragraph 63 of Schedule B1 to the 1986 Act.
Although the resolution of the Characterisation Issue is capable of affecting various parties, the only parties, apart from the Joint Administrators, who appeared at the hearing of the Application were certain secured creditors, comprising funds managed by HPS Investment Partners LLC and Solus Alternative Asset Management LP. I shall refer to these secured creditors, as represented by their managing entities, as “the Lead Secured Creditors”.
At the hearing of the Application the Joint Administrators were represented by Tom Smith KC and Edoardo Lupi, counsel. The Lead Secured Creditors were represented by David Allison KC and Rabin Kok, counsel. I am grateful to counsel and those instructing them for their helpful written and oral submissions, and for their work in preparing the documents for this hearing.
The stance adopted by the parties in relation to the Characterisation Issue differed. The Joint Administrators, quite properly, adopted a neutral stance, essentially explaining the relevant facts and identifying the relevant law which governs the Characterisation Issue. The Lead Secured Creditors, again quite properly given the nature of their commercial interests in the Application, submitted that the answer to the Characterisation Issue was that the relevant assets were secured by fixed charges at the time of their disposal.
The evidence in the Application
In terms of evidence, the Application is supported by a witness statement of Matthew Callaghan, dated 2 nd September 2022, who is one of the Joint Administrators. There was no further evidence served in the Application. In dealing with the facts relevant to the Application, I derive those facts from the witness statement of Mr Callaghan and its exhibits, from the other documents before me in the Application, and from what I have been told by counsel. There is no agreed statement of facts but, so far as I am aware, there is no material dispute of fact in the Application, and I have not been required to resolve any disputed question of fact. The Characterisation Issue is essentially a point of law, involving the application of the relevant legal principles to the relevant facts and documents in the present case.
The Relevant Assets
According to the witness statement of Mr Callaghan, at paragraph 12, the principal activity of the Group, including the Company, was the operation of satellites and the sale of wholesale satellite broadband and satellite connectivity services to internet providers, mobile network operators, enterprises, governments and other satellite operators. A brief history of the Group, and a Group structure chart can be found on page 12 of the Joint Administrators' SIP 16 Statement of the Sale of the Business and Assets, dated 13 th April 2022 ( “the SIP 16 Statement”).
Immediately prior to the transactions which are relevant to the Application, the Company owned certain assets ( “the Relevant Assets”) which are the subject matter of the Application. The Relevant Assets, which are conveniently divided into four categories, were constituted as follows at the date of the relevant disposals:
(1) A Ka-band satellite payload known as HYLAS 3 which was operating in the 31.0°E orbital position ( “HYLAS 3”).
(2) Certain equipment used in the operation of network and ground station facilities, including relevant spares, electronic components and antennae, together with the benefit of warranties on those items ( “the Network and Ground Station Assets”). The Network and Ground Station Assets were relevant to the operation of the HYLAS 3 satellite, as well as to the operation other satellites (HYLAS 1, HYLAS 2 and HYLAS 4) owned and/or operated by the Group. Some of the Network and Ground Station Assets were housed at the Goonhilly ground station (“ Goonhilly Station”), where the Company leased office space.
(3) Certain satellite network filings (“the Satellite Network Filings”) registered with the International Telecommunication Union ( “the ITU”). A sale of the Satellite Networks Filings required the consent of the Office of Communications ( “Ofcom”).
(4) Certain ground station licenses issued by Ofcom. These licenses ( “the PES Licenses”) entitled the Company to operate the ground stations referred to above. As with a sale of the Satellite Network Filings, a sale of the PES Licenses also required the consent of Ofcom.
The Satellite Network Filings require some further explanation, as follows:
(1) The position in outer space, or orbital slot, occupied by a satellite determines the areas to which its signals can reach. The rights in respect of orbital slots are regulated at an international level.
(2) The ITU is a specialised agency within the United Nations. It operates in accordance with international treaties entered into by member states, which include the UK. It maintains a formal database of all registered satellite and terrestrial frequency assignments called the Master International Frequency Register ( “MIFR”). In turn, Ofcom represents the UK Government in the ITU and acts as the UK notifying administration to the ITU. Among its general role and functions, Ofcom is required to decide whether to process an application for a satellite network filing based on certain criteria. If an application is approved by Ofcom and the filing registered on the MIFR, the registrant will have the entirety of the right to use the registered filing. Ofcom publishes a document/manual (Procedures for the Management of Satellite Filings, published 14 th March 2019) which describes the procedures which must be followed by companies or other organisations within the UK, British Overseas Territories, the Channel Islands and the Isle of Man which submit applications through the UK for the management and processing of satellite filings ( “the Filings Manual”).
(3) A satellite filing recorded in the MIFR as being held by a UK satellite operator may be transferred but only by (a) one UK satellite operator to another UK operator which meets certain prescribed criteria; and (b) with the prior consent of Ofcom and subject to the transferee company or organisation providing evidence that it satisfies the relevant due diligence requirements set by Ofcom. The Filings Manual makes clear that a transfer of this sort may be made for value.
(4) The case of the Joint Administrators is that the Company's bundle of rights in respect of the Satellite Network Filings entitled it to use particular orbital slots in relation to satellites. Those rights included a right to transfer the filings for value to another recognised operator, but always subject to the approval of Ofcom.
(5) In the present case, the most valuable of the Satellite Network Filings comprised three orbital filings which constituted the Group's spectrum rights at the 33.5°W orbital slot (UKDIGISAT-3, UKDIGISAT-4A and UKMMSAT-B). That slot was occupied by the HYLAS 4 satellite operated by another entity in the group, Avanti Hylas 2 Limited ( “AH2L”). HYLAS 4 is the Group's main operating satellite. In addition, the Company owned certain further Satellite Network Filings related to other orbital slots which were not referable to a particular satellite owned or operated (or anticipated to be owned or operated) by the Group, and were held as speculative development assets and/or assets held for sale. These filings were not considered to have any material economic value.
The Transactions
By a sale and purchase agreement dated 17 th March 2022 the Satellite Network Filings and the PES Licences were transferred by the Company to AH2L. The consent of Ofcom to this transfer ( “the Intragroup Transfer”) was required and obtained. The assets were sold in exchange for two intercompany loan note instruments issued by AH2L to the Company in an aggregate amount equal to the fair market...
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