Internet Protocol Addresses - fixed or floating charge? The question which arose in this case, and on which the liquidator required the court's direction, was whether the security granted by UKCloud Limited was a fixed charge or a floating charge.

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The reason that the liquidator felt he needed assistance on this question was probably because the label used in a debenture to describe the nature of the charge created over an asset, or class of assets, is a guide to the security the parties intended to create, but it is not conclusive.

To attempt to answer this question, the court was fundamentally concerned with the nature of the rights and obligations the parties had intended to create. To come to a conclusion, it considered the essential difference between a fixed charge and a floating charge.

The case law indicates that under a fixed charge the assets charged as security are permanently appropriated to the payment of the sum charged, in such a way as to give the chargee a proprietary interest in the assets.

For as long as the fixed charge remains unredeemed, the assets can be realised from the charge, though only with the agreement of the chargee. The chargee might have good commercial reasons for agreeing to a partial release. Under a fixed charge, that will be a matter for the chargee to decide for itself.

A floating charge contrasts with a fixed charge, however, because in the case of a floating charge the chargee does not have the same power to control the security for its own benefit. In this case, the chargee does have a proprietary interest, but its interest is in a fund of circulating capital. Unless and until the chargee intervenes (by crystallisation of the charge), it is for the trader, not the bank, to decide how to run its business.