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.