Introduction
For centuries, humanity has gazed at the stars with insatiable curiosity; a curiosity that led us from merely gazing at it to successfully venturing beyond it, in pursuit of unraveling the mysteries of the unknown. As our technological capabilities grew, so did our presence in space, transitioning from a realm dominated by government agencies to one bursting with opportunities for private companies. The finance ministry on 21st February, 2024 issued a notification permitting 74% foreign direct investment under automatic route for satellite manufacturing, up to 49% under automatic route for launch vehicles, and up to 100% under automatic route for manufacturing of components and systems. These measures are bound to unlock countless opportunities for the budding private space sector and helping India realize its ambitious target of contributing 10% to the global space economy by 2030.
This expansion into space has not only offered new prospects for human achievement but also introduced complex legal and logistical challenges. One particularly intricate area is the overlap of space law with insolvency law which presents particularly complex issues for insolvency professionals. As space assets become increasingly valuable and widespread, insolvency practitioners would face unique difficulties when dealing with the insolvency of companies in the space sector. This piece strives to explore the challenges insolvency professionals face when dealing with space-related entities. It discusses conflicts and offers suggestions for India to align its policies with international and economic commitments while supporting a growing space economy.
Potential Challenges
Collision Liability
The privatization of the space sector has led to a significant increase in space activities, including the proliferation of satellites, commercial space missions, international collaborations, and the accumulation of space debris. This surge has heightened the risk of satellite collisions and other space-related incidents, presenting new challenges for insolvency professionals dealing with claims in this context.
A very difficult issue for an insolvency professional appointed to a satellite operator in this context is how to deal with collision claims against the debtor company or alternatively how to progress collision claims against other entities in discharging the professional’s investigatory and reporting obligations and overarching duty to act in the best interests of creditors.
When a collision claim involves only Indian entities, the resolution process is relatively less complex, as it will proceed as per Indian law. However, when a foreign entity is involved, resolution becomes significantly more difficult due to intersection with the international space law regime, which is largely state-centric. In such cases, the applicable legal regime is governed not by the IBC alone, but by a suite of international treaties to which India is a signatory. These include the Outer Space Treaty (1967), the Rescue Agreement (1968), the Liability Convention (1972), the Registration Convention (1976), the Moon Agreement (1979), and most recently, the Artemis Accords (2023). Among these, the Outer Space Treaty (“the Treaty”) and the Liability Convention (“the Convention”) majorly govern the issue of state responsibility and cross-border liability for damage caused in space.
Article VII of the Treaty provides that the launching state is internationally liable for any damage caused by its space objects to another state party or its natural or juridical persons, whether on Earth, in airspace, or in outer space. Article VIII further establishes that the launching state retains jurisdiction and control over the space object. The Convention complements this by establishing a fault-based liability for damage occurring in outer space (Articles III and IV (b)). Moreover, Article V of the Convention stipulates joint and several liability for damage caused by space objects launched jointly by two or more states.
The central concern for insolvency professionals arises from the fact that under Articles VIII and IX of The Convention, only sovereign states, not private entities, can directly pursue claims for compensation arising from space-related damage. A private company must first request its national government to take up the claim diplomatically or, in limited cases, route it through the UN Secretary-General. But, if no state chooses to advance an individual’s claim, that individual has no recourse in international law. Even where government support is secured, the process, whether via diplomatic channels or the alternate Claims Commission mechanism (see Article XIV of The Convention), can be slow, opaque, and unpredictable.
This procedural bottleneck creates real hurdles. For instance, under Section 18, the interim resolution professional (IRP) is tasked with taking control of all assets, including actionable claims. Under Section 20, the IRP must preserve asset value and keep the company operational. Yet, if a potential claim for space-related damage can only be pursued indirectly and with uncertain timelines, the IRP’s ability to discharge these duties is significantly hampered.
Valuing the debtor’s estate becomes speculative, recovery of dues is delayed, and the efficiency of the insolvency process suffers. Though, India requires space-sector companies to carry third-party liability insurance to protect the state from exposure, this does not resolve the fundamental disconnect: insolvency professionals lack direct enforcement avenues. Until the liability regime becomes more accessible to private claimants, cross-border space disputes will continue to strain insolvency proceedings and the professionals navigating them.
