The Rapid Commercialisation of Outer Space and the Implications for the Restructuring and Insolvency Industry
By Scott Atkins (Norton Rose Fulbright)
We are now in the midst of a new commercial space era. Worldwide, the space economy is valued at more than USD $469 billion, having expanded by more than 70% since 2010 and by over 9% in the past year alone. The global space industry is expected to grow to around USD $1 trillion by 2040.
Satellite-based activities are a particular commercial focus in this new ‘space race’. Strong competition among commercial space launch service providers, as well financial support from governments globally, has meant that more and more private entities have been able to launch satellites (as well as other spacecraft) into space, with the cost of ‘access to space’ at an all-time low.
One of the most immediately measurable impacts of this trend comes in the form of advancements in the capability of low orbit space satellites, which are directly responsible for leveraging innovative communications technologies to improve access to broadband services and online healthcare and consultations in remote regions and communities, as well more accurate weather and extreme event forecasting.
Further, embedded satellite-based quantum key distribution technology is helping to deliver more secure communications networks. This is an important public policy priority given the global focus on enhanced cybersecurity practices to combat malicious attacks that can devastate public and private sector entities – shutting down operations, compromising intellectual property and other assets and causing data leakages and privacy breaches.
At the same time, however, the commercial space industry is marked by a high proportion of start-up enterprises, and a ‘high risk, high return’ investment culture. Many commercial space entities carry higher leverage ratios and a greater risk of default, and these entities may experience a ‘fiscal cliff’ and financial distress as the world continues to face very challenging economic conditions.
The increase in commercial space actors and activities – and the corresponding increase in levels of financial distress and defaults from high risk ventures – will see outer space activities become an important part of the global restructuring and insolvency landscape.
Indeed, we have already seen the Chapter 11 bankruptcy filings of satellite operators Intelstat (which launched the world’s first commercial communications satellite in 1965), OneWeb (a satellite start-up focused on deploying large constellations of small satellites capable of delivering high-speed broadband to remote areas, including the Arctic) and Speedcast International (which operates large geostationary satellites after emerging from Chapter 11).
However, to create an optimal enabling environment for commercial space entities to restructure their affairs, it will be necessary to modernise the current global outer space regulatory environment, and address a number of regulatory gaps.
First, an inconsistent approach is currently taken to the regulation of property and ownership rights in outer space. The 1967 Outer Space Treaty (with 112 signatory States) does not explicitly extend to the regulation of ownership rights of private entities in outer space. The United States, Luxembourg, the UAE and Japan have passed laws which permit private entities to exploit and utilise outer space resources, while other nations assert that outer space resources are the ‘common heritage’ of humankind and are beyond the scope of individual appropriation.
Without a consistent and predictable framework for the recognition and enforcement of ownership interests in outer space, there is a prospect of protracted disputes and a deterrent impact on new investment to drive outer space exploration, as well as investment in support of a restructuring attempt given the risk to underlying enterprise value and future prospects.
Another regulatory issue is the current lack of an international framework for security rights in outer space. This too may serve as a deterrent to new investments from financiers in support of outer space commercial activities – including in a restructuring context. Indeed, creditors, to continue to provide financing, need to be assured that any security they take to support loans over physical equipment as well as potentially property acquired from outer space (such as water and mining deposits) is recognised by way of priority and is supported by clear enforcement rights and remedies. This is particularly the case given the greater insolvency risk in the context of space activities due to the involvement of start-up enterprises as well as more speculative activities such as space mining and engineering.
A possible model to remedy the regulatory gap is the currently dormant Space Protocol to the Cape Town Convention on International Interests in Mobile Equipment (as of now, signed by, but not ratified by or acceded to, only four States), which sets out a uniform regulatory regime for the creation, recognition, protection and enforcement of security interests in space assets.
Finally, the existing space law regulatory architecture does not provide a clear basis for the resolution of liability claims arising from outer space collisions and other incidents. The 1972 Liability Convention does not provide private entities with direct enforcement rights in the event of damage to property in outer space, requiring instead enforcement through official State-based diplomatic channels and only in the event of an undefined concept of ‘fault’. Yet with low orbit Earth currently consisting of more than 36,500 pieces of space debris larger than 10 centimetres and travelling 25 times faster than a commercial airliner, there is a significant risk of a catastrophic space collision in the near future. This may deter investment in commercial space entities, including in the context of distressed investments, given the underlying risk to physical security and asset values.
With the rapid growth of commercial space opportunities, and the insolvency risk arising from the inherent financing and operational model of space entities, these are issues that restructuring and insolvency professionals should keep a close eye on. As attention turns to what the design of a new, modernised outer space regulatory environment should look like, restructuring and insolvency professionals and policy makers also have an opportunity to advance the discussion on key structural reforms that harmonise and standardise basic norms in relation to ownership, security rights, liability claims and dispute resolution in outer space.
(*) This article was originally published on the Global Restructuring Review