On 9 October 2012, a bill proposal was introduced to the Luxembourg Parliament providing for a right to claim back "intangible" and non-fungible movable assets from a bankrupt company.
According to the explanatory memorandum, the bill proposal is intended to allow the recovery of data from a bankrupt provider of distance IT services or cloud computing solutions. Once passed, the law will provide greater certainty as to the consequences of the bankruptcy of a cloud computing provider on the data in its possession.
"Separable" Assets
The bill proposal clarifies that the intangible assets in
question must be "separable" from other intangible assets
upon the opening of bankruptcy proceedings. In the cloud context,
this means that the data must be capable of being separated from
other data in the cloud services provider's IT environment. The
explanatory memorandum seems to indicate that the separation of
data can also be performed or ordered by the trustee in bankruptcy
and, hence, after the opening of bankruptcy proceedings. In other
words, the requirement that the data be "separable" at
the start of bankruptcy does not mean that the data must be
"actually separated" at that point in time. Hopefully,
this point will be clarified during the legislative process. In
order to avoid problems in the future, however, it is recommended
to provide for segregation or ring-fencing of data. It should be
noted that the Luxembourg regulation on (IT) outsourcing in the
financial sector requires such segregation from the outset of the
outsourced data storage arrangement.
Data Recovery Costs
The bill proposal further stipulates that the data recovery
costs must be borne by the claimant (e.g., the cloud customer). In
order to avoid discussion on this point, it is recommended that the
costs be determined in advance in a contract. The explanatory
memorandum specifies that such costs include "data separation
costs.
Other Applications than Recovery of Data in the
Cloud
The term "intangible movable assets" is obviously not
restricted to cloud data. Thus, a person that has commissioned a
third party to develop a computer program could, in the event of
the developer's bankruptcy, also seek to recover all
information pertaining to preparation of the program, provided, of
course, the commissioning party is the holder of IP rights in the
computer program (including the preparatory works), on the basis of
the contract entered into between the parties.
Conclusion
In general, the introduction of a right to recover data held
by a third party is an excellent initiative. However, this is only
one step in the right direction.
The same right should be introduced for other winding-up or insolvency-related scenarios. Further, other issues should be addressed as well, such as the question to what extent the trustee in bankruptcy could refuse to give back the intangible assets, for example, in the case of a payment default of the customer claiming the recovery of the assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
