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Can an agreement be cancelled, and property returned, in the case of insolvency?
Anonymous2 views3 answers
I'm on the Board of Directors of an LLC1 that is selling some intellectual property to another LLC2 (which has two directors in common to my LLC1). In turn, LLC2 is exclusively licensing that same IP back to LLC1. The attorney for LLC2 drafted the agreement as a combination Purchase and License Agreement and included a provision that LLC2 can "terminate this Agreement, and the associated License, if [LLC1] becomes a going concern, is insolvent," etc. I would like to also protect LLC1 if LLC2 were to become a going concern, etc. Is it possible/enforceable to include a provision that allows LLC1 to cancel the contract in case of LLC2's insolvency, and force the return of the IP in exchange for return of the purchase price, plus maybe capitalized costs?
Yes, LLC1 should be careful in how they proceed. If the IP is software then the source code should be placed in a repository with the process spelled out in how one removes the source from the repository. A third party should be involved to make the decisions. Don't leave the decision making to be a unilateral decision by the other party. I have done this before for software developers that have contracted out their software to studios. You could benefit from meeting with an attorney to discuss further. Even if you decide not to hire the attorney the consultation with him or her could help you to understand the issues and your options. Many attorneys offer a free consultation. I wish you the best.
This questuions leaves out many facts necessary to a proper response. First is what is the financial consdition of LLC1? Is this a device to dfraud creditors? Why are you not participating as a director of LLC2? Is that part of a scheme? You should seek either experienced local corporate counsel or counsel experienced in matters of insolvency depending on the answers to those questions.
