Manufacturing company data in bankruptcy: ERP, quality and shop-floor records

Manufacturers enter bankruptcy with tangible assets that everyone understands: equipment, inventory, real estate and receivables. Lenders have liens on all of them, and the auctioneers know what they're worth. What rarely makes the asset list is the operational record: years of ERP transactions, quality investigations, maintenance logs, engineering change orders and shop-floor communications. That record can have value of its own, and it often survives even when the plant doesn't.

General information, not legal advice. Export-control and contract questions in particular need specialist review.

What manufacturing data looks like

• ERP and MRP records: purchase orders, work orders, bills of materials, routings, inventory movements and costing history.
• Quality systems: nonconformance reports, corrective and preventive actions (CAPAs), audit findings, inspection data and supplier corrective actions.
• Maintenance: work orders, failure codes, preventive maintenance schedules and technician notes from CMMS systems.
• Engineering: change requests and orders, design reviews, drawings revision history and test reports.
• Communications: email and chat among planners, buyers, quality engineers and plant management.
• Procedures: work instructions, SOPs, training materials and safety programs.

Buyers of operational data value records that show how decisions are actually made: why a lot was rejected, how a supplier problem was escalated, what a planner did when a part was late. Ten years of CAPAs and maintenance notes can be more valuable than the ERP transactions themselves.

The restrictions that matter most

Export controls

Technical data related to defense articles (ITAR) or certain dual-use items (EAR) can't be shared with foreign persons without authorization, and buyers or their personnel may be foreign persons. If the manufacturer did any defense, aerospace, or controlled-technology work, export-controlled technical data must be identified and excluded before anything else happens. This is non-negotiable and should be reviewed by export-control counsel.

Customer contracts and drawings

Contract manufacturers often hold customer drawings, specifications and quality data under confidentiality terms or customer ownership. Those records are excluded, or included only in a form that removes all customer-identifying and proprietary technical content. Supplier agreements can raise similar issues.

Trade secrets

The company's own process know-how may be a trade secret worth selling with the business. A buyer of the plant or product line may want exclusivity over it. Coordinate with any going-concern or asset buyer before licensing records that reveal proprietary processes.

Fitting a data license around the asset sale

Most manufacturing cases involve a sale of the business or a liquidation of equipment, often run by an auctioneer or liquidator. The data license works best when it is:

• Non-exclusive, so the buyer of the business still gets the full records.
• Separated in the bid procedures or sold on a stand-alone motion, so it doesn't complicate the main auction.
• Timed before systems shut down. When a plant closes, ERP and CMMS licenses lapse quickly. Preserve or export first.

The Section 363 sale guide explains the motion. In Chapter 7, the trustee guide covers preservation.

Lenders

Manufacturers typically have asset-based lenders with liens on inventory, receivables, equipment and general intangibles. The data and its proceeds are likely collateral. Lender consent, an agreed allocation and a carve-out are the usual paths. Because data proceeds are often small relative to equipment and inventory, lenders frequently agree to a carve-out for the estate. See how data sale proceeds flow into the estate.

De-identification for manufacturing records

Personal data in manufacturing records is mostly about employees, customer contacts and supplier contacts. Names, emails, phone numbers and badge numbers come out. Customer and supplier names are replaced with consistent placeholders. Part numbers that reveal customers' products may need to be generalized. Safety incident reports involving injuries need special care, since they may contain medical details; exclude them or remove the personal details. See de-identifying company data in bankruptcy.

Valuation

Value depends on depth and continuity: a plant that has used one ERP and one quality system for a decade, with detailed notes, is far more valuable than one that changed systems twice. See valuing intangible assets in bankruptcy. Manufacturing is also common in Texas cases, covered in our Texas Chapter 11 guide.

A worked example: a precision machining shop

A 120-employee machining company supplying the energy and industrial sectors files Chapter 11 after a large customer cancels its orders. It has run the same ERP and quality system for eleven years. The lender plans to auction the equipment within 60 days.

1. Week 1: The CRO preserves ERP, quality and maintenance systems and the email archive. Export-control counsel confirms the company did no defense work, but flags two customer programs with EAR-controlled drawings; those are excluded.
2. Week 2: Customer drawings and specifications are excluded wholesale. Remaining records: 280,000 work orders, 9,000 nonconformance reports, 3,400 CAPAs, maintenance history for 140 machines, and planner and quality email.
3. Weeks 2–4: Customer and supplier names are replaced; part numbers tied to customer products are generalized. Three buyers bid.
4. Week 4: The lender agrees to a carve-out of 35 percent of proceeds for the estate. The motion is filed alongside the equipment auction procedures.
5. Week 8: The license and the equipment auction are approved at the same hearing.

The figures are illustrative, but the sequence is typical: export control first, customer exclusions second, then de-identification and marketing.

Questions to ask before you start

• Has the company ever done defense, aerospace or controlled-technology work?
• Which customers own drawings, specifications or quality data under contract?
• Which systems hold the records, and when do their subscriptions or maintenance contracts expire?
• Who holds administrator credentials, and will they still be employed in 30 days?
• Is a going-concern buyer interested in the process know-how?

Frequently asked questions

Can a bankrupt manufacturer sell its ERP data?

It can license a de-identified copy of its own records, with court approval, after excluding export-controlled data, customer-owned information and anything else restricted by contract.

What about ITAR or EAR data?

Identify it and exclude it at the start. Export-control counsel should review the scope before any data is shared.

Will a data license reduce what the plant sells for?

A non-exclusive license of de-identified records usually doesn't affect the value of equipment or the business. Coordinate with the main buyer if process know-how is involved.

What happens to data when a plant closes?

Systems are often shut off within weeks. Preserving or exporting the data early is what keeps the asset alive.

Are quality records valuable?

Often very. Nonconformance reports and CAPAs document real problem-solving, which is what buyers look for.

Can a Chapter 7 trustee license a closed plant's records?

Yes, with court approval, if the records were preserved. The same export-control and customer-contract exclusions apply. Trustees should act before system subscriptions lapse.

How are lender liens handled for manufacturing data?

Usually through lender consent, with the lien attaching to proceeds, and often a negotiated carve-out for the estate, since data proceeds are small relative to the hard assets.

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.