On 11 June 2013, the Luxembourg Chamber of Deputies voted in favour of a law introducing a right to claim back "intangible" and non-fungible movable assets from a bankrupt company (the parliamentary file can be downloaded here). According to the explanatory memorandum, the law is intended to allow the recovery of data from a bankrupt provider of distance IT services or cloud computing solutions. The law provides greater certainty as to the consequences of the bankruptcy of a cloud services provider vis-à-vis the data it holds and contributes significantly to Luxembourg's strong reputation as a centre of excellence for IT outsourcing.

"Separable" assets

The law 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. This does not entail that the data is already separated upon the opening of the proceedings, only that such separation is possible. In order to avoid any issues in this respect, clients should ensure that their contracts provide for segregation or ring-fencing of data. In Luxembourg, the regulatory authorities on (IT) outsourcing in the financial sector already require such segregation to be in place from the outset of the outsourced data storage arrangement.

Exercising the data recovery right

The law stipulates that the data recovery costs must be borne by the claimant with the explanatory memorandum specifying that such costs include "data separation costs". In order to avoid discussion on this point, it is recommended that contracts include provisions on the data recovery costs as well as the framework for the technical restitution, taking into particular consideration whether such a transfer of data entails the deletion of the data by the cloud services provider.

Other applications than recovery of data in the cloud

The term "intangible movable assets" is obviously not restricted to cloud data. Thus, where a person commissions a marketing company to manage their client lists, this person would, in the event of the bankruptcy of the marketing company, be able to reclaim these lists without a lengthy and arduous process.

Conclusion

In general, the introduction of a right to recover data held by a third party is an excellent initiative. The law certainly offers some guidance for bankruptcy trustees with regard to the restitution of "cloud" held data and, despite there being no specific provision to that end, essentially obliges the trustees to continue the activities of the bankrupt businesses until completion of the transfer and to not terminate immediately the employment contracts of the IT employees that are indispensable to transfer the data from the cloud service provider to the client.

However, this is only a step in the right direction. The same right should be introduced for other insolvency-related or winding-up scenarios, the latter of which are currently in the process of being reformed.

Furthermore, several 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.