Litigation holds during a wind-down: what you cannot delete

What does a litigation hold require during a wind-down?#

A litigation hold during a wind-down requires the company to stop deleting, altering or discarding records that may be relevant to a pending or reasonably anticipated claim, government inquiry or audit. The duty covers paper and electronic records alike, including chat, email, devices and cloud systems.

Wind-downs make holds harder to honor. Systems are being cancelled, devices returned and staff are leaving, while nobody is watching retention settings. Courts may sanction spoliation, the loss of evidence that should have been preserved, and the consequences can range from instructions that let a jury assume the lost records were harmful to monetary penalties, depending on the circumstances.

Counsel decides the scope of each hold. The wind-down officer's job is to make sure counsel knows every system, custodian and device, so the scope reflects where records actually live.

Which records cannot be deleted?#

Records that cannot be deleted are those inside the scope counsel sets, and in a wind-down that scope usually reaches further than people expect. Common matters include customer disputes, employment claims, warranty claims, vendor collection suits and creditor challenges to the wind-down itself.

Everything outside the hold can follow the normal retention schedule. A precise hold is better than a blanket freeze, because a blanket freeze keeps every subscription running and leaves the company unable to finish closing.

• 1Email and chat of custodians involved in the matter, including former employees.
• 2Documents, spreadsheets and shared drive folders tied to the subject of the claim.
• 3System records such as help desk tickets, CRM activity, ERP transactions and job or dispatch records.
• 4Laptops and phones of key custodians that hold data not stored anywhere else.
• 5Backups, where they hold the only remaining copy of relevant data.
• 6Contracts, invoices, correspondence and board materials about the disputed subject.

Which systems need special care before shutdown?#

Systems need special care before shutdown when a routine closing step deletes data automatically. The table lists the usual trouble spots in a wind-down and the step that preserves held records before each shutdown task runs.

Check the plan or edition first. Hold features in chat and productivity suites often depend on the subscription tier, and a company that downgraded to save money may have lost them.

Preserved copy vs licensed copy: keep them apart#

The hold-first rule says the preserved copy is created before anything else, and any licensed copy is built later from a separate working copy. The two never share storage, access lists or processing steps.

Keeping them apart protects both. Preparing records for a license changes data on purpose: it removes names, strips confidential terms and filters out excluded systems. If those changes touched the preserved copy, the company could be accused of altering evidence. Reporting on the 2026 sale of Spirit Airlines' internal business data noted that the package excluded privileged legal materials, a reminder that privileged and disputed records are scoped out at the start.

Can records under a hold be licensed at all?#

Records under a hold can sometimes be licensed, but only through a separate copy and only if counsel agrees that licensing does not affect the matter. Some records will be excluded because the dispute makes them sensitive, such as communications with the opposing party or anything privileged.

Ask counsel three questions before held systems enter a license scope: does licensing a de-identified copy affect the preserved evidence, are any records confidential under a protective order or settlement, and does the other side have any claim to the records. Answers vary by matter and are assessed deal by deal.

Timing matters too. A license window can stay open while a hold continues, but the working copy should exclude held matters until counsel releases them. If a hold lifts later, records can be reconsidered for a future package rather than added to a license already signed.

Illustrative example: a 3PL with an open cargo claim#

Illustrative: a fictional third-party logistics company is winding down while a customer pursues a damaged-cargo claim and a former dispatcher brings a wage claim. The company runs a WMS, a TMS, Microsoft 365 and a Zendesk help desk.

Outside counsel sets the hold: email and Teams for the account team and dispatch supervisors, the customer's tickets and shipment records, and payroll and timekeeping for the dispatcher's role. IT keeps a Teams retention policy active before removing licenses, exports the held tickets and shipment records, images two supervisors' laptops and hands the collection to an e-discovery vendor with a chain-of-custody log.

With the preserved copy secured, the board considers licensing the broader service exception history. Counsel excludes the disputed customer and the wage-claim records from scope, and the working copy for any license is built from the full export, never from the vendor's collection.

How SourceX handles held records#

SourceX asks about holds at the start of the Rights step of the SourceX five-step transaction, before any record is prepared. Held, privileged and disputed records are excluded from scope unless counsel clears them in writing.

The SourceX Evidence Packet records the scope decision, including what was excluded and why, alongside provenance, licensing rights, permitted use, the privacy record and release authorization. That gives counsel a clear account of which copy was used and what left the company.