Customer contracts, confidentiality and data sales in bankruptcy

Privacy policies get most of the attention in bankruptcy data sales, but contracts cause just as many problems. Customer agreements, NDAs and vendor terms often restrict how the debtor can use data it holds. Ignoring them invites objections and claims.

General information, not legal advice.

Owning data vs. holding it

A debtor's estate includes the debtor's interests in property (§ 541). For data, that means:

• Data the debtor created about its own operations (internal discussions, procedures, its own transactions) is generally estate property.
• Data the debtor holds on behalf of a customer, for example as a service provider processing the customer's records, may be subject to the customer's rights. The estate generally takes property subject to the same restrictions the debtor had.

Sorting the two is the first step.

Contracts to review

Executory contracts and § 365

Many of these contracts are executory, with obligations remaining on both sides. The debtor can assume or reject them under § 365. Rejection is treated as a breach, giving the counterparty a claim, but it doesn't erase property rights the counterparty may have in its own data, or necessarily free the debtor to use confidential information it received. Counsel should not assume rejection solves a confidentiality problem.

The practical solution: scoping

Most contract issues are solved by excluding the restricted material:

• Exclude processor data entirely. If you held it for customers, it probably isn't yours to license.
• Exclude customer-confidential channels, folders and mailboxes. Many teams have dedicated spaces for specific clients.
• Exclude material received under NDA.
• De-identify customer names and identifiers in the rest, so the remaining operational record doesn't reveal who the customers were.
• Document the exclusions in a schedule attached to the agreement and described in the motion.

Notice to counterparties

Counterparties with confidentiality rights may be entitled to notice of the sale motion as parties in interest. Serving major customers can head off later disputes. Counsel decides the notice list.

Buyer protections

Buyers will ask for representations about the debtor's right to license the data. In bankruptcy, representations are usually limited. A clear exclusion schedule plus a sale order is what gives buyers comfort.

Common objection scenarios

• "That includes our confidential data." Show the exclusion schedule; offer to add specific exclusions.
• "Our contract prohibits any secondary use." Confirm whether the data at issue is the customer's or the debtor's own operational record; exclude where unclear.
• "You're selling our employees' information." Explain de-identification, and exclude HR material.

Platform terms

Some SaaS providers restrict how exported data may be used, or how exports may be performed. Check terms for the systems in scope, and use sanctioned export tools.

A contract-screening checklist

• List the top customers by revenue and pull their agreements
• Identify any processor or service-provider relationships
• Search for NDAs with partners and prospects
• Review the terms of each system in scope
• Map restricted data to channels, folders, mailboxes and record types
• Build the exclusion schedule
• Decide the notice list with counsel

Contracts rarely kill a data sale. Unscoped datasets do.

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.