Chapter 11 plan books and records destruction: drafting an assessment window

The short answer: plans often allow destruction, and counsel can draft around it

Liquidating chapter 11 plans commonly move the debtors' books and records into a liquidating trust or to a plan administrator, then let that fiduciary destroy them after a set period, on case closing or on notice. Whether operational records survive long enough to be assessed for a license depends on three documents: the plan, the trust agreement and the confirmation order. A short carve-out can preserve electronic system records until a defined assessment is done, without turning into an open-ended storage obligation.

What chapter 11 provides, and where records clauses come from

The federal judiciary's chapter 11 overview describes chapter 11 as usually a reorganization in which the debtor stays in control of its business as debtor in possession and puts forward a plan; it also notes that a plan can be a liquidating one. Books and records clauses are drafted case by case, approved through confirmation and then administered under the trust agreement, so the wording in front of you is what governs.

Most plans combine several clause types:

Who can authorize a license once records leave the debtor

Authority follows control. Before the effective date, control sits with the debtor in possession or, where the court appointed one, a chapter 11 trustee; estate counsel decides whether a license needs court approval. After the effective date, the liquidating trustee or plan administrator acts within the trust agreement, often with an oversight committee's consent above a value threshold. If a 363 buyer took the systems with the business, the buyer controls any license and the estate may hold only copies kept for limited purposes.

Ownership can also be split. 17 U.S.C. section 201 allows copyright to change hands wholly or partly, and lets each exclusive right be conveyed and held on its own. A trust can therefore give a licensee exclusive AI-training rights for a fixed term and still own the records, the structure SourceX licenses typically follow. The trust can only license what the debtors owned, so client-owned material and content produced by outside contractors without a written assignment need checking first.

For SourceX, the authorized sponsor is whichever fiduciary controls the records. Assets controlled by a trust, trustee or court that has not been involved are a red flag, and nothing proceeds until that fiduciary is part of the conversation.

How records clauses play out by case posture

Records are usually carved out of remnant asset sales, which leaves them with the trust and subject to its destruction clause. Where a destruction motion is already on file, the screen in motions to destroy debtor books and records applies.

Drafting an assessment carve-out

Tie the carve-out to a decision, not just a date, so it ends on its own.

Three points to settle alongside the text:

• Who decides. The trustee alone, or with oversight committee consent.
• What counts as assessed. A completed data inventory and a SourceX qualification outcome are concrete markers; the company fit checker gives an earlier, non-binding read.
• What happens to sensitive material. Privileged communications and personal information stay protected during preservation and are excluded from anything licensed.

Disclosure and consent good practice

• Disclose any referral relationship in your retention application or a supplemental declaration before acting on it.
• Keep records inside the trust until an executed license sets redaction and de-identification rules. Nobody, including a referral partner, receives samples.
• Tell the oversight committee early, with the preservation cost and the decision date.
• Confirm what the debtors' privacy policy and customer contracts promised before any license is discussed.

Questions to settle before confirmation

1. Does the vesting clause reach cloud tenants, SaaS accounts and backups, or only physical books and accounting records?
2. What triggers destruction, and must anyone receive notice first?
3. Who funds preservation, and from which reserve?
4. Does the trust agreement allow the trustee to license records, and whose consent is needed?
5. Did a purchaser take the originals, and what access did the estate keep?
6. Which records are under litigation holds for retained causes of action?
7. Does the company meet the who qualifies baseline at all: a US operating history with 50+ full-time employees at peak (contractors excluded), records spanning several years, clear rights to them, and a dataset that is mostly business rather than consumer or patient information?

If the plan also needs to show creditors what records are worth, see intangible assets in a chapter 11 liquidation analysis.

How a license would proceed after the effective date

1. A referral partner introduces the trust, or the liquidating trustee applies directly without one.
2. SourceX checks headcount history, operating years, system breadth and the trust's rights with the trustee.
3. Retained staff or a contractor completes a data inventory describing systems and years, without moving records.
4. The trustee and SourceX agree one all-in price and terms, with oversight consent or court approval where required.
5. Buyer review follows; AI labs and data buyers usually reply within about two weeks of the trust being deal-ready.
6. After signature, the trust's team prepares the records to the agreed redaction standard and delivers them; the one-time payment typically lands within about 60 days of invoicing.

Rewards and professional rules for counsel

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, and rewards become payable only after the buyer pays and SourceX receives its fee. The reward never comes out of trust proceeds, and no reward is guaranteed.

Lawyers should read their state's rules of professional conduct and any retention order before accepting compensation connected to a client's matter. If the answer is unclear, make the introduction without a reward or let the trust apply on its own.

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

Next step

Before the plan is filed, check whether the debtor could qualify and draft the carve-out if it could. To make introductions in this or future cases, register as a partner, or have the debtor or trustee apply directly at sourcex.si/apply.