Since the start of the COVID-19 crisis companies in the aerospace design and manufacturing sector have been particularly affected by the economic impact of the disruption to worldwide economies. Some have seen their orders and revenues drop immediately by sometimes 50% driven by the reduction in production of new aircraft.
These companies have had to quickly reduce costs and take advantage of any state support.
However, those with low cash reserves have seen the need to restructure through some form of merger, sale or even some type of insolvency process.
We have experienced this with some of our clients and have found some challenges over how software is treated in the transfer of ownership of the company.
We would like to summarise the key principles that should guide anyone in this process:
- All software is licenced as a “right to use” and, therefore, does not imply ownership.
This right to use is granted to the company or legal entity that originally purchased the right. Usually, these licences cannot be transferred and hence software cannot be resold as “second-hand” or passed to another company under the terms and conditions of licensing for the software. This applies to all software from Microsoft through to the most niche applications.
However, where a company is part of a group, in general most software companies permit some form of transfer or novation of the right to use to that other company when they are asked for consent to such a transfer. It is important that this is formally agreed as the two companies may have very different names and so any compliancy issues can be resolved quickly.
Warning: if a company is acquired, some software terms and conditions may also deem such an acquisition as a transfer and there could be a compliancy issue.
- A particular issue with transfers comes where a company enters a formal insolvency process, such as receivership, administration, or liquidation.
In the turmoil that can happen during insolvency proceedings, software licence agreements (SLAs) are often overlooked. This can result in the user of the software being non-compliant which may result in the application of financial penalties.
It is important that any company involved in the acquisition of assets or trade of a business under insolvency process takes advice from the software vendor as it may be possible that an agreement can be reached over the transfer which will avoid unforeseen costs.
This guidance is general and should not be taken as legal advice.