Composition agreements with creditors: can data license proceeds help fund one?

What is a composition agreement with creditors?

A composition agreement is a contract between a debtor and several creditors in which each creditor accepts less than the full amount owed, usually a percentage paid over a short period, in settlement of the claim. Compositions are one of the non-bankruptcy alternatives for a struggling business, alongside assignments for the benefit of creditors and receiverships, according to a standard commercial-law text.

The appeal is speed and privacy. There is no court calendar, no public plan and no trustee. The weakness is that the deal usually binds only those who sign. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

How does an out-of-court composition work?

The mechanics are a negotiation, not a procedure.

1. Map the claims. List every creditor, claim amount, security, guarantee and relationship, from the lender to the smallest vendor.
2. Set the offer. Decide the percentage or amount, the payment date and what each creditor releases.
3. Seek consent. Approach the largest and most influential creditors first; others tend to follow when they see a majority in.
4. Document and fund. Sign releases, then pay from a funding source that exists on the payment date.
5. Handle holdouts. Decide in advance whether to pay holdouts in full, litigate, or move to a court process.

An extension is a close cousin: creditors agree to wait rather than accept less. Some deals combine both.

Where can data license proceeds fit?

The fundable portion of a composition is the problem. Operating cash, asset sales and owner contributions are the usual sources. A records license is another possible source for a company that holds years of operational records across email, chat, CRM, finance, support, engineering and operations systems.

SourceX manages data licensing from sourcing and rights review to delivery and payment between companies and AI labs and data buyers. The company keeps ownership; data is licensed, not sold. The company receives a single all-in price, SourceX's fee included, in one payment that typically arrives within about 60 days of invoicing after the buyer selects the data.

The uncertainty is the point. Whether a buyer selects the data, at what price, and when, cannot be known at the creditor meeting. So the license should sit in a different layer of the offer than the guaranteed cash.

Is the license a good fit for the company at all?

Run a quick screen before mentioning it to creditors.

• 50+ full-time employees at peak (contractors excluded).
• Several years of documented operations, with long histories and archived systems helping.
• Records the company created and has the right to license, not mainly client or consumer material.
• No lien, court order or assignee that blocks licensing, or one that has agreed.
• Someone can still export the data.
• An authorized sponsor who will consider an exclusive license for AI training for an agreed term.

The company fit checker runs a preliminary, non-binding version of this screen. The who qualifies page has the full baseline.

What can go wrong if the license is oversold?

• Creditors treat a hope as a promise. If the offer letter lists the license as certain, a failure invites claims of misrepresentation.
• Timing slips. Qualification, inventory, price and terms and buyer review all precede payment.
• Rights problems appear late. Customer contracts or privacy notices may block part of the data; see the data license agreement overview for what an agreement covers.
• Insolvency changes the rules. If a bankruptcy follows, a licensee's position becomes a question; the Mission Product v. Tempnology summary explains the 2019 case counsel look to.

If the composition fails and the company enters a court process, the books and records questions on the statement of financial affairs, the role of an examiner and the Rule 6004(h) stay on sale orders become relevant. See also private credit lenders taking the keys.

Illustrative scenario

Illustrative and fictional: a regional IT services firm with a long operating history offers its unsecured vendors a fixed percentage of their claims, paid in two instalments from owner funding. The offer letter adds a second paragraph: if the firm signs and is paid under a records license by a stated outside date, a stated share of the net proceeds goes to consenting creditors pro rata. The board fixes the outside date at a point where, if nothing has closed, the contingent paragraph lapses and nobody is owed anything further.

The design choices matter more than the numbers. The base offer stands alone. The contingent term has an end date. The net proceeds definition is written down, so creditors know what is deducted before they share.

Questions creditors tend to ask

• Who controls the records while the license is explored, and who pays to keep the systems running?
• Does a license reduce what the business can sell to a buyer of the whole company?
• Are customers or employees affected, and have privacy notices been checked?
• What happens to the contingent term if the company files for bankruptcy?

Have written answers ready. Several of them are really lien, consent and sale-process questions for counsel.

What to say to the company's CFO

How partner rewards work

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. The reward is paid 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. It is a share of SourceX's fee and is never deducted from what the company receives.

Restructuring professionals and advisers should check the rules that apply to their own engagement before accepting any referral reward. See the program terms.

Next step

Screen the company this week. If it fits, register as a partner and make the introduction, or have the sponsor apply at sourcex.si/apply using your referral link.