Rights and contracts
Bankruptcy sale vs ABC vs dissolution: options for a company's data
By SourceX Editorial · Reviewed by Noah Loul ·
Short answer
Bankruptcy, an assignment for the benefit of creditors and a dissolution each handle a company's data differently. Bankruptcy adds court oversight and buyer comfort but moves slowest; an ABC is faster and run by an assignee; a dissolution keeps the board in control. In every path, licensing records works only if system access and context survive.
Key takeaways
- Authority over data sits with a trustee or debtor in bankruptcy, an assignee in an ABC, and the board in a dissolution.
- Privacy promises and contract restrictions apply in every path; no process strips data of its original limits.
- Licensing while the company still operates usually preserves the most context, staff knowledge and system access.
- A non-exclusive license lets a company or estate earn from records without selling the archive outright.
- Whatever the path, document fair value and approvals, because late transactions can be reviewed.
How the three paths compare for data assets#
Bankruptcy, an ABC and a dissolution differ for data assets mainly in who holds authority, how much court oversight applies and how quickly decisions get made. The table compares them on the points that matter when records might be licensed rather than abandoned.
No path changes the rights attached to the records themselves. A privacy policy that ruled out sharing, a customer contract that requires deletion at termination, or a vendor term that limits exports binds a trustee, an assignee and a board alike.
| Factor | Bankruptcy sale | Assignment for the benefit of creditors | Dissolution and wind-down |
|---|---|---|---|
| Who decides | Trustee, or the debtor in possession under court supervision | Assignee acting as fiduciary for creditors | Board and officers, sometimes a liquidating trustee |
| Court oversight | High; sales outside the ordinary course need court approval | Varies by state, from court filings to a largely private process | Generally none beyond state filings unless disputes arise |
| Privacy review | If a privacy policy barred transferring consumer personal data, a sale must fit the policy or be approved after a consumer privacy ombudsman review | No ombudsman process; the assignee and counsel apply privacy promises and privacy law themselves | Board applies privacy promises, contract duties and privacy law |
| Speed | Usually the slowest and most formal | Often faster and less public than bankruptcy | Set by the board's plan and state claims procedures |
| Buyer comfort | A court-approved sale order can give strong comfort | Rests on the assignee's process and documentation | Rests on board approvals and creditor treatment |
| Licenses already granted | Rejection counts as a breach, not a rescission; IP licensees have added statutory protection | Assignee takes assets subject to existing licenses, with no special power to reject them | Licenses continue under their terms; the company plans for duties it cannot perform after closing |
| Fit for licensing | Possible, with court approval of terms | Workable with paid-up, fixed-scope licenses | Most flexible while systems and staff remain |
Bankruptcy: court oversight and its trade-offs#
In bankruptcy, data assets become property of the estate, and selling or licensing them outside the ordinary course of business generally requires court approval after notice to creditors. The process is slower, but it produces a record buyers trust and resolves competing claims in one forum.
Bankruptcy also brings a specific privacy rule. Under 11 U.S.C. §363(b)(1), if the debtor's privacy policy prohibited transferring personally identifiable information to unaffiliated parties, the trustee may sell or lease that information only if the sale is consistent with the policy or, after a consumer privacy ombudsman is appointed and a hearing held, the court approves it. The Code defines personally identifiable information around details individuals gave the debtor for personal, family or household purposes, so many business-to-business records may fall outside that rule, although other privacy law still applies.
Regulators watch these sales. In 2015 the FTC asked the RadioShack bankruptcy court to limit any sale of customer data, recommending that it go only to a buyer in substantially the same line of business that agreed to honor the privacy policy. In March 2025 the FTC chairman wrote to the U.S. Trustee in the 23andMe case that any purchaser should agree to be bound by the company's privacy policies.
Operational records now pass through the same process. In August 2026, SiliconANGLE reported, citing filings in the Southern District of New York, that Google agreed to buy Spirit Airlines' internal business data in a bankruptcy auction, with a hearing scheduled to consider the deal. Reporting described a package of emails, Teams messages and files that excluded passenger profiles, loyalty records and privileged legal material, with personal information to be stripped by a third party before delivery and a bar on re-identification. That scoping is a useful template for any estate.
