What is a section 363 sale, and how does it treat business records?
A section 363 sale is a court-approved sale of a bankrupt company's assets under 11 U.S.C. 363, usually after notice, an auction and a hearing, and often free and clear of liens. Business records can be estate assets sold or licensed this way, but personally identifiable information protected by a privacy policy triggers extra conditions.
The short answer
A section 363 sale is how a company in bankruptcy sells assets outside the ordinary course of business with the court's approval, usually after notice to creditors, a marketing process and a hearing. Records can be part of that sale, stay behind in the estate or be licensed separately. Ordinary business records are estate property like any other asset; personally identifiable information covered by the debtor's privacy policy can be sold or leased only under added conditions.
What section 363 actually says
The statute, 11 U.S.C. 363, sets the framework. The provisions that matter most here:
- 363(b)(1): the trustee, after notice and a hearing, may use, sell or lease estate property other than in the ordinary course of business. In chapter 11 the debtor in possession usually exercises these powers.
- 363(f): property can be sold free and clear of liens and other interests if one of five listed conditions is met, such as the interest holder consenting or the price exceeding the value of all liens on the property.
- 363(k): a secured creditor may credit bid its claim, unless the court orders otherwise for cause.
- 363(m): if a sale order is not stayed pending appeal, reversing it on appeal does not undo the sale to a good-faith purchaser.
- Personal information: if the debtor's privacy policy prohibited transferring personally identifiable information to unaffiliated persons and was in effect when the case began, the trustee may not sell or lease that information unless the sale is consistent with the policy, or the court approves it after appointing a consumer privacy ombudsman, giving notice and holding a hearing, and finds no showing that the sale would violate applicable nonbankruptcy law.
Under section 332, the US trustee appoints that ombudsman no later than 7 days before the hearing. The ombudsman can give the court information such as the debtor's privacy policy, and may not disclose personal information obtained in that role.
The role is not theoretical. In 23andMe's 2025 bankruptcy, the consumer privacy ombudsman recommended prohibiting any transfer of customers' genetic or personally identifiable data without renewed opt-in consent.
How does a 363 sale work?
- Marketing. The debtor and its banker market the assets, often lining up a stalking horse bidder whose offer sets the floor.
- Bidding procedures. The court approves the rules: deadlines, who qualifies to bid, deposits and any break-up fee for the stalking horse.
- Notice. Creditors and other parties in interest receive notice of the proposed sale and the hearing date.
- Auction. If competing qualified bids arrive, an auction sets the highest or best offer.
- Sale hearing. The court hears objections and approves the winning bid, usually with findings on good faith and free-and-clear relief.
- Closing. Assets transfer, and proceeds go to the estate subject to liens.
Timing depends on the case, the court's local rules and the objections filed, so treat any schedule as provisional until the bidding procedures order is entered.
363 sale vs plan sale
| Feature | Section 363 sale | Sale under a chapter 11 plan |
|---|---|---|
| Timing | Can happen early in the case | Waits for plan confirmation |
| Creditor vote | None; court approval after notice and a hearing | Creditors vote on the plan |
| Main documents | Sale motion, bidding procedures, sale order | Disclosure statement, plan, confirmation order |
| Speed | Usually faster | Usually slower |
| Buyer protection | 363(f) free-and-clear relief and 363(m) good-faith protection | The confirmation order |
How records fit: sold, retained or licensed
Licensing is not selling. A license lets a buyer use a defined dataset for an agreed purpose and term while ownership stays with the estate or with whoever bought the business. Outside the ordinary course, though, a license is still a use or lease of estate property, so expect court approval to be needed.
| Situation | What to check | Typical outcome to confirm with counsel |
|---|---|---|
| The whole business is sold in a 363 sale | Whether the asset purchase agreement includes books, records and system data | Records pass to the buyer, or stay with the estate if excluded |
| The estate keeps records after the sale | Who holds administrator access and copies | The trustee or debtor may license them, with court approval if outside the ordinary course |
| Records are mostly internal work product | Client confidentiality terms and employee notices | Treated as ordinary estate property, subject to contracts |
| Records include consumer personal information | The privacy policy in effect when the case began | Section 363(b)(1) conditions apply and an ombudsman may be needed |
| A licensing idea surfaces mid-auction | Bidding procedures, the stalking horse agreement and lender consents | It may need to fold into the sale process or wait until after closing |
Disclosure and consent good practice
- Deal only with the debtor's counsel, the trustee or the CRO; never route around the person who controls the estate's assets.
