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There are some really profound misunderstandings of how bankruptcy and credit work in this thread. Creditors are ranked by seniority and get paid out in order
by revel 3y ago
There are some really profound misunderstandings of how bankruptcy and credit work in this thread.
Creditors are ranked by seniority and get paid out in order by seniority. Equity is below every creditor and has been completely wiped out. Companies are not allowed to take cash or sell the furniture to pay out employees. That money is legally owed to creditors and attempting to stiff them is theft. I'm sorry to those affected at Convoy, but that is the reality of working at a startup that goes through a hasty liquidation. Convoy is not being "cheap" about this, as some are suggesting. Any "retention bonuses" are to keep executives around for long enough to unwind the company in an orderly fashion. Nobody is getting rich off failure; if everyone were to walk away there'd be nothing left and therefore nothing to recover and distribute. It's bad for everyone, but the alternative is worse.
As for the larger situation: Convoy were a digital freight brokerage. They acted as intermediaries between shippers and carriers and make money on the spread between the two. They got into trouble because the entire freight sector has been suffering a double whammy of cost increases due to inflation (ie. diesel costs) and a slowdown in demand. This has caused a number of carriers and brokerages to go bust. Freight brokerage has some other properties that make Convoy's situation particularly serious. In particular, carriers typically securitize their accounts receivable. In freight, this is known as "factoring." Convoy got stuck holding the bag after their partner carriers went under, having already paid them for their service, but still waiting for payment from the shipper.
Worst of all, Convoy had no exits because their only potential acquirers are in the same industry and are also getting completely crushed.
- stuaxo 3y agoI've worked in the UK for Glu Mobile, who were taken over by EA and all the UK and US staff let go. The US staff had to just go. I got my last month's pay + about 6 to 8 weeks.
- paulddraper 3y ago> who were taken over by EA Yes, what happens in an acquisition vs a insolvency are different.
- batmansmk 3y agoAll official information mentions “shutting doors” and “winding down” and not necessarily a bankruptcy. For instance, in the same space, Shone just returned part of the equity to the investors, paid comp to the execs for a full year, and us, employees, got jackshit.
- paulddraper 3y ago> paid comp to the execs for a full year IDK if Shone did things the most intelligent way, but the general story is not uncommon. Shareholders/creditors have a mess if the CEO and CFO walk out the door for their new job; it is financially beneficial for them to liquidate assets and shut the door. Shareholders/creditors don't have a mess when the engineer and a product manager walk out the door to their new job. That's how the logic works.
- Retric 3y agoThis stuff doesn’t require the CEO or CFO either. Receivership doesn’t even require the active participation of the board, so yes there’s some benefit of keeping existing executives around but that’s often offset by the costs of doing so.
- paulddraper 3y ago> Receivership doesn’t even require Cooperation of board/executives is not required but it is immensely helpful. "The easy way" vs "the hard way."
- pseg134 3y agoHow would it possible help in this situation? The game is over and everyone knows exactly where all the money is. It will just be distributed back to the creditors and then remaining to the shareholders. Who needs the CFO for that? Basically anyone could run that process.
- 3y ago
- User23 3y agoUnless the law has changed, in California back pay is senior to everything except tax debt. And the company officers are personally liable for it. It should work that way everywhere. Executives need to be incentivized to do layoffs while there’s still cash for it. Defrauding employees is a terrible evil.
- jefftk 3y agoHave you seen anything suggesting the employees are not getting their final paychecks? All I've seen is them not getting severance.
- hinkley 3y agoWe didn’t get our final check. The class action suit went on for several years and the lawyers got all the money. I believe I was entitled to something less that $100 in the end and I declined.
- cwilkes 3y agoSlight twist on that here: most employees are in Seattle and WA state law doesn’t mandate paying out unused vacation time. Most (good) employers do that when employees quit but they don’t have to.
- User23 3y agoWA state law is really quite employer and landlord friendly.
- chadash 3y agoJust to clarify your point about paying out employees... in what sense do you mean that? Some quick googling says that when a company goes into Chapter 7, employees become creditors for their unpaid wages, which means that they are at least in the same boat as other creditors (although it seems like they might sometimes be prioritized).
- jefftk 3y agoYour source is talking about unpaid wages (legally mandatory), but severance is additional (legally optional) payments the company chooses to make to support former employees.
- IG_Semmelweiss 3y agoAnd equity is legally subordinate to both of the above.
- hinkley 3y agoYou will rudely discover that the landlord gets paid their early termination fees and any back rent before the employees see a single cent. Unfortunately I had to learn this the hard way (as in I was lied to and assumed they were still going to pay us, and then the payroll money went poof)
- shiroiuma 3y agoThat sounds like bullshit (i.e., it shouldn't be this way, I'm sure you're correct). Being a landlord should entail a certain amount of risk: you're betting the tenant will be able to pay the rent, so you need to be careful choosing tenants, especially if they're companies, and moreso if they're companies with risky finances. Why should employees be prioritized below a property speculator?
- adriand 3y ago> Convoy had no exits because their only potential acquirers are in the same industry and are also getting completely crushed. Some great insights here and you clearly know the business. I’m curious about this last statement however. Just how badly are other players doing? Uber Freight just announced a major overhaul on a foundation apparently provided by their acquisition of Transplace [1]. There seem to be a number of synergies between Convoy and Uber Freight although I may be naive about that. In any case, I’m curious about your view on Uber Freight and whether they are viable or simply playing the long game based on deep capital reserves, and why you think they didn’t acquire Convoy (if that even makes sense as a possibility). 1: https://www.freightwaves.com/news/uber-freights-new-solutions-rebuilt-tms-procurement-wide-ai-use https://www.freightwaves.com/news/uber-freights-new-solution...