A Chapter 7 trustee often has little staff and little time, which makes preserving system access the main risk. A Chapter 11 debtor that is still operating has more capacity to prepare a dataset properly and to negotiate terms with a buyer.
ABC: speed with fewer formalities#
An assignment for the benefit of creditors moves faster because a private fiduciary, the assignee, liquidates assets under state law with less court involvement. For data assets, that speed helps when subscriptions are lapsing and the people who understood the systems are leaving.
The trade-off is that buyers rely on the assignee's process and paperwork rather than a court order. Assignees benefit from a clear record of what was licensed, on what basis and with which restrictions honored, and from license terms that do not require the estate to perform after it closes.
Dissolution: the board stays in control#
In a dissolution, the board and officers keep authority to wind up the business, which includes selling or licensing assets, paying or providing for creditors and distributing what remains. For data assets, this is the most flexible path, because the company can still make decisions, keep key staff and run its systems.
Dissolution carries its own data duties. Customer agreements often require returning or deleting customer data at termination, tax and employment rules require keeping certain records, and directors must treat creditors fairly while winding up. A data license fits best when it covers the company's own operational records and is negotiated before the wind-down timetable forces shortcuts.
Which path fits which data situation?#
The right approach to a company's data depends on its condition when the decision is made, not only on the insolvency choice. The pairings below reflect common situations and the approach that usually preserves the most value from records.
Earlier is usually better, whatever the path. The context needed to prepare a dataset, such as which fields mattered and what internal codes meant, sits with people who leave quickly once a company stops operating.
| Situation | Data approach that often fits |
|---|---|
| Company still operating and considering a wind-down | License prepared records before shutdown while staff and systems are available |
| Solvent shutdown with the board in control | Dissolution with a license negotiated as part of the wind-down plan |
| Insolvent, with a quick private liquidation planned | ABC with immediate preservation and a paid-up, fixed-scope license |
| Disputed claims, secured lenders, or a need for a clean sale order | Bankruptcy sale or a court-approved license |
| Records already sitting in a retired system | Recover and verify exports first, then assess whether history is complete |
Steps before choosing a path#
Before choosing an insolvency or wind-down path, the board and its advisers should gather the facts that decide how each path would treat the records, not only the facts about creditors and cash.
- Pull the privacy policies in force for each record family and note any promise never to transfer personal data, since in bankruptcy that wording can trigger an ombudsman review.
- Separate consumer personal data from business contacts and operational records such as tickets, jobs, orders and code reviews.
- List data licenses, data-sharing agreements and customer deletion duties already in place.
- Run a lien search and review security documents for liens on general intangibles.
- Name the staff who understand the systems and codes, and how long each will stay.
- Run a metadata-only fit check to learn whether there is buyer interest before paying for preparation.
- Record approvals and the basis for value, since later reviewers may examine late transactions.
Illustrative: a software company weighs its options#
Illustrative: a fictional B2B software company with years of product history is running out of cash. Its records include Jira issues linked to GitHub pull requests, Intercom conversations tied to fixes, and a Confluence knowledge base. The board weighs a dissolution, an ABC and a bankruptcy filing.
Advisers find no lender dispute and a manageable creditor list, so the board chooses an orderly dissolution. Before the engineering team leaves, the company exports its issue and code review history, removes customer names and credentials, and licenses the package non-exclusively under board approval. Customer-uploaded files are deleted as their contracts require and never enter the dataset.
How SourceX fits each path#
SourceX applies the SourceX five-step transaction, Supply, Rights, Preparation, Approval and Delivery, whether the signer is a board, an assignee or a trustee. Operating, acquired and wound-down companies can all qualify, and the initial fit check collects metadata, not files.
Every package carries a SourceX Evidence Packet covering provenance, licensing rights, permitted use, the privacy record and release authorization. In an insolvency setting, that record helps the fiduciary show creditors, and any court, what was licensed and on what basis.
Frequently asked questions
Can a company license data while it is preparing to file for bankruptcy?
It can, but transactions close to a filing may be reviewed later, especially if the value looks low or the process was rushed. A documented process, fair terms and board approval reduce that risk. Counsel should advise on timing and whether court approval after filing would be the safer route.
