[revel]

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.

[HWR_14]

While 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.

[twic]

In case anyone is interested in the gory details, the priority order of creditors is here:

https://usbankruptcycode.org/chapter-5-creditors-the-debtor-...

Wages are fourth priority, but only up to $12,850 per person (one month's salary at ~150k a year).

The three priorities above wages are child support (not really applicable to corporate bankruptcy i assume), liquidator's expenses, and some mildly complex case i don't really understand. Taxes are eighth, two behind grain farmers and fishermen (lol America).

[noobermin]

Is the complaint that they are not paying remaining wages or that they are not paying severance?

[batmansmk]

All 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]

> 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.

[oldtownroad]

There’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.

[adriand]

> 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-solution...

[macmccann]

Uberfreight 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.

[chadash]

Just 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]

Your source is talking about unpaid wages (legally mandatory), but severance is additional (legally optional) payments the company chooses to make to support former employees.

[hinkley]

You 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)

[vipbb]

"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.

[LastTrain]

Not paying employees for work already rendered is wage theft, which is actual theft.

[paulddraper]

> Not paying employees for work already rendered is wage theft, which is actual theft.

Correct.

I can only assume "companies are not allowed to pay out employees" refers to suggestions of severance, health care, etc. in this thread.

Not earned wages, which have high legal priority.

[s1artibartfast]

you cant prosecute a dead entity for theft.

[hef19898]

They 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.

[dalbasal]

What 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.

[User23]

Unless 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]

Have you seen anything suggesting the employees are not getting their final paychecks? All I've seen is them not getting severance.

[cwilkes]

Slight 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.

[ttymck]

> 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]

This line is drawn by the bankruptcy court, where creditors have a voice and agree to key management being in place for a wind down.

[stuaxo]

I'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]

> who were taken over by EA

Yes, what happens in an acquisition vs a insolvency are different.