When negotiating technology contracts, a technology provider filing for bankruptcy could affect business operations. For example, software sold as software as a service (SaaS) may not be protected, as compared to a licenses model. Licenses are protected by bankruptcy laws, but not services.
SaaS relates to software deployment where a provider licenses an application for use as a service on demand. Instead of installing a product on its own systems as in a licenses model, customers of SaaS allow the SaaS vendors to host the application on their own web servers or download the application to the consumer device, disabling it after the on-demand contract expires. The customer should check the vendors and their service providers for credit risks. For instance, a cloud computing supplier relies on hosting services so even if the supplier does well, the customer's operations could be affected if the supplier's hosting services cannot find funding.
In bankruptcy, a debtor has the right to reject or assume and/or assign executory contracts. These are ongoing contracts where performance remains due by both parties. A non-debtor party must continue to perform post-petition contractual obligations, and is not able to terminate the agreement because of bankruptcy. A customer that does not want to continue paying a vendor who cannot perform should consider making personal service agreements. Personal service agreements are easier to terminate because they are less assignable. Make agreements more personal by naming personnel to do work.
When there are performance difficulties, demand adequate assurance of due performance. Under UCC Section 2.609, if the other side is unable to provide adequate assurance, it is considered anticipatory repudiation allowing the non-breaching party to walk away under UCC Section 2.702(1).
Requesting a source code escrow may be the way to go to maintain access to a vendor's product during bankruptcy. In escrow provisions, request access to engineers who wrote the code to learn how to use source code.
The economy is based on spending. Engage an experienced bankruptcy attorney for advice when investing in business operations.