Does a bankruptcy sale order remove privacy restrictions on data?
No. Where a privacy policy barred transfers of consumer personal data, §363(b)(1) allows a sale only if it fits the policy or the court approves it after an ombudsman review, and courts have imposed conditions on buyers. For operational records, removing personal details before any transfer is the cleaner route, as recent sales of internal business data have done.
What happens to a data license the company granted before bankruptcy?
The licensee usually keeps more than it fears. In Mission Product Holdings v. Tempnology (2019), the Supreme Court held that rejecting a contract in bankruptcy operates as a breach and does not rescind rights already granted. Section 365(n) adds protection for licensees of intellectual property, but the Code's definition does not name data, so a dataset license may depend on whether the records qualify as trade secrets or copyrighted works.
What happens to records nobody licenses?
They are kept as long as legally required, then destroyed, returned or archived according to contracts and the retention schedule. Many estates leave a copy with a responsible person for tax, employment and litigation needs. Destroying records too early can cause problems, so follow counsel's retention advice.
Is a non-exclusive license better than selling the data outright?
Often, for operating records. A non-exclusive license keeps ownership with the company or estate, so a prepared dataset can be offered to other developers on separate terms, while an outright sale ends the asset in one transaction. A sale can still make sense when the estate must close quickly and a buyer wants full control.
Sources
- Under 11 U.S.C. §363(b)(1), if a debtor disclosed to individuals a policy prohibiting transfer of personally identifiable information to unaffiliated persons and that policy is in effect when the case commences, the trustee may not sell or lease that information unless the sale is consistent with the policy or, after appointment of a consumer privacy ombudsman under §332 and notice and a hearing, the court approves it after finding no showing that the sale would violate applicable nonbankruptcy law. Source
- 11 U.S.C. §101(41A) defines "personally identifiable information" to include an individual's first and last name, physical residence address, email address, a telephone number dedicated to contacting the individual at that residence, Social Security number, or credit card account number, if provided by the individual to the debtor in connection with obtaining a product or service primarily for personal, family or household purposes, plus certain linked data such as birth date. Source
- In a May 2015 letter to the RadioShack consumer privacy ombudsman, publicized by the FTC on May 18, 2015, FTC Bureau of Consumer Protection Director Jessica Rich recommended that customer data not be sold as a standalone asset and be transferred only to a buyer in substantially the same line of business that agrees to be bound by RadioShack's privacy policy and to obtain consumers' affirmative consent before making material changes. Source
- On March 31, 2025, FTC Chairman Andrew N. Ferguson sent a letter to the U.S. Trustee in the 23andMe bankruptcy stating that any purchaser should expressly agree to be bound by and adhere to 23andMe's privacy policies and applicable law, citing the company's public promises about how customers' genetic data would be used, protected and deleted. Source
- SiliconANGLE reported on August 17, 2026 that Google (Alphabet) agreed to buy Spirit Airlines' internal business data in a bankruptcy auction, according to filings in the U.S. Bankruptcy Court for the Southern District of New York; a hearing was scheduled to consider the deal. Source
- Reporting on the Spirit Airlines sale states that it excludes 97.5 million passenger profiles, an estimated 50.2 million Free Spirit loyalty records and privileged legal materials. Google said a third party would strip personally identifiable information before Google receives the data, and the agreement bars attempts to re-identify individuals. Source
- In Mission Product Holdings, Inc. v. Tempnology, LLC (No. 17-1657), decided May 20, 2019, the U.S. Supreme Court held 8-1 that a debtor's rejection of an executory contract under §365 has the same effect as a breach outside bankruptcy and cannot rescind rights the contract previously granted, so a trademark licensee kept its license rights. Source
- Under 11 U.S.C. §365(n), if a trustee rejects an executory contract under which the debtor licenses intellectual property, the licensee may elect to retain its rights to the IP for the duration of the contract and any extensions available as of right, provided it continues to make all royalty payments due. Source
- 11 U.S.C. §101(35A) defines "intellectual property" for Bankruptcy Code purposes as trade secrets; inventions, processes, designs or plants protected under title 35; patent applications; plant varieties; works of authorship protected under title 17; and mask works, to the extent protected by applicable nonbankruptcy law. Source
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