Before you reject a software subscription in chapter 11: the export checklist

Why export comes before rejection

Rejecting a software subscription under section 365 is one of the fastest cost cuts in a chapter 11 case, and one of the easiest ways to lose years of records. With court approval the debtor can reject an executory contract; rejection is treated as a breach that gives the vendor a claim for damages, the subscription stops, and so does access to everything stored in the platform.

Three features of practice make the loss easy:

• Omnibus rejection motions can cover dozens of contracts at once, prepared by people who never used the systems.
• Courts sometimes approve rejection effective as of an earlier date, so access can be gone by the time the order is entered.
• The employees who knew what each system held have often left before the motion is filed.

In a chapter 7 case, executory contracts the trustee does not assume within the statutory period are deemed rejected, so the same risk arrives on a timer.

The data belongs to the debtor, not the vendor, but the vendor's terms decide how long it stays retrievable after termination. A short export step before rejection keeps the records available for the sale, a wind-down, litigation and a possible license.

The pre-rejection checklist

Run it for every software contract on the proposed rejection schedule, and keep the completed list with the motion papers.

Identify what each system holds

• Name the person who used the system most, even if that person has left.
• Record the types of records the system holds and the year they start.
• Flag any system that holds the only copy of its records, with no backup or integration elsewhere.
• Note records that belong to clients, and any health or consumer personal information.

Export and verify

• Request a full export in native and open formats, including attachments, comments, metadata and change history.
• Export the admin and audit logs that show when records were created and by whom.
• Open the export, compare record counts with the live system and spot-check both old and recent items.
• Hash the files, log who exported them and when, and store them in estate-controlled storage.

Retain and time the rejection

• Get the vendor's post-termination retention and deletion terms in writing.
• Suspend auto-deletion and retention policies before the effective date.
• Ask counsel to set the rejection effective date after the export is verified, not retroactively to an earlier date.
• Compare the cost of a cheaper archive or read-only plan with outright rejection.
• Put the final month's charges and any export fees in the budget the lender has approved.

Record the result

• Add each export to the records inventory and to the information given to the US Trustee and the committee.
• Note who will hold the exports if the case is later dismissed or converted.

Export costs come out of a budget the lender usually controls, and any later license receipt may be the lender's collateral too; see whether data license proceeds are cash collateral before promising anyone a recovery.

How to read the results

The last row needs care. Health information offered for licensing generally has to be de-identified under HIPAA's Expert Determination or Safe Harbor method, or otherwise authorized (HHS de-identification guidance). Separately, a business that discloses California consumers' personal information to a service provider or contractor must have a written agreement limiting its use (Cal. Civ. Code 1798.100 et seq.); check whether the debtor's agreements address return and deletion at termination.

Who usually owns each part of the checklist

Illustrative: a fictional 150-person engineering consultancy files an omnibus motion to reject 38 software contracts. The checklist shows that one of them, a project-management platform, holds the only copy of eleven years of project files and internal correspondence, and that the vendor deletes accounts shortly after termination. Counsel pulls that contract from the motion, the IT consultant completes and verifies an export within two weeks, and the contract is rejected in a later motion. The cost was one more month's subscription.

Red flags that call for a pause

• The admin account belongs to a departed employee, or the subscription is billed to a personal card.
• The contract allows deletion within days of termination.
• The motion seeks rejection effective as of the petition date or the motion date.
• Nobody on the current team can run an export.
• The platform is the only place years of customer or project history exist.

Any one of these is a reason to ask counsel to hold that contract back from the omnibus motion until the export is done. The guide to critical vendor and utility motions for software, cloud and telecom covers keeping these vendors paid in the meantime, and the page on whether a vendor can cut off a debtor after filing explains the limits on vendor self-help.

What a verified export means for a later license

A verified export keeps a license possible even after the platform is gone. SourceX looks for US companies with 50+ full-time employees at peak (contractors excluded), several years of documented operations across many systems, rights to the records and an authorized representative; in a case, that is the debtor in possession or a trustee, with court approval where required. The full baseline is on who qualifies, and wound-down companies qualify on the same terms if the records survive.

If the case may end in dismissal, the exports need a named holder afterwards; see who holds leftover records after a structured dismissal. Advisers who introduce a debtor share basic fit facts only and never handle the exports themselves.

This is general information, not legal, tax or financial advice. Rejection practice and effective dates vary by court; confirm each step with debtor's counsel before the motion is filed.

Next step

Run this checklist on the next omnibus rejection schedule before it is filed, and record the results alongside the initial debtor interview checklist. If you advise debtors and expect to introduce one to SourceX, register as a partner first so the introduction is credited.