[adrianpike]

This case is one I'd be pretty careful about though as a former employee - the situation the company's found themselves in is pretty indicative of mismanagement, and desperate people do desperate things.

IANAL, but a hold harmless agreement would be a simple CYA that I'd do if I was personally in this situation.

[Piskvorrr]

Indeed. That's why I wrote, in essence "if you start with 'you surely HAVE our code, GIMME!!!!!'", the answer will always be 'nope', regardless of facts".