Re UKCloud Ltd
| Jurisdiction | England & Wales |
| Judge | Baister |
| Judgment Date | 24 May 2024 |
| Neutral Citation | [2024] EWHC 1259 (Ch) |
| Court | Chancery Division |
| Docket Number | No: CR-2022-003848 |
[2024] EWHC 1259 (Ch)
Deputy ICC Judge Baister
No: CR-2022-003848
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF UKCLOUD LTD (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL
Mr Ian Tucker (instructed by DLA Piper UK LLP) for the Applicant
Ms Nicola Allsop (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared by agreement between the parties and with the permission of the court for Harbert Specialty Lending Company II SARL but without being joined as a respondent to the application
Hearing date: 1 May 2024
Approved Judgment
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to the National Archives. The date and time for hand-down is deemed to be 10.30 am on 24 May 2024.
The application
Gareth Jonathan Allen, in his capacity as Official Receiver and liquidator of UKCloud Ltd, seeks directions pursuant to s 168(3) Insolvency Act 1986 as to whether the effect of a debenture granted by the Company to Harbert European Speciality Lending Company II SARL on 28 February 2020 is to give Harbert the benefit of a fixed or floating charge over certain internet protocol (IP) addresses. Harbert's position is that it has a fixed charge. The OR is professedly neutral, but, whilst recognising that there is some force in Harbert's arguments and that the position is not clear cut, puts forward a number of reasons in support of the proposition that the charge is a floating charge. I do not use the word “professedly” as a criticism. The fact that the OR has argued for a floating charge means I have had the benefit of adversarial argument of considerable subtlety. I agree with counsel that the issue is not straightforward and preface what follows by confessing that I have not found it easy to resolve.
The application is supported by a single witness statement of Mr Allen. Harbert has not adduced written evidence, and cross-examination has been dispensed with. The application proceeds on the basis of a list of agreed facts which appears as an appendix to this judgment.
The background
In those circumstances I do not propose to deal with the background in detail. It is, however, helpful to set out in brief, by reference to the agreed facts, but also to other material before me, what the Company did and how it did it, as well as certain other matters, by way of backdrop to what follows.
The Company is a wholly owned subsidiary of Virtual Infrastructure Group Ltd. It provided cloud computing services, mainly to central government departments and local authorities. The provision of those services involved the use of IP addresses.
IP addresses are dealt with in paragraphs 1–7 of the list of agreed facts, and both Mr Tucker and Ms Allsop helpfully explain them in their skeleton arguments. Ms Allsop likens an IP address to the postal address of a property. It allows data to travel through a network and arrive at its intended destination. Each internet connected device has an IP address which is allocated either on a dynamic basis (the IP address changes each time the device is connected to the internet) or a static basis (the IP address is allocated for a fixed period and remains the same each time the device is connected to the internet). Mr Tucker cites passages from an article by Hilco Streambank, specialists in the disposal of such rights:
“Internet Protocol (IP) is a set of rules for addressing and routing data so it can travel thro[ugh] networks and arrive at its intended destination. Internet-connected devices each have a unique IP address.”
[…]
“Individual IP addresses are unique identifiers most often, but not always, associated with [a] specific device. Though used one at a time, they are transferred in ‘blocks’ that may inclu[de] many IP addresses. Possession of a block includes unique registrations of addresses in registries worldwide. These registries maintain uniqueness in the sense that they make [sure] it's clear who is the authorized user of a block of IP addresses. Registration includes the ability to transfer IP address use to someone else, subject to the policy of the registries, [in] return for payment.”
Internet Protocol Version 4 (IP v.4) addresses were the first major version of IP addresses and remain the dominant version. They are finite in number: there are not enough to cater for all internet connected devices; and although a successor version, IP v.6, has been developed, it is regarded as inferior to version 4. This means that IP v.4 addresses are much in demand. Millions are bought and sold every year.
