What Happens to Authors when a Publisher Goes Out of Business?

[Carlyle Clark]

I had a friend who had the misfortune to sign with a major Independent Publisher just when they were beset with all financial troubles and a number of obligations in her contract were not met by the publisher, including her advance. Fortunately, that’s all been worked out. But it got me thinking.

What happens to an author’s works when the publisher actually does go belly-up?

Is that normally spelled out in the contract? Would it be a big deal if an author wanted the rights to revert to them if the publisher went out of business or does that defacto fall under the out-of-print clause in a lot of contracts? Do you lose your right to your royalties—as in all money that comes in to the publisher goes to payback creditors like in a bankruptcy or would you still get paid? Might you have to take a pro-rated rate?

[KatG]

I had a friend who had the misfortune to sign with a major Independent Publisher just when they were beset with all financial troubles and a number of obligations in her contract were not met by the publisher, including her advance. Fortunately, that’s all been worked out. But it got me thinking.

What happens to an author’s works when the publisher actually does go belly-up?

Is that normally spelled out in the contract? Would it be a big deal if an author wanted the rights to revert to them if the publisher went out of business or does that defacto fall under the out-of-print clause in a lot of contracts? Do you lose your right to your royalties—as in all money that comes in to the publisher goes to payback creditors like in a bankruptcy or would you still get paid? Might you have to take a pro-rated rate?

It basically depends on how they are going out of business. Yes, there is usually some language in a contract that deals with what happens if the publishing company is bankrupt, insolvent, dissolved, etc. And there is usually language about what happens if the publisher fails to publish within a certain period of time, barring unpreventable acts (force majeure.) And if you don't have that language in your boilerplate contract, you certainly want to get it in there during finalizing negotiations. It also depends on where the book is in the process.

If the book has not yet been published or was not in production, then the contract can be cancelled and the author would probably need to return any monies advance to him and in return, rights would be reverted to the author with the cancellation. However, if the book has been published, it gets a lot more complicated, as the license has been completed and the publisher can sell off its inventory or already has that inventory sold on consignment to vendors. If the publisher files for bankruptcy, it gets very complicated as bankruptcy laws can supercede the terms of the contract regarding publisher dissolution and instead of a rights reversion, the author can find the license tied up for some time. If another company is bailing out the publisher, then the author's book is part of the assets of the publisher that may be transferred to this company as an assign, and therefore, the rights could be tangled up for a few years. In most cases, eventually, an author can get the rights back. But in some cases it has gone to arbitration, etc. to do that if the publisher's finances and assets are complicated.

The key thing is to make sure there is some language in the contract dealing with the issue, as that at least helps in working out solutions.