Court approval for a data sale: Section 363, step by step

The legal frame in one paragraph

Data a company owns becomes property of the bankruptcy estate when it files (11 U.S.C. § 541). A debtor in possession or trustee may use, sell or lease estate property in the ordinary course without a hearing (§ 363(c)(1)), but a sale or license outside the ordinary course needs notice and a hearing (§ 363(b)(1)). Few companies license data as part of their normal business, so a data transaction is usually brought to the court on a motion. Courts generally approve if the debtor shows a sound business reason, fair and reasonable price, adequate notice, and a good-faith buyer.

The steps

1. Confidential valuation. Share the case basics and the systems you run. We tell you what's saleable, which contracts and privacy rules limit it, and an illustrative range.
2. Scope & de-identify. We scope the dataset with management and counsel, exclude restricted material, and de-identify before any buyer sees more than a redacted sample.
3. Competitive bids. We take a packaged description to multiple AI developers. The best bid can serve as a stalking horse or be presented for approval with a market check.
4. Motion & approval. Your counsel files the sale or license motion. We supply the declaration support, bid summary, data description and privacy analysis the court and parties expect.
5. Close & fund the estate. After the order is entered, the data is delivered and the buyer pays. Proceeds go to the estate and are handled as the DIP and cash-collateral orders require.

Who has a say

• The bankruptcy court. A sale or license outside the ordinary course needs notice and a hearing under Section 363(b). We build the record that supports a sound-business-judgment finding: marketing, competing bids, and a fair price.
• The U.S. Trustee. The U.S. Trustee monitors the case, reviews retention of professionals, and appoints a consumer privacy ombudsman when one is required. We expect their questions and answer them in the papers.
• The DIP lender. DIP and pre-petition lenders often hold liens on general intangibles, including data and its proceeds. We coordinate early so the transaction fits the DIP budget and cash-collateral order.
• The creditors' committee. In larger Chapter 11 cases the official committee will scrutinize any asset sale. A transparent process with multiple bidders is what persuades them it maximizes value.
• A trustee. Chapter 7 trustees, Subchapter V trustees and Chapter 11 trustees can monetize data assets like any other estate property. We work at the trustee's direction and on terms they control.
• The consumer privacy ombudsman. If your privacy policy restricts transferring customer personal information, Section 363(b)(1) generally requires consistency with the policy or an ombudsman and a court finding. De-identified operational data often avoids the issue, but we analyze it either way.

Notice and timing

Bankruptcy Rule 2002(a)(2) generally requires at least 21 days' notice of a proposed sale outside the ordinary course, though courts can shorten notice for cause, and some districts have local rules or procedures for small sales. Rule 6004(h) stays a sale order for 14 days unless the court orders otherwise; buyers often ask for that stay to be waived. Section 363(m) protects a good-faith purchaser if the order is later reversed on appeal and wasn't stayed.

Privacy: Section 363(b)(1) and the ombudsman

If the debtor's privacy policy, in effect at filing, prohibited transferring personally identifiable information about individuals to unaffiliated persons, a sale of that information generally may proceed only if it's consistent with the policy, or after the court appoints a consumer privacy ombudsman under § 332 and finds the sale appropriate after considering the facts and showing no violation of applicable nonbankruptcy law. "Personally identifiable information" is defined in § 101(41A) and centers on individuals who obtained consumer products or services from the debtor. Most operational data that AI developers want can be de-identified, or the consumer PII can be excluded, but counsel should make that call on the actual policy and data map.

Where the money goes

• Paid to the estate. The buyer pays the debtor's estate (or the trustee), not management or shareholders.
• Liens attach to proceeds. If a lender has a lien on general intangibles, it typically attaches to the sale proceeds, with priority and use governed by the court's orders.
• Cash collateral rules apply. Using encumbered proceeds generally requires lender consent or court authorization under Section 363(c)(2) and the existing orders.
• Fees are disclosed. Any fee to us is paid only from a closed transaction, disclosed in the sale papers, and subject to court approval where required.

In a plan, or in Chapter 7

A data sale can also be done through a plan of reorganization (§ 1123(a)(5)(D) and (b)(4) allow a plan to provide for selling estate property), which can make sense if the timing lines up with confirmation. In Chapter 7, the trustee sells estate property under the same § 363 framework, and may abandon property of inconsequential value under § 554.

Data Asset Brief for counsel Confidential valuation