Technology &
Internet Law

Data Protection & Insolvent Dotcoms

In the insolvency of a "dotcom" and indeed many "real world" businesses, the principal asset may often be the database of registered users. However, as the boo.com case showed with maximum humiliation for all involved, if you have not addressed the data protection issues from the outset, that asset may be worthless.

Under the Data Protection Act 1998, any UK company holding or using "personal data" has to comply with the Act irrespective of whether they are registered or have "notified" the office of the Information Commissioner of their use of such data. Failure to comply carries heavy penalties and in extreme cases may result in closure of a business by the Commissioner.

In addition, members of the public may now bring a claim for damages directly without the need to involve the Commissioner whose resources are naturally limited. All this means potential liability for unlawful users of personal data of the type contained in such databases. Unless a company can show that they informed the user on registration that their personal data may be transferred to outside companies or companies acquiring the assets of the company, the list becomes unusable.

In anticipation of the ‘due diligence’ process, evidence of such compliance should be put together - typically it will be necessary to have a copy of the site (with guaranteed date reliability) at various stages including at the point at which the database was first created or acquired, demonstrating compliance with the Act throughout.

Data protection terms will usually appear in a "privacy policy" or with other terms and conditions on the site. It is also necessary to be able to prove that the terms were prominent and indeed possibly that the user must have actually seen the terms (not merely relying on the existence of a hyperlink to the terms involved). Given the importance of the asset in a ‘dotcom’ insolvency, it is essential to undertake an early review of the data protection "evidence" which will typically have been neglected by the company when solvent, unless very well advised from the start.

NEED TO KNOW MORE?

For further information, contact Maitland Kalton or Julian Danobeitia.  Should you prefer to telephone, call us on +44 (0)207 278 1817.

Kaltons Solicitors, Suite 302, Spitfire Studios, 63-71 Collier Street, London, N1 9BE. Telephone +44 (0)20 7278 1817; Fax: +44 (0)207 278 1835.

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