Bankruptcy Isn't the End—It's a Reset
For ITAM professionals and CFOs, Chapter 11 represents the ultimate negotiation tool to shed "shelfware" and escape punishing contracts. But only if your contract allows it. The time to negotiate these protections is now—while you're healthy.
The Strategic Opportunity
When a company enters Chapter 11 reorganization, the CFO's mandate is clear: find cost savings. Every line item gets scrutinized. Every contract gets reviewed. And suddenly, all those "mandatory minimum commitments" and "non-cancellable terms" in your Enterprise Agreements become very, very interesting.
This is where the ITAM team has a unique—and often overlooked—opportunity. Bankruptcy law provides powerful mechanisms to "clean house" of unused software, terminate unfavorable contracts, and fundamentally restructure your technology spend.
The Reality Check
Standard Enterprise Agreements are designed to protect the vendor, not you. They trap companies in "All-or-Nothing" scenarios where reducing license counts means cancelling the entire contract—and potentially facing massive early termination penalties.
The solution? Negotiate protective clauses into your agreements before you need them. Think of it as a "pre-nup" for your enterprise software relationships.
The "Cum Onere" Trap
Here's the legal concept most IT leaders don't know about: Cum Onere (Latin for "with the burden"). In bankruptcy, when you "assume" (keep) an executory contract, you must assume it with all its burdens—not just the parts you like.
The Binary Choice
ASSUME
Keep the ENTIRE contract
All licenses, all costs, all obligations
REJECT
Terminate the ENTIRE contract
Lose all licenses, face damages claims
The Problem
You cannot just keep the 50% of licenses you actually use. Standard EAs don't allow partial assumption. It's all or nothing. If you're paying for 1,000 seats but only using 500, you either keep paying for all 1,000 or lose access to the software entirely.
This is why the "pre-nup" strategy is essential. You need contract language that breaks the all-or-nothing paradigm—giving you the flexibility to right-size your software estate when business conditions change.
Negotiating Your "Pre-Nup"
The following three clauses should be negotiated into every major Enterprise Agreement. These aren't hypotheticals—they're based on real contract language that Fortune 500 companies have successfully negotiated. The time to ask for these is during renewal, when you have leverage.
The "Business Downturn" / Scale-Down Right
What it does: Allows you to reduce license counts by X% (typically 15-30%) without penalty if revenue drops by a defined threshold.
Why it matters: This clause allows you to "right-size" during restructuring without rejecting the whole EA. You keep the software you need, shed what you don't, and avoid triggering massive termination fees.
The "Adequate Assurance" Cap
What it does: Limits the cash deposit a vendor can demand to keep services running during Chapter 11 proceedings.
The Problem It Solves:
In Chapter 11, vendors can demand "adequate assurance of future performance"—essentially, massive cash deposits to guarantee they'll get paid. Without a cap, a vendor could demand millions in cash upfront to keep your servers running, effectively holding your data hostage during the most cash-strapped period of your company's history.
Why it matters: This prevents vendors from using your distress as leverage to extract unreasonable demands. A "reasonable deposit" (2 weeks of spend) keeps services running without draining critical cash reserves.
Transition Services Obligation
What it does: Ensures the vendor is contractually obligated to provide "run-off" services post-termination.
The Nightmare It Prevents:
Without this clause, a vendor could terminate your access the moment a contract is rejected—leaving you digitally evicted overnight with no ability to migrate data, export configurations, or transition to alternative solutions.
Why it matters: 90 days of "run-off" services ensures you're never digitally evicted overnight. You have time to execute a migration plan, extract critical data, and transition to alternatives with dignity.
Negotiation Tips
- 1 Ask during renewal—vendors are most flexible when they want to keep your business
- 2 Frame it as mutual protection—"This protects both of us if market conditions change"
- 3 Have alternatives ready—credible migration options strengthen your position
- 4 Involve legal early—contract law expertise ensures enforceable language
The "Utility" Myth
Some legal teams believe that Section 366 of the Bankruptcy Code—which prevents utilities from cutting off service during Chapter 11—will protect their cloud and SaaS access. This is a dangerous misconception.
Why Section 366 Won't Save You
- 1. "Utility" has a narrow legal definition—electricity, gas, water, telephone. Courts have not consistently extended this to software or cloud services.
- 2. Cloud providers aren't regulated utilities—they're private companies with no obligation to serve you.
- 3. Litigation is expensive and uncertain—even if you win, fighting for access while your business is restructuring is costly.
The Takeaway
You need a contract strategy, not just a legal argument. Don't rely on bankruptcy courts to force vendors to serve you—negotiate the protections upfront while you have leverage.
The Costif.ai Advantage
Strategic contract negotiation requires two things most organizations lack: detailed usage data and market intelligence. Without knowing exactly what you use versus what you're paying for, you can't negotiate from a position of strength.
Usage Data Intelligence
- ✓ Real-time license utilization tracking
- ✓ Feature-level adoption analytics
- ✓ Department/user-level breakdowns
- ✓ Trend analysis for forecasting
- ✓ Shelfware identification
Market Intelligence
- ✓ Industry benchmark pricing data
- ✓ Successful clause templates
- ✓ Vendor negotiation playbooks
- ✓ Alternative solution mapping
- ✓ Exit cost modeling
Costif.ai provides the usage data necessary to decide which contracts to "Reject" and the market intelligence to negotiate these specific protective clauses during renewal cycles.
Key Takeaway
Don't wait for distress to read the fine print. Negotiate your "bankruptcy pre-nup" while you are healthy—while you have leverage, alternatives, and time.
Ready to Protect Your Enterprise?
Contact Costif.ai for a comprehensive contract review. We'll analyze your current agreements, identify vulnerabilities, and provide specific clause recommendations for your next renewal cycle.
Disclaimer
Costif.ai is an IT cost optimization and asset management consultancy, not a law firm. The information provided in this article is for educational and strategic planning purposes only and does not constitute legal advice. Contract negotiation and bankruptcy planning should involve qualified legal counsel familiar with your jurisdiction and specific circumstances.