Is an IRU D a Safe Bet for Submarine Capacity by Andrew Lipman
submarine capacity, is whether these types of uring the late nineties, a number of comarrangements can be considered “executory panies ventured into connecting the contracts” in the context a potential bankruptworld through numerous privately owned subcy of the network owner, and can be “rejected” marine cables and “sold” significant amounts under Section 365 of the Bankruptcy Code (11 of telecommunications capacity in the form U.S.C. § 365(a)) to the detriment of the IRU of Indefeasible Right of Use (“IRUs”). Subseholders. Providing answers to these questions quently, in the past few years, several of these is particularly important to potential acquirers submarine network providers, including Global of telecommunications capacity in submarine Crossing and FLAG, went bankrupt. Although systems around the globe. the worst years for the telecommunications If in the context of a industry appear to be are there cases other some “...in bankruptcy of a netfuture over, it is important for work owner, a bankruptcy provisions that expressly state future telecommunicacourt were to determine that tions capacity purchasers that the agreement does not these types of arrangements to ascertain what risks, if transfer any ownership rights to are executory contracts under any, they may be assumthe underlying assets, and that Section 365, 2 the grantor ing if they “purchase” ownership and control of such (debtor-in-possession or some amount of submatrustee) may be able to reject assets remains with the grantor.” rine capacity in the form the agreement(s) and would of an IRU. be excused from future perIRUs were origiformance thereunder.3 The IRU holder may nally developed in the context of submarine still assert a claim for damages (as an unsecured fiber optic networks, where they continue to creditor), but would undoubtedly suffer signifibe the usual means how capacity is conveyed. cant losses, as the IRU holder may be unable to Nowadays, IRUs are prevalent throughout the service its own customers until it finds a suittelecommunications industry as a means to able alternative to the facilities (which may or transfer rights to network capacity for long pemay not be available) or may be forced to seek riods of time. However, what is an IRU? What bankruptcy protection itself due to its inability type of rights are associated with it? What to continue implementing its business plan. If would happen to these agreements in the event such a determination were to be made in the of bankruptcy of the grantor? These are some context of a large bankruptcy, it could have of the questions that to date have not been crippling effects to the telecommunications squarely addressed by any court in the United industry at large, as many small players could States. Of particular concern to purchasers of 12