- macmccann 3y agoUberfreight is also doing very poorly. From my understanding the Transplace acquisition was somewhat of a merger/UF trying to get out of only the 3PL business and Uber is just trying to get UF's losses off their books. There are not as many synergies as you might think due to the way freight brokerages and their deals with shippers+carriers work. One reason UF didn't acquire Convoy: it only makes sense for a brokerage to acquire another brokerage if they can get more customers (shippers) from that acquisition. But most customers of UF are also customers of Convoy, and are splitting their loads amongst multiple brokers to diversify risk and commoditize brokerages. So if you're a shipper giving 20% of your business to Convoy and 20% to Uber Freight, you won't turn around and give 40% of your business to UF now that they've acquired Convoy, you'll just go find another broker to give your business to.
- oldtownroad 3y agoThere’s no obligation to run a company into the ground. If a company reaches a point where the end of its runway is in sight, and the company decides to let employees know that the company will be out of money in 2 months, to give employees time to start looking for options… that’s allowable and not some sort of theft from creditors. Many companies are open with employees about the state of the business. If you have less than 3 months runway and little prospect of any fundraising, tell your employees. You don’t need to steal money from creditors (?) to pay severance, you just gotta do your best to not blindside people who have rent to pay.
- LastTrain 3y agoNot paying employees for work already rendered is wage theft, which is actual theft.
- s1artibartfast 3y agoyou cant prosecute a dead entity for theft.
- jessriedel 3y agoCourts can pierce the corporate veil for failure to pay employees.
- s1artibartfast 3y agoSource? normally piercing the corporate veil requires serious executive misconduct.
- thereisnospork 3y agoIANAL, but my understanding is in agreement with the GP - failing to pay wages is de facto 'serious executive misconduct'. a probably relevant article: https://www.severino-law.com/blog/oqz4dx2ivdnzt7aqqrvbk9et11pu2c-s8ysd https://www.severino-law.com/blog/oqz4dx2ivdnzt7aqqrvbk9et11...
- s1artibartfast 3y agoThis however is not a bankruptcy case, but a wage theft case. Going through a perfectly legal bankruptcy procedure is very different than working your severs 72 hours a week for years without overtime then refusing to show up at court. This comports with my understanding that piercing the veil usually requires illegal behavior.
- thereisnospork 3y ago
- HWR_14 3y agoWhile in general what you are saying is true, employees owed wages are the highest seniority of creditor. As long as you were selling furniture for reasonable prices to make payroll, you should be fine.
- noobermin 3y agoIs the complaint that they are not paying remaining wages or that they are not paying severance?
- friendzis 3y agoSeverance IS wage
- dehrmann 3y agoWhy would you pay severance when declaring bankruptcy?
- closewith 3y agoObviously it depends on the jurisdiction. In countries with strong employees protections, redundancy payments have a high priority during administration.
- irjustin 3y agoErrrr how? [Edit] Legally how is it. Not just because it's commonly measured in months of wages
- friendzis 3y agoIt's not the way it is calculated. All payments attached to employment contract are wages, be it regular salary, bonuses, vacation pay or severance. Say the contract defines severance of 1 month for each full year worked capped at 3 months: at the moment contract reaches 1 year anniversary, the employee should be owed 1 month worth of severance upon contract termination
- dalbasal 3y agoWhat you are saying is true, but that doesn't mean a lot of underhanded "games" aren't played. "Nobody is getting rich off failure; if everyone were to walk away there'd be nothing left and therefore nothing to recover and distribute. It's bad for everyone, but the alternative is worse." Here's one such game. Executives, who enjoy information asymetry, and leverage can parlay this into one final earning event. Threaten to leave the company in disarray, unless they're paid. Coordinated, it's hard to say no to. Imagine if the top 5-10 execs at an otherwise ok startup coordinated a demand to double their pay/stock or everyone walks tomorrow. They time the move using inside knowledge of cash flow, making the demand irresistible. I'm not suggesting an alternative, but that doesn't mean a corpse isnt a feast for some.
- hef19898 3y agoThey paid their carriers before being paid by their clients? That is pretty bad cash flow management, and risk management. And it is decidedely not what forwarders I know do. Forwarders, e.g. DHL freight, rarely own their trucks and subcontract that out, much like a broker does. And those subcontracted carriers are usually the last to get paid in that line. Unless, of course, Convoy had to because all their carriers insisted on upfront payments for reasons. In which case Convoy was propably already screwed any way.
- ttymck 3y ago> Companies are not allowed to take cash or sell the furniture to pay out employees...Any "retention bonuses" are to keep executives around for long enough to unwind the company in an orderly fashion. Could you help me understand where the line is drawn?
- prasadjoglekar 3y agoThis line is drawn by the bankruptcy court, where creditors have a voice and agree to key management being in place for a wind down.
- ttymck 3y agoUnderstood. What about before bankruptcy begins? Who decides whether to pay severance, and how is that decision informed?
- vipbb 3y ago"Convoy got stuck holding the bag after their partner carriers went under, having already paid them for their service, but still waiting for payment from the shipper." This doesn't make any sense. What you're describing is normal course of business. Shipper pay terms are usually longer than when the carrier get's paid from broker. "Carrier's went under", doesn't make any difference. If the shipper doesn't pay, than that's a problem. But to say paying carriers that "went under" contributed to Convoy going out of business just isn't accurate.