Section 363 sale of data assets, explained

Section 363 of the Bankruptcy Code is how most estate assets get sold outside a plan, and data is no exception. If you're debtor's counsel, a trustee, or the CFO trying to understand what counsel is about to file, this is the anatomy of a 363 sale when the asset is a dataset.

General information, not legal advice. Local rules and individual judges' procedures vary.

The statute in four pieces

• § 363(b)(1): after notice and a hearing, the trustee (or debtor in possession) may use, sell or lease estate property outside the ordinary course. It also contains the privacy limit on selling personally identifiable information.
• § 363(f): property can be sold free and clear of liens and other interests if one of five conditions is met, most commonly the lienholder's consent, with liens attaching to proceeds.
• § 363(m): a good-faith purchaser is protected if the sale order is reversed on appeal, unless the order was stayed.
• § 363(n): a sale can be avoided, and damages recovered, if potential bidders agreed among themselves to control the price.

Step 1: Decide the structure

For data, the common choices are:

• Non-exclusive license of a de-identified copy (most common; the estate keeps the data).
• Exclusive license for a field or period (more value, more scrutiny).
• Outright sale of a dataset (rare unless the business is winding down, as in many Chapter 7 cases).

Each is a use, sale or lease of estate property. The structure affects price, how the asset interacts with a later going-concern sale, and what the order should say.

Step 2: Market the asset

The court will ask whether the price is fair. The best answer is a documented market check:

• A packaged description of the dataset, its date ranges and its exclusions.
• Redacted samples, shared only under NDA.
• Outreach to multiple qualified buyers.
• A written summary of bids and why the chosen bid is highest or otherwise best.

Sometimes the best first bid becomes a stalking horse, with bid procedures approved by the court and an auction if others bid. For smaller data deals, a private sale supported by a marketing declaration is often more proportionate. Counsel decides.

Step 3: The motion

A typical motion requests:

1. Authority to enter into the license or sale agreement.
2. A finding that the transaction reflects sound business judgment.
3. Approval free and clear of liens under § 363(f), with liens attaching to proceeds, if applicable.
4. A good-faith finding under § 363(m).
5. Findings on privacy: either that the sale is consistent with the privacy policy, or that an ombudsman was appointed and the § 363(b)(1)(B) findings are met.
6. Waiver of the 14-day stay under Rule 6004(h), if timing matters and the court agrees.

It's usually supported by a declaration describing the asset, the marketing process, the bids and the de-identification approach. We prepare templates for counsel's review; counsel decides what to file.

Step 4: Notice and objections

Bankruptcy Rule 2002(a)(2) generally requires at least 21 days' notice of a proposed use, sale or lease outside the ordinary course, unless the court shortens it for cause. Rule 6004 governs the procedure. Expect the motion to be served on the U.S. Trustee, secured creditors, the creditors' committee (if any), and parties requesting notice.

Common objections in data deals and how to pre-empt them:

Step 5: The privacy check

If the debtor's privacy policy in effect on the petition date prohibited transferring consumer PII to unaffiliated persons, § 363(b)(1) generally allows the sale only if (A) it's consistent with the policy, or (B) after a consumer privacy ombudsman is appointed under § 332 and the court, giving due consideration to the facts, finds no showing that the sale would violate applicable nonbankruptcy law. If the dataset excludes or properly de-identifies consumer PII, counsel may be able to show the provision isn't triggered. Read more in customer data and the consumer privacy ombudsman.

Step 6: The hearing and the order

At the hearing, the debtor puts on its business-judgment case, usually by declaration. A well-drafted order for a data deal typically:

• Approves the agreement and authorizes performance.
• Describes the dataset and its exclusions.
• Contains the good-faith and § 363(f) findings, if applicable.
• Addresses privacy and the ombudsman's recommendations.
• Directs how proceeds are held or applied, consistent with DIP and cash-collateral orders.

After the order

Delivery happens under the agreement's terms, usually after the stay period expires or is waived. The buyer pays the estate. Use of proceeds follows the existing orders.

Where a broker fits

Debtors may need court approval to retain professionals paid by the estate (§§ 327 and 328). Whether a data broker's engagement requires a retention application is a question for counsel; either way, any fee should be disclosed in the sale papers. We work on a no-upfront-cost basis, paid only from a closed transaction.

What goes in the motion

A motion to approve a data license under § 363(b) is usually short, but it has to answer the questions the court and parties will ask. A typical structure:

1. Relief requested and the statutory basis: § 363(b), and § 363(f) if the sale is free and clear of liens, with liens attaching to proceeds.
2. Background: the case, the business, and why the data exists.
3. The asset: systems, date ranges, record types, exclusions, and the de-identification method.
4. The process: who was contacted, how many responded, the bids, and why the selected bid is best. A marketing declaration supports this.
5. The terms: price, payment timing, non-exclusivity, use restrictions, deletion obligations, and any fees.
6. Privacy: the privacy policy analysis and whether § 363(b)(1) or an ombudsman is implicated.
7. Business judgment: why the sale is a sound exercise of judgment and in the estate's best interest.
8. Good faith under § 363(m), if the buyer wants that protection.

Attach the license agreement or a term sheet, the proposed order, and the declaration.

Common objections and how to answer them

• "The price is too low." Answer with the marketing record: who was approached, what they bid, and why no one bid more. That is why the bid process matters.
• "It's our collateral." Answer with an agreed allocation, lien attachment to proceeds, or a carve-out. See how proceeds flow into the estate.
• "It violates the privacy policy." Answer with the de-identification report and the transaction structure; offer buyer restrictions in the order.
• "It hurts the going-concern sale." Answer by showing the license is non-exclusive and the debtor keeps its data and systems.

Frequently asked questions

Can data be sold free and clear of liens?

Under § 363(f), if one of its conditions is met, such as lender consent, with liens typically attaching to the proceeds. Most data deals proceed with lender consent.

Does the buyer get § 363(m) protection?

If the court finds the buyer purchased in good faith, an appeal of the order generally can't undo the sale unless it was stayed. Buyers often ask for this finding.

Can the hearing be held on shortened notice?

Sometimes, for cause. The motion must explain why waiting would harm the estate.

Is a stalking-horse bidder needed?

Not usually for a data license. Stalking-horse structures suit larger, contested auctions; most data licenses are marketed directly with a bid summary.

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.