Another significant challenge for the insolvency professionals is how to deal or proceed with collision claims, if such collision is caused by space debris. It poses a struggle, as to accurately identifying which orbital debris belongs to which state in the masses of satellites and other debris. The inability to attribute debris to a specific state or entity prevents actionable claims from maturing into realizable assets.
Firstly, a satellite damaged by untraceable debris may become a nearly worthless asset. Normally its book value might be offset by an insurance payout or compensation claim, but if no party can be identified, there is no recoupment. The trustee’s estimate of the estate’s value is therefore highly uncertain. This ambiguity can depress bidding in a sale or restructure, as purchasers factor in the risk of latent, uncompensated damage.
Secondly, even if the trustee attempts to assert a claim on behalf of creditors, the claim itself may be classified as unliquidated or contingent, thereby reducing its admissibility and recoverability within the resolution process. Moreover, it will be very difficult to determine the extent of damage caused by such collisions. This difficulty is particularly problematic in the context of insolvency, where time is of the essence. The insolvency process is designed to be time-bound to ensure that the interests of both creditors and debtors are protected. However, the challenges of tracing space debris and assigning liability can lead to significant delays, potentially undermining the entire process and working against the best interests of both financial creditors and the debtor.
Ownership Rights
One emerging frontier of commercial space activity is space mining, which also presents significant challenges for insolvency practitioners. A critical question revolves around whether resources extracted from asteroids and celestial bodies could be subjected to the insolvency resolution process if a firm engaged in space mining were to become insolvent. For such resources to be subjected to the process, they would have to be classified as ‘assets’ of the firm.
While the Insolvency and Bankruptcy Code, 2016 does not define the term “asset” under Sections 3, 5, or 79, Section 3(37) allows for reference to definitions in other enactments such as the Indian Contract Act, the Companies Act, and others. However, even these statutes do not define “asset.” In Victory Iron Works Ltd. v. Jitendra Lohia & Anr., the Supreme Court addressed this gap by turning to Section 102(2) of the Income Tax Act, 1961, which defines “asset” to include “property or right of any kind.” The Court observed that this broad definition, coupled with the ordinary meaning of “asset” as “property of any kind,” supports an expansive interpretation under the IBC. It held that any proprietary interest or bundle of rights held by a corporate debtor constitutes an “asset” for the purposes of Sections 18(f) and 25(2)(a) of the Code. Applying this reasoning to space mining, if a corporate debtor has extracted and possesses resources from celestial bodies, such resources, being capable of ownership, control, and economic exploitation, would qualify as assets. Accordingly, they would be subject to the insolvency resolution process, and the resolution professional would be obligated to take custody and control of them as part of the debtor’s estate.
Now, this poses a very significant problem, as various international treaties prohibit the same and even the status of space mining as a ‘legal’ enterprise is in uncertain waters globally.
At the heart of this dilemma once again lies the Treaty, to which most spacefaring nations, including India, are parties. Article I of the Treaty declares that outer space shall be the “province of all mankind”, while Article II prohibits national appropriation of celestial bodies through claims of sovereignty, use, occupation, or any other means. On a plain reading of such provisions and aligning them with the principles of the Treaty, one may imply that space mining is incompatible with international law, as the extraction of resources could be seen as a form of appropriation. However, despite being parties to the Treaty, nations like the USA and Luxembourg have enacted mining-specific legislation permitting the same by an alternative interpretation of Articles II and VI of The Treaty. These nations assert that while Article II prohibits sovereign claims over celestial bodies themselves, it does not explicitly forbid the extraction of resources once they have been removed from the celestial body. Under this interpretation, space mining is permissible as long as it does not involve sovereign territorial claims. In other words, while celestial bodies remain outside national ownership, the resources extracted from them can legally be owned and exploited. This has led to the rapid development of space mining industries in these countries, far outpacing the rest of the world. Hence, as of today, these nations have a burgeoning space mining ecosystem that is far ahead of any other in the world.
Now, the question that arises is, should India follow a similar path to enact a specific space mining legislation, too? However, this choice tends to be in conflict with India’s international commitment. This is due to the fact that in addition to being a party to the Treaty, India is also a signatory to the Moon Agreement, which denounces commercial exploitation of the Moon and other celestial bodies unless conducted under an established international regime, which is non-existent as of now. The future also seems bleak for any such regime as most spacefaring nations have not signed the Agreement and have instead marched forward with mining activities contradicting the Agreement’s principles.
