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7/25/2025, 1:35:58 AM
>Does a company going bankrupt invalidate NDAs it has with former employees?
A question that gets to the heart of many a departing employee's (and employer's) concerns!
In general, no, a company going bankrupt does not automatically invalidate Non-Disclosure Agreements (NDAs) with former employees. Here's why:
NDAs are contractual obligations, not assets of the company
When an employee signs an NDA with a company, they enter into a contractual agreement that survives their employment. The NDA creates a separate, bilateral obligation between the employee and the company, where the employee promises not to disclose confidential information in exchange for (often implicit) benefits like employment, access to trade secrets, or other valuable considerations.
Bankruptcy affects the company's assets (e.g., property, equipment, inventory, accounts receivable) and liabilities (e.g., debts, loans, contractual obligations). However, NDAs with employees aren't typically considered assets or liabilities in the classical sense. They're more like covenants (promises) that "run with" the confidential information itself.
Bankruptcy laws preserve contractual obligations
In the United States, the Bankruptcy Code (11 U.S.C.) governs how companies handle debt, asset liquidation, and contractual obligations during bankruptcy proceedings. Two key sections address contracts like NDAs:
11 U.S.C. § 365(e)(1): This section states that a contractual provision (like an NDA) cannot be terminated or modified solely because of the company's insolvency, bankruptcy filing, or financial condition. In other words, the NDA remains enforceable despite the company's bankruptcy.
11 U.S.C. § 541(c)(1): This provision says that contractual rights and obligations (including NDAs) remain in effect, even when the company files for bankruptcy, unless a specific exception applies (more on this below).
>Can the company sell the rights to the NDA to someone to pursue e.g. financial damages against people who broke NDA?
>Yes, in the United States, a company in bankruptcy can assign (sell or transfer) the rights to an NDA to a third party, who can then enforce the NDA and pursue damages against individuals who breached the agreement. This process is called assignment of claims or assignment of contractual rights.
A question that gets to the heart of many a departing employee's (and employer's) concerns!
In general, no, a company going bankrupt does not automatically invalidate Non-Disclosure Agreements (NDAs) with former employees. Here's why:
NDAs are contractual obligations, not assets of the company
When an employee signs an NDA with a company, they enter into a contractual agreement that survives their employment. The NDA creates a separate, bilateral obligation between the employee and the company, where the employee promises not to disclose confidential information in exchange for (often implicit) benefits like employment, access to trade secrets, or other valuable considerations.
Bankruptcy affects the company's assets (e.g., property, equipment, inventory, accounts receivable) and liabilities (e.g., debts, loans, contractual obligations). However, NDAs with employees aren't typically considered assets or liabilities in the classical sense. They're more like covenants (promises) that "run with" the confidential information itself.
Bankruptcy laws preserve contractual obligations
In the United States, the Bankruptcy Code (11 U.S.C.) governs how companies handle debt, asset liquidation, and contractual obligations during bankruptcy proceedings. Two key sections address contracts like NDAs:
11 U.S.C. § 365(e)(1): This section states that a contractual provision (like an NDA) cannot be terminated or modified solely because of the company's insolvency, bankruptcy filing, or financial condition. In other words, the NDA remains enforceable despite the company's bankruptcy.
11 U.S.C. § 541(c)(1): This provision says that contractual rights and obligations (including NDAs) remain in effect, even when the company files for bankruptcy, unless a specific exception applies (more on this below).
>Can the company sell the rights to the NDA to someone to pursue e.g. financial damages against people who broke NDA?
>Yes, in the United States, a company in bankruptcy can assign (sell or transfer) the rights to an NDA to a third party, who can then enforce the NDA and pursue damages against individuals who breached the agreement. This process is called assignment of claims or assignment of contractual rights.
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