[JumpCrisscross]

Clawback is one year for insiders, 90 days for all others [1]. We're describing something closer to simultaneity, where "the debtor enters into a severance agreement simultaneously with an employee’s termination" [2]. This is precedented for clawback, and would almost certainly be litigated given the number of employees involved.

TL; DR The moment you find the business insolvent, it belongs to your creditors. Many commenters are treating Convoy like a run-of-the-mill equity-funded start-up.

> No mention is made of creditors issuing lawsuits against rank and file employees

Most likely, the creditors would file an injunction and put the company into bankruptcy on the basis of management having essentially said that it’s insolvent.

> even for severance payments that were never in employment contracts, courts place them at/near the front of the line in bankruptcy proceedings

Closer to the middle [3]. With Toys ‘R’ Us, the creditors voluntarily provided the severance [4]. No court forced it. And it wasn’t provided by management or shareholders.

[1] https://www.americanbar.org/groups/litigation/resources/news...

[2] https://www.jonesday.com/en/insights/2010/09/fifth-circuit-a...

[3] https://sgp.fas.org/crs/misc/LSB10288.pdf

[4] https://www.vox.com/the-goods/2018/11/21/18106545/toys-r-us-...

[FireBeyond]

In [1], it'd be hard for a trustee to argue that making severance payments to rank and file employees is not something "made in the ordinary course of business" (which is a statutory defense against clawback).

Your reference in [2] refers to an executive, an "insider", which is exactly what I said - that there is precedent against allowing such payments to insiders (hence the one-year clawback window).

I still can't find any cases where unsecured creditors have successfully injuncted a bankrupt company from making severance payments to non-executive employees.

> With Toys ‘R’ Us, the creditors voluntarily provided the severance [4].

The creditors did no such thing. From your source, emphasis mine:

> Two of the private equity firms that used to own the defunct toy store have allocated $20 million to a severance fund that will be distributed in the coming months."

The mediators who were handling part of the bankruptcy proceedings agreed to administrate the disbursement of funds.

[JumpCrisscross]

> it'd be hard for a trustee to argue that making severance payments to rank and file employees is not something "made in the ordinary course of business"

Typically in exchange for value and in Chapter 11, where you’re trying to preserve asset values.

> can't find any cases where unsecured creditors have successfully injuncted a bankrupt company from making severance payments

Senior unsecured. Higher priority than employee claims.

> mediators who were handling part of the bankruptcy proceedings

Mediation is voluntary. In the Toys ‘r’ Us bankruptcy, the original equity was wiped and creditors took over. They may have owned both debt and equity. But they were acting qua former creditors.

I’m not going to argue who would win. What I will say is the creditors would sue. There would be months of litigation, not a smooth transition to handing the firm’s last cash to employees. (Different picture had they never issued debt.)