The insolvency of a UK incorporated licensor will not usually affect the validity of an IP license and would not result in an automatic termination of an IP license.

The overall position of IP licenses needs to be assessed in light of the Corporate Insolvency and Governance Act (the "CIG Act") which was introduced as a bill into the UK Parliament on 20 May 2020, and came into force on 26 June 2020. The CIG Act effected significant changes to UK insolvency law in a number of areas, including in relation to ipso facto clauses (termination by reason of insolvency).

Section 14 of the CIG Act introduced a new section into the Insolvency Act 1986 which restricts the operation of such clauses in contracts for the supply of goods or services where a company enters into an "insolvency procedure" (e.g., the implementation of a CVA or a company going into administration or liquidation). The CIG Act does not include a definition of a "contract for the supply of goods or services" but the meaning is potentially broad. While each agreement would need to be assessed on a case-by-case basis, as a matter of ordinary language, a contract to supply services would be capable of including a contract under which one party agrees to allow another party to take use of IP rights. There also seems to be a good argument that it was within the intended policy of the legislation to preclude the operation of ipso facto clauses in relation to such agreements, since the continued ability to use IP rights may be essential to the ability to restructure a company.

On the assumption therefore that an IP license would be in scope of such provisions, there would be a prohibition on the termination of an IP license or 'doing any other thing' (e.g., amending payment terms) in respect of that contract, simply by reason of the company entering into an 'insolvency procedure' (even where the IP license gives a termination right in those circumstances). Other grounds of termination (i.e., that are not based on insolvency, such as non-payment) may still be utilized, if triggered following the entry of the Licensee into an insolvency procedure and it should be noted that the legislation incorporates "late triggers" meaning a Licensor is largely restricted from taking action at the point at which its Licensee is subject to a formal insolvency procedure of one sort or another but not prevented from terminating (if the IP License allows it) at earlier signs of financial distress or insolvency.

In the UK, there is no express statutory provision that deals specifically with the impact of insolvency on IP licenses, and IP licenses are treated in the same way as other contracts of an insolvent UK entity.

In the absence of any contractual provisions in the IP license dealing with insolvency, the UK insolvency of the licensor or the appointment of an insolvency office holder would not result in the automatic termination of an IP license granted by the UK licensor to a licensee. Generally, the key objective of any UK insolvency office holder is to either realize the assets of the licensor for the maximum amount possible or achieve the survival of the licensor. If preservation of the license is not considered to be in the best interests of the insolvent estate, the insolvency office holder could:

1. terminate the license (if there is a contractual right allowing them to do so);
2. cause the insolvent entity to repudiate or decline to perform, i.e., breach the license (giving rise to an unsecured and potentially valueless claim to the licensee for damages for breach of contract); or
3. if the company has appointed a liquidator, "disclaim" the license (the risk of the license being disclaimed is limited only to a company that has entered into liquidation); disclaimer is not available in an administration. A liquidator only has the power to disclaim "onerous property." Onerous property is (i) any unprofitable contract and (ii) any other property of the company that is unsalable, not readily saleable, or is such that it may give rise to a liability to pay money or perform any other onerous act.

The disclaimer of onerous property only operates to determine the rights, interests and liabilities of the company (i.e., the licensor) in the license, and it serves to release the company from its liabilities. However, it does not affect the rights or liabilities of another person or counterparty to a contract (i.e., the licensee). This means that if the licensor's liquidator disclaims the license, the licensee nevertheless retains the right to use any licensed IP, as the disclaimer only operates to release the insolvent company from its obligations and does not affect the rights of the licensee. Furthermore, where a liquidator disclaims an IP license, an entity with an "interest" in the IP in question (e.g., an exclusive licensee) can appeal to the court to have the property vested in it as per s 181 of the Insolvency Act 1986.