Corporate Insolvency: What Happens with the domains?

Digital treasures are often found in the insolvency assets of bankrupt companies.

Businesses new and old are facing unprecedented challenges in 2020 and many have struggled staying solvent during these trying times, some are even taking the step to file for bankruptcy. While potentially tragic for the business, what happens to a company’s domain assets when they face insolvency?


The answer to this question is interesting from a domain investor’s point of view because insolvency may create unique possibilities for interested buyers. For example, the domain could go to a debtor, liquidated via auction or direct sale, or even allowed to expire.


If you have been following a company with an interesting domain or collection of domains, insolvency could create the opportunity you’ve been waiting for. But please note that the laws dictating the rules around insolvency and bankruptcy vary from country to country and state to state, so it’s important to seek the advice of a qualified expert to help develop an acquisition strategy.


Domains as Business Assets


Domains are part of a business’ estate and, if one is assigned, an administrator therefore has the possibility to sell these assets once all assets of a company are transferred to the administrator's power of disposal. A sale only makes sense if the domain still has a certain value at all. And buyers can be found for it.


Selling the domains is often a good way to service the creditors' claims from the proceeds. Here chances arise for all those who are interested in the domains that are marked for liquidation. Investors who deal in domains should therefore closely follow the insolvency proceedings.


However, insolvency does not necessarily have to result in a sale. With a domain it does not matter whether the owner uses it or not. Solvent companies often register domains for their portfolio and do not use them. However, renewals must be kept up with regularly.


In the case of insolvency, an administrator has the option to let a domain registration expire to avoid recurring renewal expenses in the event the domain cannot likely recover its carrying expense via its sale. If the registration is allowed to lapse, the domain would again be freely available for registration by any interested party. As usual, the winner will be who acts first.


Hosting Provider Treatment of Domains of Insolvent Companies

It is part of the daily routine for Internet hosting providers that customers go into insolvency. When this occurs and therefore no money is expected to be received, the provider has to consider how to proceed with the domain services being provided.


What happens with the domains is decided by the insolvency administrator, and the host most likely has to adhere to this decision. The administrator may have the right to choose whether to demand further performance of the contract or to refuse it. It may be that the provider must perform. This is also the case if the insolvent customer is significantly in arrears.


This means, for example, that the hosting provider may be required to continue to route traffic for the company’s domain. For the costs incurred from that point on, the provider will bill the insolvency administrator.


If, on the other hand, the administrator refuses further fulfilment of the contract, the provider can assert his claims. In this case, the hosting provider becomes an insolvency creditor.


Domains Belong to the Insolvency Estate

It is not unusual for the owners of a company to begin setting up a new company when their business is threatened with insolvency. What happens then to the domain used as the primary business address so far? The owners might be tempted to transfer it to the new company immediately and continue using it there.


For an online shop, for example, the domain is a valuable asset. This is because customers have become used to the name and enter it directly into the search engine. The owners, in all practicality, cannot afford to give up the web address. But is it allowed to transfer the domain just before insolvency?


In fact, this may not be a good (or legal) idea. After all, the domains are still assets of the original company and thus also to the insolvency estate that will soon be formed. If the owners attempt to transfer the domain to a new entity, they should expect to be challenged by the administrator who will attempt to bring the domain back into the insolvency estate or seek appropriate penalties or damages.


In 2009, the business OLG Saarland was facing insolvency and made a decision to transfer their domain to an employee. In this case, compensation for damages was actually paid. The insolvency administrators know what Internet addresses are worth today and look very closely at a company’s domain assets. Urgent transfers are immediately noticeable.


Utilizing the Assistance of a Professional Domain Broker

These days, as domains commonly become available in the context of an insolvency, which is the best method to secure the ones that catch your eye? It may be best to commission experts such as Sedo's professional domain brokers to help you negotiate the acquisition as our team has experience working with administrators handling domain asset liquidation. You get the benefit of individual attention and the broker will advise you on the steps involved negotiating with the administrator.



DISCLAIMER: Content provided in this article was translated from its original language and is intended for informational purposes only, should not be construed as legal advice, investment advice, or otherwise, and should not be relied upon or acted upon without retaining counsel to provide specific legal advice based upon your particular situation, jurisdiction and circumstances.