Moreover, S.7(2)(b) of the Draft Space Activities Bill, currently under consideration in India, envisages a regime in which licenses for space activities may be granted if they are ‘consistent with the international obligations of India.’ A license for space mining activities, post-enactment of this bill, may not be feasible as it may be contrary to India’s obligations under the Agreement.
Interestingly, despite being a signatory to the Agreement, India has also signed the Artemis Accords, a multilateral framework led by the United States, outside the regular channels of the UN’s corpus juris spatialis, which facilitates future lunar exploration and explicitly envisions resource extraction from the Moon within the next decade. Such commercialization of the space by few state actors is inherently contradictory to the principles enshrined in the Agreement, which envisions it as a “common heritage of mankind”.
In this context, a complex challenge arises for insolvency practitioners. If they are appointed in cases involving firms engaged in space mining, they may confront unprecedented legal uncertainty surrounding the treatment of such resources, especially in cross-border insolvencies. There is likely to be an increase in complex disputes involving the intersection of domestic insolvency law, private international law, and the often-ambiguous principles of international space law. India stands at a significant crossroads, and the path it chooses will not only determine the permissibility of commercializing space but also shape the legal clarity available to insolvency professionals in dealing with space-mined resources.
Complexity in Valuation
Space assets, such as satellites, launch vehicles, or intellectual property related to space technology, are highly complex. Determining the value of space assets can be complex due to their specialized nature and the lack of a standardized valuation framework. Space assets depreciate differently compared to terrestrial assets. For example, a satellite’s value might depend on its remaining operational life and technological relevance. Traditional valuation methods may not apply, leading to difficulties in determining the actual worth of assets during insolvency proceedings. Apart from the difficulty in assessing the valuation of asset, it will be difficult to assess the extent of damage caused to it due to outer space collisions. This can impact the resolution process and the distribution of recovered assets among creditors.
Generally, valuation and compensation would be calculated on the basis of internationally accepted valuation standards. It is important that the basis of valuation for economic and non-economic losses related to space assets be considered. Proper valuation helps in formulating feasible restructuring plans, ensuring fair distribution among creditors.
Way Forward
To resolve the dilemma concerning the ownership rights over space resources, India can either ratify the Agreement through a domestic legislation and push for the envisioned international regime to regulate space mining. Such an act would likely prevent the recognition of space resources as ‘assets’ under IBC, 2016 for the purposes of insolvency, thereby curbing the budding of space mining startups in the country. Alternatively, it can withdraw from the Moon Agreement and align itself more closely with the Artemis Accords and the cohort of nations that regulate space mining through respective domestic legislations. India need not enact a separate legislation for the same; it can bring in comprehensive amendments to the Draft Bill for the same, providing a legal framework for recognizing space resources as assets under Indian insolvency law.
With regards to collision liability, first and foremost, we need to concentrate global efforts to build technology capable of removing or retracting defunct satellites from earth’s geostationary orbit so as to mitigate unnecessary space junk that can potentially damage active satellites or other space assets. As there is a greater probability of defunct space debris colliding with functional space assets, developing such technology will have a positive impact on number of dispute arising out of such collisions. Moreover, investing in technologies for tracking space debris and assessing space assets will help insolvency practitioners manage risks more effectively. With the advent of private entities in the space sector, there arises a need for a novel international framework that imposes liability on such entities for any damages their activities may cause. The current framework under the Convention was conceived at a time when space activities were the sole domain of state actors and hence demands an overhaul.
There is also a need to develop asset valuation methods that are based on internationally accepted valuation standards which are specific to space assets. Such methods must prioritize simplicity and uniformity, ensuring transparent claims processing and minimizing room for inconsistency. Integrating well-established valuation norms will enhance reliability, while the use of independent evidence wherever possible should underpin liability assessments, lending credibility and precision to the valuation process overall.
Conclusion
The intersection of space law and insolvency law presents unique challenges that require innovative solutions. As the space sector continues to grow, it is imperative that legal frameworks keep pace with technological advancements. By developing comprehensive national legislation, harmonizing international frameworks, and implementing standardized valuation methods, we can ensure that insolvency proceedings in the space sector are conducted fairly and efficiently. The choices that India makes in this regard will not only shape the future of its space industry but also contribute to the evolution of global space law.
Anubhav Singh and Prinshul Agarwal are undergraduate law students at Dr. Ram Manohar Lohiya National Law University, Lucknow.
Picture Credit: University of Arizona