Subchapter V and data assets: can a small business debtor license its records?

Can a subchapter V debtor license its data assets?

It depends on the debtor's records, its contracts and the court. A debtor in possession in a small business reorganization holds the company's property, including intangible assets such as business records, and a license of those records is a transaction that may need notice to creditors or court approval. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

This guide is for bankruptcy attorneys who represent small business debtors and for subchapter V trustees. It explains where a data license could fit in a plan, which approvals to look at, and how to screen quickly against the SourceX baseline so you do not spend time on a company that cannot qualify.

What does the Code say about reorganizing and selling estate property?

The federal judiciary explains that chapter 11 generally provides for reorganization, that the debtor ordinarily keeps possession and control of its assets as debtor in possession and proposes a plan, and that a plan may also be a liquidating plan. The federal courts' chapter 11 overview also points to subchapter V as the small business track. Eligibility conditions and debt limits for subchapter V are set by the Code and have been amended over time, so check the current statute and your court's guidance rather than relying on a figure quoted in an article.

For sales and leases of estate property, section 363 of the Bankruptcy Code is the starting point. Under section 363(b)(1), if the debtor disclosed a privacy policy that prohibited transferring personally identifiable information to unaffiliated persons, and the policy was in effect when the case began, the transfer of that information is restricted unless it is consistent with the policy or the court approves it after the appointment of a consumer privacy ombudsman, notice and a hearing, and a finding that no showing was made that the sale would violate applicable nonbankruptcy law. The mechanics of that appointment sit in section 332.

Two takeaways for a data license. Whether a given transaction is inside or outside the ordinary course is a legal judgment for counsel. And a dataset containing personal information is a different animal from a dataset of internal documents and workflow records.

How does a data license apply in common subchapter V situations?

These are issues to raise, not conclusions. Local rules, the judge and the facts decide.

Why does the baseline screen out many subchapter V debtors?

SourceX introductions are for US companies with 50+ full-time employees at peak (contractors excluded), several years of documented operations, rights to license the data, and an authorized sponsor. The company can still be operating, acquired or wound down if the data still exists. A small business debtor with a modest workforce will not meet that baseline.

The companies that do qualify tend to hold records across many systems. Strong companies often run 10-15 or more, and a long history of 5-10 years or more helps. The question for you is practical: did the debtor ever employ 50+ people at peak, and are the records still there?

The 5-question debtor screen

• Peak headcount: did the company have 50+ full-time employees at peak, with contractors excluded?
• History: several years of documented operations, with archives intact?
• Rights: did the company create the records, and do client contracts and privacy notices allow licensing?
• Control: can the debtor in possession authorize the license, or does a lender, trustee or court need to approve it first?
• Sponsor: is there an owner, CEO, CFO or authorized representative who can sign?

The company fit checker gives a preliminary, non-binding screen with no contact details required. For the baseline in full, see who qualifies.

How should you disclose and get consent?

Treat disclosure as part of the plan, not an afterthought.

1. Tell the debtor in writing that you are considering an introduction to SourceX and that you may have a referral arrangement.
2. Ask about secured creditors' rights in records and in license proceeds.
3. Decide whether a motion, a plan provision or both will carry the approval.
4. Keep the debtor's data out of your own hands. The introduction shares basic fit information only.

Nothing is binding until the company agrees price and terms and signs, and data is delivered only after an executed agreement and the company's authorization. Deals are typically exclusive for AI training for an agreed term, and companies receive one all-in price, typically paid within about 60 days of invoicing once the buyer selects the data.

For wind-down work outside bankruptcy, see the wind-down engagement letter and the board resolution to wind down. If a shareholder vote may be involved, read whether a data license needs shareholder approval. Trustees in a liquidating case can compare notes with the overlooked intangible assets guide.

Questions to ask your own counsel or professional body

• Does the license need a motion under section 363 in this case, and in this district?
• How do fiduciary duties and the debtor in possession's role affect the choice of buyer?
• Are referral fees paid to a third party, including to a lawyer, restricted by my state's professional conduct rules?
• Does the plan need to describe the license and its proceeds?
• Is a consumer privacy ombudsman likely to be needed?

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

How 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 becomes 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. Lawyers and trustees should check their own jurisdiction's rules on referral fees and court-appointed roles before registering. The program terms govern the details.

When to skip it

• The company never reached 50+ full-time employees at peak.
• The records belong to the debtor's clients, as with an outsourcer. The MSP closure page explains why.
• The data is mainly consumer personal information or protected health information.
• Archives were deleted.

Next step

If a debtor passes the screen, register as a partner and make the introduction, or let the company's authorized sponsor apply directly at sourcex.si/apply.