Article 9 sale vs section 363 sale: which works better for intangible collateral?

The verdict for secured lenders

Use an Article 9 disposition when speed and cost matter most, the collateral is easy to describe and value, and the likely buyers will accept a lender's transfer documents without a court order. Use a section 363 sale when buyers need maximum comfort on title, when competing liens or objections are likely, or when the assets include customer personal information that a court process can address in a structured way.

Neither route handles operational records well on its own. Email, tickets, CRM activity and project files are rarely described carefully in a security agreement, rarely valued in an asset sale and often switched off before either process ends. For a borrower that had 50+ full-time employees at peak (contractors excluded), licensing those records through SourceX is a third route that can run before or alongside either sale.

Side-by-side: Article 9 disposition vs section 363 sale

State versions of Article 9 differ, and bankruptcy practice differs by district. The rows above describe the usual pattern, not the rule in any single jurisdiction.

When an Article 9 sale wins

• The lender holds a clear first lien over the intangibles, and junior creditors are unlikely to fight.
• The collateral is well defined: a code base, trademarks, domains, a customer book.
• A buyer is already identified, often in a friendly foreclosure the borrower supports.
• Cost and discretion matter more than a court order.

The trade-off is buyer comfort. Without a sale order, a buyer of intangibles relies on the lender's process being commercially reasonable and its lien being valid, which is why notice, marketing and valuation records matter. Building that record is the subject of the Article 9 guide for IP and data collateral.

When a section 363 sale wins

• Liens are contested, or several creditors claim the same collateral.
• Buyers will not close without a court order.
• The assets include customer personal information.
• The lender wants to credit bid within a court process; see credit bidding under section 363(k).

Privacy is the clearest difference. Under 11 U.S.C. 363, if the debtor disclosed a privacy policy prohibiting transfer of personally identifiable information to unaffiliated persons, and that policy was in effect when the case began, the trustee may not sell or lease the information unless the sale is consistent with the policy or the court approves it after appointing a consumer privacy ombudsman, giving notice, holding a hearing and finding no showing that the sale would violate applicable nonbankruptcy law. Under 11 U.S.C. 332, the US trustee appoints that ombudsman, a disinterested person, at the court's order no later than 7 days before the hearing, and the ombudsman may give the court information such as the debtor's privacy policy. Smaller residual sales can sometimes run under de minimis asset sale procedures instead of a standalone motion.

Article 9 has no ombudsman, but the privacy obligations do not disappear. A borrower doing business in California that meets the law's thresholds may be subject to the California Consumer Privacy Act, which gives consumers rights to know about, delete and opt out of the sale or sharing of their personal information. A lender selling customer data outside bankruptcy carries that review itself.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

The third route: license the operational records

A records license is not a disposition of collateral the way a sale is. The company keeps ownership and grants AI labs and data buyers defined rights, usually on an exclusive basis for AI training over an agreed term, in exchange for one all-in, one-time payment. That makes it compatible with either sale route, provided the documents line up.

In every case the lender's part ends with the introduction. From there SourceX screens the borrower, the borrower inventories its systems, the parties settle price and terms, AI labs and data buyers review, and nothing is delivered without an executed agreement and the company's authorization. Buyers typically answer within about two weeks after the company is deal-ready. When lenders end up owning the business, private credit lenders taking the keys describes the governance changes, and asset-light borrowers are covered in liquidating a company with no physical assets.

Questions to settle with counsel before choosing a route

1. Does the security agreement clearly reach the records, or only the code, trademarks and customer contracts?
2. Which privacy policy was in force over the life of the data, and what did it promise about transfers to third parties?
3. Are there junior lienholders or a likely committee that would challenge an out-of-court sale?
4. Will any buyer need a court order before it pays?
5. Who keeps the systems paid and an administrator available until both the sale and any license close?

How partner rewards work for a secured lender

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. Rewards become payable only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. The reward comes out of SourceX's fee, never out of what the company or estate receives. Disclose the referral relationship to the borrower or the estate fiduciary, and follow your institution's policies on fees connected to a credit.

Next step

Before choosing a route for intangible collateral, check whether the borrower clears the company fit checker and the who qualifies baseline. If it does, register as a partner and introduce the borrower, or have its authorized officer apply at sourcex.si/apply.