In Europe, IP addresses are allocated by the Réseaux IP Européens Network Coordination Centre, one of five Regional Internet Registries which provide internet resource allocations, registration services and co-ordination in support of the operation of the internet globally.
RIPE NCC maintains a database listing the registered holders of allocated IP addresses. Only RIPE NCC members can hold IP addresses. The registered holder is known as a “responsible organisation.” The Company was, at all relevant times, a RIPE NCC member and a responsible organisation.
The terms on which a responsible organisation holds IP addresses are set out in the RIPE NCC Standard Services Agreement. I was taken to some passages in that agreement, notably the three sentence recital; clause 5, which provides for the member (in this case the Company) to make certain payments for RIPE NCC's services; clause 9, dealing with the term of the agreement and termination; and clause 10. Mr Tucker attached some importance to clause 10.1, which restricts the member/company's ability to assign any rights or obligations without RIPE NCC's written consent; clause 10.2, confirming that registration “does not confer upon the Member or the third party any rights of ownership,” and the ability of RIPE NCC in certain circumstances to de—and re-register “Internet Number Resources,” which term includes IP addresses.
The importance of all this, as I understand it, is that the Company had the use of the IP addresses on very limited terms: the right to use and the right (in certain circumstances) to seek a transfer. I was referred in that respect to clause 2.0 of a document called RIPE Resource Transfer Policies which deals with transfers within the relevant service region and which again restricts the ability to transfer complete or partial blocks of addresses. (There are two iterations in evidence covering different periods, but I am told they contain the same terms as far as they are relevant for present purposes).
I should mention another document, the Company's internal Guidance – IP Address Usage and Allocation (it is in the previous name of the Company, Skyscape Cloud Services Ltd) which deals with what is sometimes referred to as the sub-allocation of IP addresses, the Company's right to “reclaim a customer assignment where there are a large number of IP addresses that are not being used,” and the right, where that is the case, to request a smaller allocation. Harbert, as I understand it, would not have seen this.
The Company held a number of IP addresses, the most valuable being 23,552 IP v.4 addresses. It also held a number of IP v.6 addresses, although they are not material for present purposes. It purchased IP addresses in range 83.151.208.0/20 on or around 12 May 2014 from Mailbox Internet Ltd and IP address range 51.179.192.0/18 on or around 20 May 2015 from the Department for Work and Pensions. These are the two largest ranges and represent around 87% of the total pool of IP addresses.
The Company paid an annual fee to RIPE NCC for the use of the IP addresses. Customers paid the Company for the services it provided.
The Company necessarily contracted with its customers for the provision of its services, which included, indeed necessitated, the use of one or more IP addresses. It appears from the Guidance (and has been confirmed to the special managers by a former employee of the Company) that a customer would be informed by the Company of the fact of the allocation of specific IP address(es) which would be exclusively used by the customer for the duration of the service provided. There was no written agreement dealing with the relationship between the Company and its client or customer, and the Company's contractual documentation with its customers did not refer to the IP addresses. Although addresses were sub-allocated to customers in accordance with Company policy, the customers had no formal rights to or in respect of them: they were not, for example, granted a formal lease, licence or assignment; nor did they acquire anything in the nature of a proprietary right (see paragraph 9 above).
The Company, through its parent, raised finance governed by a loan agreement dated 28 February 2020 and made between Virtual Infrastructure and Harbert. The debenture that is the subject matter of this application was entered into on the same date.
The company was wound up by the court on 25 October 2022, the OR was appointed as liquidator, and special managers were appointed.
Thereafter the Company's services were supported by the government whilst the OR pursued a sale and, in the alternative, a controlled migration of its customers, ultimately unsuccessfully, before terminating customer services.
The Company's assets, including the IP addresses, have been realised. Harbert agreed to their sale subject to such security rights as it had attaching to the proceeds of sale. Harbert is owed in excess of £6 million. Whatever the outcome of this application, it will...
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