Custodians in deadlocked companies: who can approve a data license?

The short answer: the appointment order decides, not either faction

Once a court appoints a custodian, neither owner faction can approve a data license on its own. The custodian's powers come from the statute and from the appointment order, and a significant transaction, such as an exclusive AI-training license of the company's records, generally needs either clear authority in that order or the court's approval. Before any appointment, a deadlocked board usually cannot approve the license at all, which is often why someone asks for a custodian in the first place.

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

What DGCL section 226 says

Section 226 of the Delaware General Corporation Law allows the Court of Chancery, on the application of any stockholder, to appoint one or more custodians, or receivers if the corporation is insolvent, in three situations:

1. At a meeting held to elect directors, the stockholders are so divided that they have failed to elect successors to directors whose terms have expired.
2. The directors are so divided over management that the board cannot obtain the vote it needs to act, the business is suffering or threatened with irreparable injury as a result, and the stockholders cannot end the division.
3. The corporation has abandoned its business and has not, within a reasonable time, taken steps to dissolve, liquidate or distribute its assets.

A custodian has the powers and title of a receiver under section 291, but the custodian's authority is to continue the business, not to liquidate the company and distribute its assets, unless the court orders otherwise or the case falls within an exception such as abandonment. These are paraphrases of the Delaware Code, Title 8, Chapter 1, and are not linked to a verified copy of the statute here. Read the current official text of sections 226 and 291 before relying on this summary; the General Assembly amends the DGCL regularly.

Appointment orders vary widely. Some give the custodian full management authority; others limit the role to casting a deciding board vote or overseeing a sale process. That variation is why the order, not the statute alone, answers the signature question.

LLCs and other states. The Delaware LLC Act has no custodian provision like section 226. A deadlocked LLC usually reaches the court through judicial dissolution, available when it is not reasonably practicable to carry on the business in conformity with the LLC agreement (section 18-802), after which the court can appoint a liquidating trustee to wind it up (section 18-803). Operating agreements often contain their own deadlock tools, such as buy-sell clauses, which come first. Outside Delaware, courts appoint receivers in shareholder disputes under their own statutes, with different triggers and powers.

Who can approve a license at each stage

Where a receiver rather than a custodian is in place, the analysis of who can sign contracts in a receivership applies.

Why a neutral, documented process suits a custodian

A custodian stands between factions that distrust each other, so every decision needs a record that would satisfy the court. Licensing the company's records through SourceX fits that need:

• The company keeps ownership. The records are licensed, not sold, so whichever faction ends up owning the company still owns them.
• Nothing binds until signed. The custodian sees price and terms before agreeing and can put them before the court first.
• One all-in price. The company receives a single price with SourceX's fee included and no separate charges, which is simple to present to the court and to both sides.
• A documented market. The inventory, buyer review and terms are recorded, so the custodian can show how the price was reached.

A license does not resolve the dispute, and it does commit the records for its term. Deals are typically exclusive for AI training for an agreed term, so disclose any license to anyone negotiating a buyout or bidding in a court-ordered sale. If the company is insolvent and has secured lenders, ask whether license proceeds are their collateral; the cash collateral question covers the chapter 11 version of that issue. If the owners instead agree to dissolve, the section 278 winding-up period governs what happens next.

What a custodian should confirm before signing

Ownership comes first. Documents employees create within the scope of their jobs are generally works made for hire owned by the employer, while material from outside contractors may not be unless rights were assigned in writing, as the Copyright Office's Circular 30 explains. Privacy promises come second: FTC staff have stated that commitments not to use customer data for undisclosed purposes, including model training, are enforceable wherever they were made (FTC Office of Technology).

• The order's language on sales, licenses and significant contracts
• The baseline in who qualifies: 50+ full-time employees at peak (contractors excluded), several years of documented operations and rights to license
• Who holds admin access to each system, since one faction may control IT
• Whether either faction has already copied, deleted or licensed records
• Client contracts and privacy policies that limit use of the records
• Where proceeds will be held while the dispute continues

The company fit checker gives a preliminary, non-binding read before anyone goes back to the court.

Disclosure rules of thumb for introducers

• Introduce SourceX to the custodian, not to one faction.
• Disclose any tie to either side, and any partner registration, at the start.
• Share basic fit information only; never export, upload or describe the company's records.

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, paid only after the buyer pays and SourceX receives its fee. Rewards are not guaranteed, and advisers to either faction should check their own professional rules before registering.

Questions to ask counsel

• Does the order authorize licensing a significant asset, or should the custodian seek instructions?
• Do both factions receive notice and a chance to object before signing?
• Is the company insolvent, and does that turn the appointment into a receivership?
• Will the license term outlast the custodianship, and who administers it afterward?
• Where are proceeds held until the dispute ends?

Next step

If you advise owners, custodians or receivers, register as a partner so your introductions are tracked from the first conversation. A custodian can also apply on the company's behalf at sourcex.si/apply.