- Give basic fit information only. Partners never export, upload or describe confidential records.
- If you are retained by the estate, ask your counsel whether any outside compensation must be disclosed to the court.
- Check the baseline: a US business that had 50+ full-time employees at peak (contractors excluded), several years of documented operations and records the estate can license. A company in a sale or wind-down can qualify if the data still exists. The company fit checker and who qualifies help with the first read.
Questions to ask counsel
- Is a license of these records inside or outside the ordinary course of business?
- Do the records include personal information covered by a privacy policy, and will an ombudsman be needed?
- Does the sale order or asset purchase agreement already transfer the records?
- Do lenders' liens reach the records or any license proceeds?
- Who signs for the estate: the debtor in possession, a trustee or a CRO?
This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting in a bankruptcy case.
Next step
If an estate you work with holds years of business records that are not part of a pending sale, raise licensing with the fiduciary in charge, then register as a partner and make the introduction with their agreement. For the out-of-court equivalent, see what a receivership is; the chief restructuring officer page explains the officer who leads many restructurings.
- Step 1Share your linkSend your personal link to a company you know.
- Step 2Company appliesThe company applies itself at /apply.
- Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
- Step 4You get your rewardYour share of SourceX fees becomes payable.
Common questions
How long does a section 363 sale take?
It varies with the case. A sale with a stalking horse and few objections can move quickly once bidding procedures are approved, while contested sales, complex assets or privacy issues that need an ombudsman take longer. Notice periods in the bankruptcy rules and the court's local rules put a floor under the timeline, and debtor's counsel can give the working schedule for a specific case.
What is a stalking horse bidder?
A stalking horse is the first bidder whose signed offer sets the minimum price and terms for an auction. In return for doing the early diligence and being exposed to overbids, the stalking horse may receive bid protections such as a break-up fee or expense reimbursement, which the court must approve. Other bidders then have to beat that offer to win.
Does free and clear remove privacy limits on customer data?
No. Free-and-clear relief under section 363(f) deals with liens and other interests in the property. The limits on selling or leasing personally identifiable information under section 363(b)(1) are a separate requirement tied to the debtor's privacy policy. A buyer can take assets free of a lender's lien and still be bound by conditions the court places on personal data.
Can a company in chapter 11 license its data without selling the business?
It can propose to. A debtor in possession can use or lease estate property, and a license outside the ordinary course of business generally needs notice, a hearing and court approval. Lenders, the creditors' committee and any buyer in a pending sale process may have views, so counsel usually builds the license into the case strategy rather than treating it as a side deal.
Who can object to a 363 sale?
Parties in interest can, including secured lenders, the creditors' committee, individual creditors, the US trustee and counterparties to contracts being assigned. Where personal data is involved, the consumer privacy ombudsman reports to the court on privacy issues. The court weighs objections at the sale hearing, and they commonly focus on price, the marketing process, protection of liens or privacy.
Related pages
Free resources
- Due diligence checklist generator — A tailored document request list by deal type.
- Cash flow calculator — A 12-month cash forecast with shortfalls highlighted.
- Referral earnings calculator — Hypothetical partner earnings with the per-company cap.
- All free tools · MCP resource center
By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09
Know a US company with valuable proprietary data?
Become a referral partner from anywhere we support, get your link and introduce an owner or authorized decision-maker.
Refer a company →I own a business
Explore licensing your company's data to AI developers worldwide. Start a short assessment; no uploads needed.
Start an assessment