Keywords: Bankruptcy Code – Outer Space Treaty – Protocol for Space Assets – Resources – UNCITRAL Model Law
The rapid proliferation of private space companies presents unique challenges as regards insolvency and bankruptcy. The terms ‘insolvency’ and ‘bankruptcy’ have different meanings, wherein the former refers to a financial concept while the latter refers to a legal process. However, the author uses these two terms interchangeably inthis piece. The nature of activities undertaken by commercial entities is becoming multi-faceted. With technological developments, the number of such players would only compound, thereby increasing the risk appetite, and in turn, propagating multiple insolvency scenarios wherein a clear regulatory framework would be critical. Many regard outer space as the domain owned by the big space-faring nations and billionaires. The high entry costs prohibit the other smaller players from having a piece of the outer space pie.
However, rather surprisingly large number of commercial entities could either be a boon or a bane. If these entities manage to keep their financials in place, they could contribute immensely to the growth of the outer space sector. However, if their financial outlook is bleak, it could prevent other smaller players from entering the space market. Two recent cases involving Masten Space Systems and OneWeb, demonstrate the challenges faced by commercial entities vis-à-vis this sector. Both companies had filed for bankruptcy under Chapter 11 of the United States [“U.S.”] Bankruptcy Code. This piece intends to provide a brief insight into the interface between the outer space sector and the bankruptcy framework at the international level.
The Commercialisation of Outer Space and Insolvency
One of the five commercial entities, Masten Space Systems, that was awarded the contract by the National Aeronautics and Space Administration [“NASA”] under the Commercial Lunar Payload Services Program [“CLPS”] has recently filed for bankruptcy. The company’s staff strength was cut short, and several employees working on the XL-1project were laid off. However, the financial position did not improve despite such financial arrangements, finally leading the company to declare bankruptcy. According to the company, the assets of the company were to the tune of USD 10 to 50 million and were roughly matched by the liabilities. The filing was before the U.S. Bankruptcy Court for the District of Delaware. Some of its major creditors include SpaceX: the largest creditor, Psionic, Astrobiotic, NuSpace, and Frontier Aerospace.
The federal bankruptcy court in Delaware approved the sale of the company’s assets to Astrobiotic in an auction wherein the bidder offered a price of USD 4.5 million for ‘substantially all’ of Masten’s assets. After the Chapter 11 reorganisation concludes, NASA would be in a position to determine whether the company would be able to discharge the terms of the CLPS contract. The second case concerning OneWeb, a big broadband satellite constellation company that recently underwent a restructuring process,is a perfect example of successful restructuring as regards commercial entities in this sector. The restructuring process vested a 42.2 percent stake in the company’s assets with Bharti Global and the UK Government each. The UK Government underscored its ambition to put the country on the global map as regards space technologies after this restructuring.
It is important to note that companies such as Masten rose from the bottom and achieved extraordinary feats as a start-up, with only a handful of individuals leading a small team of talented and hardworking aerospace engineers. Therefore, when external circumstances such as the Covid-19 pandemic forced Masten to file for bankruptcy, it was a sad day for dreamers of private space ventures. These cases exhibit the inherentfinancial risks associated with start-ups in the outer space sector. Therefore, a proper financial cushion to mitigate the risks could be key to dealing with such challenging situations in the future. For instance, if the start-ups are adequately backed by the governmental agencies and the public-private partnership [“PPP”] model is adopted, the government and the company could benefit from such an arrangement.
The government can potentially gain from the expertise and agility of the company, while the commercial entity can rely upon the government’s support during financial distress. The allocation of risk between the public and the private entity is well-defined as regards the PPP model, and the latter is subject to strict financial reporting standards that would inevitably create a more financially-sound ecosystem for such ventures.
The Relevant International Legal Instruments
The Outer Space Treaty lays down general principles regarding the concept of ownership wherein the launching state, or the private entities associated with the state, are vested with the ownership of the space assets. Article VI makes it amply clear that the launching state would be responsible for the activities of both governmental and non-governmental entities in outer space. Article II specifies that outer space, including the Moon and other celestial bodies, is not subject to ‘national appropriation’ by any state. Therefore, while the ownership rights vis-à-vis the states are quite clear, the same cannot be inferred regarding private companies. As more companies penetrate the outer space sector, the chances of space mining increase manifold, leading to possible tense situations in relation to insolvency proceedings.
The lack of a clear insolvency framework concerning the outer space sector could be deeply problematic as the insolvency practitioners would not be adequately equipped to distribute the mined assets of the insolvent company among the group of creditors. This situation could get more complex if multiple countries seek to lay claim to the assets of the company. In this context, the UNCITRAL Model Law on Cross-border Insolvency provides procedural certainty and a multi-state cooperation mechanism as regards cross-border insolvency proceedings. The provisions of the Model Law are wide enough to be construed in light of the novel developments taking place in the outer space sector. However, given that with the passage of time more space-faring nations would enact domestic laws concerning commercial activities in outer space, including the Moon and other celestial bodies, akin to the U.S. and Luxembourg, the cross-border regime envisaged under the Model Law has to be visualised within the domestic instruments.
Article 25 of the UNCITRAL Model Law stipulates that the court of the host state and the foreign courts or representatives shall cooperate either directly or through an officially appointed liquidator or an administrator. The host court can communicate directly and request information or assistance from the concerned foreign courts or representatives. Article 26 of the Model Law provides that the officially appointed liquidator or administrator shall ‘cooperate to the maximum extent possible with the foreign courts or representatives. Such a person or entity shall operate under the guidance and supervision of the court while discharging the functions under the law. The forms of cooperation have been identified under Article 27 of the Model Law, wherein the role of the arbitrator or mediator could be instrumental in resolving any dispute regarding insolvency proceedings in the outer space sector.
Another international instrument that could be extremely useful is the Cape Town Convention’s Protocol for Space Assets, 2012, which lays down a specialised procedure for dealing with insolvencies concerning space assets. Article XXI of the Protocol provides for the remedies for insolvency wherein, as per Alternative A, the creditors may seek repossession or control over the spacecraft upon the end of the waiting period. This provision, coupled with an enhanced understanding of the distribution of mined assets, could pave the path for the insolvency-related troubles of companies in the outer space sector.
It is worth noting that the financial challenges associated with start-ups in the outer space sector could be steep. However, there are strategies through which they could be addressed effectively, especially through restructuring wherein the acquiring company values the vision and goals of the company acquired. The future of the sector could rest upon how public-private partnerships across multiple jurisdictions can support commercial ventures that may face stormy waters. Even though the damaged ship,akin to the ship of Theseus, might be torn into pieces and distributed among different takers, the spirit of the ship or its legacy could be continued by the new stakeholders.
The future of the outer space sector and the participation of private entities would rely upon how well the financial risks are mitigated, and existential challenges are surmounted. The current international instruments, such as the UNCITRAL Model Law and the Cape Town Convention’s Space Assets Protocol, if incorporated effectively within the domestic laws, could create a stable regulatory system for the outer space participants. While there is much to learn from a study of the OneWeb and Masten insolvencies, the sector needs to be more prepared to deal with future bankruptcies so that the new challenges that may arise, for instance, the distribution of mined resources among the creditors situated in multiple jurisdictions, are addressed in tandem with the core goals of the Outer Space Treaty.
* The author is an Assistant Professor (Law) at NALSAR University of Law, Hyderabad. She can be contacted at email@example.com.