Data assets in a plan of reorganization

Most data sales in bankruptcy happen by motion under Section 363. But a sale or license can also be built into the plan of reorganization itself. Choosing between the two is a strategic question for counsel, and this guide explains the trade-offs.

General information, not legal advice.

What the Code allows

Section 1123(a)(5) requires a plan to provide adequate means for its implementation, and lists examples including the sale of all or any part of the property of the estate (§ 1123(a)(5)(D)). Section 1123(b)(4) also allows a plan to provide for the sale of all or substantially all estate property and distribution of the proceeds. A data license or sale can therefore be a plan provision, approved at confirmation rather than at a separate sale hearing.

Motion or plan: the trade-offs

If the estate needs cash now, a motion is usually better. If the cash is meant to fund distributions, and the timing lines up with confirmation, the plan can be efficient.

Disclosure

In a standard Chapter 11, creditors vote on the plan after receiving a disclosure statement approved under § 1125. If the plan includes a data sale, the disclosure statement should describe:

• the asset and its exclusions,
• the buyer (or the process to select one),
• the expected proceeds and how they'll be used,
• privacy treatment, including any ombudsman process,
• and risks, including that the price isn't guaranteed.

In Subchapter V, a disclosure statement usually isn't required unless the court orders otherwise, but creditors still need enough information to evaluate the plan.

Privacy still applies

Moving the sale into the plan doesn't avoid § 363(b)(1)'s concerns. Courts and U.S. Trustees expect the same privacy analysis, and the plan or confirmation order should address it. If consumer PII is excluded or de-identified, say so clearly.

The liquidation analysis

Section 1129(a)(7), the "best interests" test, requires that each impaired creditor who hasn't accepted the plan receive at least what it would get in Chapter 7. If the plan monetizes data, the liquidation analysis should consider what a Chapter 7 trustee could realize from the same asset. A realistic market test helps both numbers hold up.

Feasibility

Section 1129(a)(11) requires that confirmation isn't likely to be followed by liquidation or further reorganization, unless the plan proposes it. A committed buyer with a signed agreement is stronger evidence than a projection that data "could" bring in money later. Where possible, have a signed agreement, conditioned on confirmation, before the confirmation hearing.

Post-confirmation licensing

Sometimes the reorganized company, not the estate, will license data after emerging. In that case the plan should be clear about who owns the data after the effective date and whether any proceeds are earmarked for creditors. If the plan vests property in the reorganized debtor, later licenses are ordinary business decisions, but creditors may negotiate for a share.

Interaction with a going-concern sale

If the plan contemplates selling the business, the data license must be disclosed to bidders, and the plan should specify whether the license survives. A non-exclusive license generally coexists with a business sale.

Working with the committee

In cases with an official committee, the committee will scrutinize any plan-based sale. Share the valuation and process early. See working with the creditors' committee on a data sale.

Checklist for counsel

• Decide motion vs. plan based on when cash is needed.
• Describe the asset, buyer process, exclusions and privacy treatment in the disclosure statement.
• Reflect the data in the liquidation analysis.
• Support feasibility with a signed, conditioned agreement if possible.
• Address post-effective-date ownership and any earmarking.

We can provide the factual descriptions and market-test record that support each of these.

Drafting plan provisions for a data license

If the data license is part of the plan rather than a stand-alone motion, the plan and confirmation order should do the work a § 363 order would otherwise do. Counsel typically addresses:

• Authority. A provision authorizing the debtor or reorganized debtor to enter into the license, citing § 1123(a)(5) and (b)(4) as applicable.
• Asset description. A defined term for the licensed data set, including date ranges, systems and exclusions, ideally by reference to a schedule filed with the plan supplement.
• Privacy findings. Findings that the transaction complies with the debtor's privacy policies or, if § 363(b)(1) is implicated, the findings the court would make after an ombudsman report.
• Use of proceeds. Where the cash goes: a distribution pool, a reserve, operating capital, or paying a secured claim.
• Buyer protections. If the buyer wants a good-faith finding, the plan record must support it.

Using the license as a feasibility tool

Feasibility under § 1129(a)(11) asks whether confirmation is likely to be followed by liquidation or further reorganization. A signed license with a fixed payment schedule can be one of the few hard numbers in a projection. Some plans structure the license with an upfront payment at the effective date and a second payment on delivery of a later data tranche; the second payment then supports year-one cash flow. Lenders and committees tend to trust contracted receipts more than revenue forecasts, which is why it's worth getting a binding commitment before the confirmation hearing.

If you need cash earlier than confirmation, a stand-alone Section 363 sale usually moves faster. Compare the two in the bankruptcy data sale timeline.

When a liquidating plan makes sense

Not every Chapter 11 ends with a reorganized company. In a liquidating plan, a plan administrator or liquidating trustee often inherits the records. If the data hasn't been sold yet, the plan should give the administrator clear authority to license it, set the privacy restrictions that bind any buyer, and require deletion once the trust winds down. Without that language, the administrator may need to return to court, which costs time and money. It is also worth preserving the systems themselves through the effective date: a liquidating trust that inherits deleted cloud accounts has nothing to sell. Budget a few months of subscription costs in the wind-down reserve, and name who holds administrator credentials after the debtor's employees leave.

Frequently asked questions

Can a data sale be approved through a plan instead of a 363 motion?

Yes. A plan can provide for the sale or license of estate property. It's then approved at confirmation, with disclosure in the disclosure statement and voting by creditors.

Is a plan sale slower than a 363 sale?

Usually. Confirmation requires a disclosure statement, solicitation and a confirmation hearing, so if cash is urgent a separate motion is often better. If the plan is already on track, folding the license into it can save a separate hearing.

What should the disclosure statement say about the data?

What the asset is, how it was marketed, the buyer and price (or the process if not yet chosen), privacy treatment, and how proceeds will be used, all in plain enough terms for creditors to judge the plan.

Can the reorganized company license data after the case?

Yes, post-confirmation licensing is generally a business decision, subject to the plan, any continuing lender covenants, contracts and privacy law.

This guide is general information, not legal, tax or financial advice, and reading it does not create an attorney-client relationship. Bankruptcy outcomes depend on the facts, the court and the parties; nothing here promises price, timing or court approval. Talk to your bankruptcy counsel about your case.