Data sales in an assignment for the benefit of creditors (ABC)

Not every distressed company files for bankruptcy. Many wind down through an assignment for the benefit of creditors (ABC), or restructure out of court with their lenders. Data can be monetized in both. The rules are different from a 363 sale, and in some ways less protective.

General information, not legal advice. ABC law varies significantly by state.

What an ABC is

In an ABC, the company assigns all its assets to an independent assignee, who liquidates them and distributes the proceeds to creditors under state law. ABCs are common for technology companies, especially in states with established practice, and they can be faster and cheaper than Chapter 7.

Some states supervise ABCs through a court; others don't involve a court at all.

How a data sale works in an ABC

The assignee, as owner of the assets, can sell or license data like any other asset:

1. The assignee takes control of systems and credentials.
2. Data is inventoried and screened for privacy and contract limits.
3. The assignee markets the asset to multiple buyers.
4. The assignee signs the deal, with court approval only if the state's procedure requires it.
5. Proceeds go to creditors under the state's distribution rules, with secured creditors paid from their collateral.

What's missing compared with a 363 sale

Buyers who want the certainty of a court order may discount ABC deals or ask for stronger representations. Others prefer the speed.

Privacy doesn't go away

Outside bankruptcy, there's no ombudsman process, but your privacy promises still bind. The FTC Act prohibits deceptive practices, and state privacy laws regulate sales of personal information. The practical answer is the same: exclude or de-identify consumer PII, and don't break promises.

Secured lenders

A lender with a lien on general intangibles will expect to be paid from the proceeds, and without § 363(f) the assignee generally needs the lender's cooperation to deliver clean title. In practice, lenders often support an ABC sale because it's faster than foreclosure.

Out-of-court workouts

A company negotiating with lenders outside bankruptcy can license data to raise cash, subject to:

• the credit agreement's asset-sale covenants and lender consent,
• directors' fiduciary duties, which sharpen near insolvency,
• and fraudulent-transfer risk if the company later files. Fair value from a real market test is the best protection.

Data cash can sometimes close a gap that would otherwise force a filing.

Choosing a path

Restructuring counsel should make the call based on the full picture.

A checklist for assignees

• Secure systems, credentials and subscriptions in the first days
• Identify lienholders on intangibles
• Review privacy policies and customer contracts
• Obtain an illustrative valuation
• Run a competitive process and keep a record
• Follow the state's notice or approval procedures
• Handle unsold sensitive data securely

We work with assignees and their counsel the same way we work with trustees: no upfront cost, a documented process, and a fee only from a closed transaction.

This guide is general information, not legal, tax or financial advice, and reading it does not create an attorney-client relationship. Bankruptcy outcomes depend on the facts, the court and the parties; nothing here promises price, timing or court approval. Talk to your bankruptcy counsel about your case.