Disclaimer. I am a lawyer under my real name, but I don’t practice bankruptcy (although I did practice creditor’s rights at one time and thus have a general understanding of the BK process and rights to assets) and I probably don’t practice in your state. By reading this, there is no attorney client relationship created and take anything you get for free with a grain of salt. I am tackling this subject in the interest of informing authors of something to be aware of… but this is not the definitive answer on the subject. If you find yourself in this situation, seek the advice of a competent Bankruptcy attorney.
Triskelion Publishing has gone Bankrupt… formally, having filed Chapter 7 in their home state of Arizona. Now, that’s not a big blip outside the romance industry. Triskelion was predominately a romance e-publisher. However, they did take books to print and had them shelved at various nationwide booksellers. They were Romance Writers of America Certified . While RWA’s standards merely indicate that the publisher pays royalties, is not a subsidy or vanity press, has been in business a minimum of 1 year and has sold at least 1500 hardcover or trade paperback or 5,000 in any other format of a single title, it is not a guarantee of the publisher. What it does tend to show is Triskelion was not a fly-by-night operation. They had a decent showing of authors. Their authors had decent sales numbers.
Why are we here? Because it brings to light something that authors rarely think about… what happens if your publisher goes bankrupt?
Most publishers have a clause in their contract that deals with what happens if a publisher becomes insolvent and files for bankruptcy. Usually, they state something along the line of if the publisher becomes insolvent and files for bankruptcy protection all rights revert to the author. Now neither of the publishers I deal with have this clause in their contracts. Know why?
Because it damn near meaningless.
That type of clause is known as an Ipso Facto clause and generally held to be invalid by 11 U.S.C. §541(c)(1)(B) and §351(e) . In limited situations these clauses can be upheld. However, as illustrated in In re Southern Pacific Funding Corp., 268 F.3d 712, 716 (9th Cir. 2001) these clauses are ineffectual at protecting authors’ rights.
In re Avalon Software, Inc., 209 B.R. 517 (Bankr. D. Ariz. 1997) is illustrative. The Author of the Software program lost all their rights to the program in the bankruptcy court because their copyright was not protected. The bankruptcy clause in the contract was considered null and void and the bankruptcy trustee was allowed to seize control of the asset in order to create the biggest “pool” of assets for the secured creditors. And while software is not books, it is instructive of how much control and deference the Trustee has.
The BK trustee can accept, reject or modify any agreement effectively causing one creditor – and an author owed royalties is a creditor – to bear a heavier burden. This is where I have dealt with the bankruptcy courts. I used to have to petition, routinely, for my clients to be allowed to retrieve the property they had leased (rented) to a bankrupt company. By extrapolation an author is, in effect, leasing the right to use their work for the publisher’s and author’s benefit. There were several hurdles that had to be jumped in order for property to be returned. One of them was: if the property was material to the continued operation of the debtor in possession (the bankrupt entity) the bankruptcy court with the advice of the trustee had the discretion to not allow the property to revert to the owner. Basically, the bankrupt entity could continue to use the property most times rent free (or at a reduced rent at the trustee’s calculation) until such time as the company either came out of BK or was dissolved by the bankruptcy court, not necessarily the term of the contract. Now, I dealt with tangibles (like simi-trucks) but the way the law reads, it applies both to tangible and intangible assets. The intangible right to sell your books (or the back-stock of printed material) are pretty much the only assets held by a publisher.
What advice can you take away from this? Maybe that you’re not as protected as you think. Even the best publishers can fail, locking your work up in court.