Model Trade Book Contract

28.

Insolvency.

If Publisher becomes insolvent or fails to pay its debts as they become due, or if it makes an assignment of its assets for the benefit of its creditors or otherwise liquidates its business, this Agreement shall terminate immediately, and all rights granted to Publisher shall automatically revert to Author, subject to the terms of this Agreement.

Commentary

Most publishing agreements contain a clause that automatically terminates the contract upon the publisher filing for bankruptcy. While this clause appears to be favorable to you, it actually offers very little protection against your publisher's insolvency. Once a bankruptcy petition is filed, control over the publisher and its assets are in the hands of the bankruptcy court. All rights in the work held by the bankrupt publisher are considered assets, and contractual arrangements will not override federal bankruptcy law and the court's control over those assets. Thus, your potentially unpublished (or even published) work could be tied up for months or years without payment to you while the courts sort things out. Ultimately, your work could end up in the hands of almost anyone. Accordingly, the most effective way to protect your rights is timely termination of the agreement for publisher's failure to pay royalties and issue statements according to the schedule. This process is laid out in Section 8(b) of the Model Contract and discussed in the comments to that section.