Should data be a separate lot in a 363 sale?

Three ways to treat data in a 363 sale#

Data in a 363 sale can be bundled with the business, offered as its own lot, or carved out through a reserved non-exclusive license that the estate grants to others. A 363 sale is a court-approved sale of a debtor's assets under Section 363 of the US Bankruptcy Code, usually run through bidding procedures and an auction, and each option suits a different mix of bidders, restrictions and timing.

The choice is rarely all or nothing. A common split is by age: current operating records, such as active customer accounts and open orders, go with the business, while historical archives are considered separately.

A decision rule: bundle, carve out or license#

The decision rule asks four questions in order, and the first clear answer points to the approach. Work through them with debtor's counsel and with the stalking horse's position in view.

The rule separates current operating records from historical archives. A buyer usually needs the former and rarely needs exclusive control of the latter, which is where carve-outs and reserved licenses fit.

• 1Does the going-concern buyer need the records to operate, such as customer accounts, open orders or active service histories? If yes, bundle those records.
• 2Are there credible bidders for the records who do not want the business, such as AI developers interested in historical operating records? If no, bundle.
• 3Can the records be described, cleared for rights and prepared without the business, including privacy review? If no, bundle or exclude them.
• 4Will the buyer accept shared use of historical records under a license with use limits? If yes, a reserved non-exclusive license may capture value without a separate auction; if no, test a separate lot with combination bids allowed.

How a data lot fits into bidding procedures#

A data lot fits into bidding procedures when the procedures define it precisely, set qualification rules for its bidders and allow bids that combine it with other lots. Without that definition, a data lot invites disputes about what was sold.

Marketing a data lot also needs its own materials. Bidders for records want a metadata summary, a rights memo and a description of preparation steps in the data room, not access to production systems. Preparing those early lets the banker gauge interest from record buyers before the bid deadline and decide whether the lot is worth holding open.

Expect the stalking horse to push for broad asset definitions that sweep in all books and records. Negotiate early which historical records the estate keeps or may license, and write that into the stalking horse agreement, rather than trying to carve records out after bid protections are approved.

Secured lenders matter too. A lender with a lien on general intangibles may credit bid for the data lot or insist on approving its treatment, and proceeds generally follow the lien. Settle that position before the lot is marketed.

Privacy and contract limits that change the answer#

Privacy and contract limits change the answer because a data lot can include only what the estate is permitted to transfer or license. If the debtor's privacy policy restricted transfers of customer personal information, the Bankruptcy Code may limit a sale of that information unless it is consistent with the policy or the court approves it after review, which can involve a consumer privacy ombudsman.

Business-to-business operational records are often a different case. Order exceptions, maintenance logs or engineering issues with names and customer identifiers removed may raise fewer privacy questions, but customer contracts can still treat the content as confidential. Each record family is assessed separately, deal by deal, with counsel.

Employee communications sit between the two. Internal chat and email can contain personal details about staff and confidential customer material at once, so they are often excluded from any lot unless a specific subset has been reviewed and prepared.

What a data lot description should include#

A data lot description should give bidders enough to evaluate the records without exposing them, so it is built from metadata and documents rather than samples of raw data. The same description later anchors the asset schedule in the sale order.

Illustrative: a distributor's Chapter 11 data decision#

Illustrative: a fictional industrial distributor files for Chapter 11 with a stalking horse bid from a competitor. Its records include years of Epicor order history, warehouse management exceptions, EDI transactions and service tickets about late and damaged shipments, each with a resolution note.

The investment banker runs the decision rule. The competitor needs active customer accounts and open orders, so those are bundled. Historical exception and resolution records interest developers building logistics agents, but the competitor will not bid without owning them. The banker proposes a middle path: the competitor takes ownership of all records, and the estate reserves a non-exclusive right to license de-identified historical exception records with customer names removed.

The stalking horse agreement and bidding procedures describe the reserved license and its limits, the secured lender agrees how license proceeds are applied, and the sale goes forward without a separate data auction.

How SourceX works alongside a sale process#

SourceX works alongside the debtor's banker and counsel by preparing a licensable package, not by running the sale. Within the SourceX five-step transaction, the Supply and Rights steps produce the metadata and rights findings that a lot description needs, and nothing is shared during that assessment.

If a license proceeds, the SourceX Evidence Packet documents provenance, licensing rights, permitted use, the privacy record and release authorization, including the court approvals counsel obtains. SourceX does not act as an investment banker, and its rights in a deidentified dataset are set out in the signed supplier agreement.