Do keep in mind that at least in California unpaid wages are one of the only things that pierces the corporate veil, so management and investors are on the hook for them personally.
editing to add citation: California Labor Code Section 558.1
editing to add citation: California Labor Code Section 558.1
If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days.
Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
This may be better or worse for workers than being laid off.
Bigger companies will be able to float resources for a bit, but if it takes the FDIC more than a few months to sort it out there will be large second order effects.
I hope this hypothetical stays hypothetical, if the FDIC can announce that SVB has been acquired and all the deposits will be honored this will all be moot. But any company with a large deposit at SVB should probably be working off the assumption that they're going to have to make that $250k of insured deposits last for a while. At least until new information is released.
Why do you think it may take months for FDIC to do their job?
I think FDIC will pay the 250k on every account before Monday morning. Anything beyond 250k is not covered by 'deposit insurance'.
> acquired and all the deposits will be honored
SVB is effectively bankrupt. Buyers are going to get a good deal, and not sink their own bank.
It's everything above $250k, which is substantial, and which companies need, that will take a while to sort out. It's true that everything above $250k isn't covered by insurance, which means they may not get it, but SVB has assets, those assets will get sold, and first up to those assets is those who had bank accounts and to make them whole.
I wonder how much of YC's reputation was destroyed yesterday by this self-serving attempt.
It is unlikely that these companies won't have access to enough of their deposits to make payroll, and even if that rare case occurs there are many many alternatives available to them-- bridging from their VCs, from private lenders, etc.
Tan yesterday sounded a lot like that Zero Hedge guy back in 2009.
The government isn’t that simplistic that they’d accept that as a legal defense if they were going to enforce the law. Possibly if the executive could prove that they were defrauded by another exec or vendor with liability and they resigned as soon as they had information to that effect which coincidentally was on pay day, they could pull it off. Even then though as a corporate officer they have liability over how the company operates when they choose the people to do the job. As the other poster pointed out the liability for payroll pierces the corporate veil and that means they can’t just bail out and use the corporation as a legal shield.
He even managed to use the occasion to throw Ukraine under the tank treads, again.
Rather, it is illegal to not pay wages timely. It is more illegal to do it intentionally/wilfully vs. not, but it is illegal in any case.
https://www.kron4.com/news/bay-area/sfusd-still-struggling-w...
It does not apply to claims by employees against the corporation under foreign state wage and hour laws, nor could it.
People are acting like there's some set of circumstances that makes wage theft reasonable. Situations where management forces the employees to work for free under threat of being fired are exactly why the corporate veil should be pierced in these matters.
Second, even if the company is profitable, they might rely on income from other companies screwed over today. Those companies might not be able to pay their bills. If I'm Sentry, Render, Mongo, or any other number of companies that gets most of their revenue by providing services to startups, I'd be worried right now. Even big cloud providers like AWS and GCP will likely take revenue hits. Big companies can float resources while this debacle gets sorted out, but small companies cant. I'm sure there are a bunch of startups out there that had $2 million in the bank which would give them a good 18 months of runway, and are now trying to prioritize cost cutting measures to help make that initial $250k of insured deposits last as long as possible. And that's permanent lost revenue for those companies.
Third, I'm not saying wage theft is reasonable (it's not), and I don't think anyone else is either. I'm simply trying to point out that piercing the veil isn't some magic bullet here. If a company has to close up shop that's probably the worst of all worlds. Employees lose their jobs with little notice and no severance, office owners need to find new tenants (in an already tough office real estate market), healthy companies seeing ripple effects start belt tightening as well. And in the event that the full (or majority of) deposits from SVB are eventually released to the bankrupt company, where do you think that money goes? Right back to the shareholders. Employees are still screwed.
Piercing the veil makes sense in a typical situation where a company has gone bankrupt and they need to find a way to meet their final obligations, but it's a little more complicated in this situation. There are plenty of healthy companies that will be healthy again once the FDIC is able to release deposits.
I remember the early dotcom days where a company would hold your first paycheck!