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Social Media Accounts, Bankruptcy

Social Media Accounts transferable in Bankruptcy Case

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With the growing importance of “social media assets” such as Facebook pages and Twitter accounts in business and litigation settings, proper standards for handling such content are being called on from decision makers and compliance bodies alike. The standards of protecting these assets slowly being explored, with this latest case creating a new precedent for the use and handling of social media accounts for business owners and their lenders in economic disputes.

In this latest bankruptcy instance (In re CTLI, LLC, Case No. 14-33564, 2015 WL 1588085 (Bankr. S.D. Tex. April 3, 2015). CTL) , former majority owner of Tactical Firearms LLC., Jeremy Alcede, took on the Bankruptcy Court for the Southern District of Texas and the reorganized debtor of the company, in an effort retain the Tactical Firearms Facebook Page and the Tactical Firearms Twitter Account as personal property and not assets of the reorganized debtor.

Whilst a bankruptcy claim was filed, Mr Alcede was managing several social media accounts, for both personal and professional use. A confirmation order requested him to “deliver possession and control” of “passwords for the [d]ebtor’s social media accounts” to the reorganised debtor.

Alcede refused to comply and stated that all social media accounts were personally his and had no affiliation with the debtor nor business. Whilst arguing this case, he changed the name of the Tactical Firearms Facebook page and began to post defamatory comments about the other shareholder and the bankruptcy proceedings.

Ownership of Social Media Assets

In light of an ownership dispute, the court made it their objective to decipher who was the owner of the Twitter and Facebook accounts associated with Tactical Firearms.

The court began their analysis with s.541, Bankruptcy Code, which states that all legal and equitable interest of the debtor in property becomes the property of its bankruptcy estate upon the filing of a petition. State law generally determines the property interest in bankruptcy proceedings and so, based on a history of inconsistent case law regarding the ownership of social media accounts, the court examined the actual and circumstantial evidence regarding the origin and use of Tactical Firearms’ Twitter and Facebook accounts.

Based on all evidence presented to the courts, the judiciary found that all social media accounts in question were the property of the debtor’s bankruptcy estate and were therefore the newly acquired property of the reorganised debtor on the grounds that:

  • the accounts were created in the name of the business
  • linked to the business’ web page
  • used for business purposes
  • occasionally maintained by business employees

In arguing that he was the rightful owner of the company’s Facebook page, Alcede stated he was the only individual with administrative access (through his personal Facebook account) and that status updates were often regarding his personal activities, opinions and beliefs. The court rejected these arguments on the grounds that he could easily reassign administrative privileges without compromising personal Facebook data, and that the disclosure of personal opinions and beliefs were not beyond the standard social media presence of a gun business. The court therefore ordered the debtor’s principal to refrain from posting and tweeting content that would be damaging to the repute of the reorganized debtors’ business on these accounts, and to transfer the control of the accounts to the reorganised debtor.

What is the future of Professional Social Media Accounts?

As social media is increasingly becoming a primary communication, branding and marketing tool for companies, the loss of a strong following of Twitter or Facebook followers could have a tangible knock-on effect to the operation of business and sales. Robinson & Cole Law firm, specialists in business litigation, find that “[F]or secured lenders or purchasers of distressed businesses, preserving social media assets could be important, if not essential, to preserving a business’s going concern value.”

This case provides a solid foundation of introductory measures and guidelines in establishing ownership of social media accounts and property interests in social media. These guidelines should be adhered to by lenders, purchasers and business strategists that are dependent on their social media presence and assets. By implementing a strong social media policy, clarifying ownership of social media accounts and archiving all communication businesses can safeguard their accounts and reputation in light of impending disputes. In light of a severe issue such as bankruptcy, lenders and associated bodies and parties should insist, in light of this case, for certain measures to be put in place to protect the future of a business depending on its online presence, following and reputation.

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