Selling software and source code in bankruptcy, and the engineering history beside it

The plain answer

A failed software company leaves behind two different assets that are easy to treat as one. The first is the software itself: the right to own, use, change and resell the code, usually packaged with trademarks, domains and customer contracts. The second is the engineering record: years of commits, pull requests, review comments, issue tickets, design documents and incident write-ups that show how the product was built and why.

The first goes to a strategic buyer, a competitor, a key customer or an IP aggregator through a sale. In bankruptcy that is a court-approved sale, which practitioners often call a 363 sale; in an assignment for the benefit of creditors the assignee sells under the state procedure. The second can be licensed to AI labs and data buyers, who use real engineering work to train and evaluate coding agents. Run together carefully, the two transactions need not compete.

What is actually in a software estate?

Break the estate into components before anyone prices it.

The pattern is clear: the IP buyer pays for the latest version, while most of the history's value lies in the parts an IP buyer rarely prices.

How a code sale runs in each path

The mechanics differ less than people expect. The fiduciary, the approval step and the buyer's comfort are what change.

Trustees working the wider estate can use the guide to overlooked intangible assets in chapter 7, and software estates in an assignment are covered in SaaS companies in an ABC.

Who owns the code? The rights checks that decide value

No buyer pays full value for code it cannot be sure the estate owns. Six checks cover most of the risk.

1. Employee code. The Copyright Office's Circular 30 explains that a work prepared by an employee within the scope of employment is a work made for hire, so the employer is the author and owner.
2. Contractor code. Work by outside developers may not belong to the company unless the contractor assigned it in writing. Pull every development agreement and statement of work.
3. Partial transfers. Under 17 U.S.C. section 201, ownership can be transferred in whole or in part, and each exclusive right can be transferred and owned separately. That is why a sale contract can pass the code to one buyer while leaving defined rights in the engineering records with the estate, if it is drafted that way.
4. Open-source components. Their licenses travel with the code, and the estate cannot sell what it never owned. A software composition report helps bidders price the risk.
5. Customer code and data. Code written under services agreements may belong to the customer, and customer data sitting in repositories or tickets must be excluded or redacted.
6. Escrow and secrets. Check source code escrow agreements for release rights that may be triggered by the insolvency, and rotate and scrub any credentials committed to history before anything changes hands.

The IP and data asset audit checklist for trustees and receivers turns these into a working document.

Why the engineering history matters to AI buyers

AI development is moving from models that answer questions to agents that carry out multi-step tasks, and writing and fixing software is one of those tasks. Training and evaluating a coding agent calls for examples of how professional engineers actually work: an issue is filed, discussed, assigned, fixed in a change, reviewed, revised, tested and closed, with the outcome recorded.

Public open-source projects show some of that, but long-lived commercial codebases, with their linked tickets, review culture and production incidents, mostly sit behind company walls. A software company with years of history across its repositories, tracker and documentation holds exactly that kind of record, as long as the rights are clean.

Running a records license alongside the IP sale

Use simple if-then rules when structuring the two deals.

• If the IP buyer wants the full history, price that into the IP sale; a license of non-code records such as tickets and design docs may still be possible if the buyer agrees.
• If the IP buyer needs only the current code, keep the history in the estate and license it.
• If no IP buyer appears, the history may still be licensable, and the code itself can form part of the licensed records.
• If customer code dominates the repositories, exclude it and license only the company's own work.

In every case, tell IP bidders that AI-training rights are reserved, because SourceX deals are typically exclusive for AI training for an agreed term. For the broader trade-off between licensing and outright sale, see licensing data from a bankruptcy estate vs selling it outright. Where tickets and CRM notes carry customer details, business records vs personal data in a bankruptcy sale explains the line.

What this means for a referral partner

The people who spot these estates first are rarely the fiduciaries: an IP broker valuing the code, a turnaround advisor, a venture investor writing off a position, or a former CTO who knows what the repositories hold. Any of them can introduce the company, and none of them should copy, upload or describe the repositories.

The company still has to clear SourceX's baseline: a US business with 50+ full-time employees at peak (contractors excluded), several years of documented operations, the rights to license its records and an authorized sponsor, who in an insolvency is the trustee or assignee. A wound-down company qualifies on the same terms as long as the data still exists. Check who qualifies, or run the company fit checker first.

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 are paid only after the buyer pays and SourceX receives its fee, and no reward is guaranteed. Fiduciaries and professionals retained by the estate should clear any reward with counsel and, where required, the court before registering it.

Limits and open questions

• The law on copyright and AI training is still developing. The US Copyright Office's report on generative AI training was released in pre-publication form in May 2025; it discusses where training can implicate copyright and how practical licensing is, and it is not itself law.
• ABC procedures differ by state, and court practice on combined sales and licenses differs by district.
• Engineering records full of customer code or personal data may not be licensable even when the company otherwise qualifies.

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

Next step

Before the IP sale is marketed, ask who owns the history and whether it should stay with the estate. If you know a qualifying software company in wind-down, register as a partner and make the introduction, or have the trustee or assignee apply at sourcex.si/apply.