Rallying Vendors Affected by Digital River Payment Issues for a Class Action Lawsuit

[theProsecutor]

It is worth considering delayed bankruptcy but it may be a wrong path.

Before delaying bankruptcy, the company must be insolvent. Most likely the company was not insolvent.

Insolvency comes after February 1st, when the company for which they guaranteed the credit does not pay the credit. So they filed for bankruptcy before actual insolvency.

They took the money from the buyers, had the money, were able to pay the debts to the software companies, just that instead of paying the software companies chose to do something else with the money.

[sft234]

Most likely the company was not insolvent.

Well - when a company can't pay its obligations based on contracts the company is insolvent. Period. Most merchants haven't been paid anymore since July 15th.

[theProsecutor]

Most likely the company was not insolvent.

Well - when a company can't pay its obligations based on contracts the company is insolvent. Period. Most merchants haven't been paid anymore since July 15th.

You're right in layman's interpretation but not in legal interpretation.

Remember the famous phrase "merchant debts are not recognized as valid obligations"? They know what they say. Without a court order, merchant debts are not legal debts and nobody can force them to pay. Until a court order is issued, they pay voluntarily if they want to stay in the business.

Has someone got a Court Order to recover the debts? No!

Because of the business nature, even with a Court Order from a merchant, it's hard to become insolvent just from this. They are a middleman - just sell something that does not belong to them and take a commission.

[CHANGSIKJANG]

Please include me. Digital River didn’t pay me about 90000 USD for past 7 months!

[CHANGSIKJANG]

Is it a good idea to go to the German office and protest against them saying 'They stole my money'?

[yps]

Everything would have been fine if they had just collected the money, waited for the end of the month, kept their commission and transferred the remainder to the vendors, a few days into the next month. As they did for, literally, decades.

I supposed what happened is, they noticed that they had a huge amount of money on their bank accounts, especially close to the payout date (which was always around the 15th of the following month, for me, at least).

So assuming the turnover was more or less the same every month, and they paid halfway into the next month, they had between 50% (shortly after payout date) and 150% (shortly before next payout) of the monthly turnover on their bank account.

Maybe they thought it was a good idea to take these 50% from their bank account and use that money on something else, for example lending it to their parent company.

Just look at the latest publically available yearly report (for 2022). As of 31/12/2022, they had merchant debts of €21.7m, but only €8.6m on their bank accounts. At the same time, their parent company owed them €47m.

This may have worked well as long as the turnover remained the same. But if it suddenly collapses, you run into trouble, because you have not collected enough "new" money to pay the vendors for the last month. So it might well be the case that the ban of Kaspersky plays a certain role here. But only because DR spent our money on something else in the first place.

[yps]

Is it a good idea to go to the German office and protest against them saying 'They stole my money'?

The German "office" is only a mailbox, and a contractor who scans all mail and sends the PDFs to Minnesota (or wherever). Nothing to see there.

[theProsecutor]

Everything would have been fine if they had just collected the money, waited for the end of the month, kept their commission and transferred the remainder to the vendors, a few days into the next month. As they did for, literally, decades.

I supposed what happened is, they noticed that they had a huge amount of money on their bank accounts, especially close to the payout date (which was always around the 15th of the following month, for me, at least).

So assuming the turnover was more or less the same every month, and they paid halfway into the next month, they had between 50% (shortly after payout date) and 150% (shortly before next payout) of the monthly turnover on their bank account.

Maybe they thought it was a good idea to take these 50% from their bank account and use that money on something else, for example lending it to their parent company.

Just look at the latest publically available yearly report (for 2022). As of 31/12/2022, they had merchant debts of €21.7m, but only €8.6m on their bank accounts. At the same time, their parent company owed them €47m.

This may have worked well as long as the turnover remained the same. But if it suddenly collapses, you run into trouble, because you have not collected enough "new" money to pay the vendors for the last month. So it might well be the case that the ban of Kaspersky plays a certain role here. But only because DR spent our money on something else in the first place.

That's an absolutely correct analysis. They used to transfer the money to their parent company and then, most likely, to their own pockets.

By the way, their actual commission was much higher than the percentage they stated. Outrageous hidden currency exchange fees as high as 10%, and lately support fees, service fees and so on. They never provided a clear situation of the actual fees. But if you manually calculate, in some cases, you will come to even double or more the percentage stated.

[ssec]

Barry and his mob are liquidators they wind down bankrupt companies. They had 6 months to prepare for this. They obviously were paid by Siris capital to finish up the company once it was clear there was no future (in july) . Payment received by Barry from Siris off the books obviously. If you bring them to court , don't forget Siris capital role in all of this. We are not owed much but would love to join a group of vendors bringing them to court.

[OliverDocklight]

You're right in layman's interpretation but not in legal interpretation.

Remember the famous phrase "merchant debts are not recognized as valid obligations"?and take a commission.

This is also only a German layman answering , but... IMHO the obligation is valid: Digital River GmbH issued credit notes which in Germany have the same legal status as if the software vendor had issued an invoice to them. Here is a (German, but easily translatable) overview:
https://www.buhl.de/meinbuero/gutschrif ... umgekehrt/

Now, DR GmbH might try to dispute these claims, but since THEY issued these credit notes, and THEY in all their communication promised they would eventually pay out what the credit note says, and were actively requesting KYC stuff to be able to pay out, my view is that there is no substance in court for the "merchant debts are not valid obligations" position.

There is also a second issue that especially for the larger claims might be interesting to the authorities: The credit notes to German businesses include German VAT 19%. And DR might have reclaimed that VAT portion in their VAT decleration ("Umsatzsteuer-Voranmeldung") and actually received money back from the German state. So there might or might not be VAT fraud involved.

[yps]

Digital River GmbH issued credit notes which in Germany have the same legal status as if the software vendor had issued an invoice to them.

Exactly. Credit notes are the same as invoices, just issued by the other party.

And one important detail is, if no party disputed these credit notes (invoices), they are "due and enforcable" ("fällig und durchsetzbar"). Which means that you can set off any claims that D&R might have against you, even if DR is bankrupt. See here (in German): https://www.cmshs-bloggt.de/insolvenzre ... insolvenz/

In my case, there is one unpaid credit note, and one invoice of almost the same amount, because of all the refunds I did. Of course I never paid that invoice (I actually disputed it because they also charged me platform and support fees, even though I terminated by account before MSA 6.3). But I can, and will, just say "please set it off from your open credit note". And that's even possible after an insolvency, if certain conditions are satisfied. But ask your lawyer to confirm.

[buttermilk]

BTW, how were they able to request KYC and review our bank statements while we still know nothing about their financial problems? So so boring.

[theProsecutor]

You're right in layman's interpretation but not in legal interpretation.

Remember the famous phrase "merchant debts are not recognized as valid obligations"?and take a commission.

This is also only a German layman answering , but... IMHO the obligation is valid: Digital River GmbH issued credit notes which in Germany have the same legal status as if the software vendor had issued an invoice to them. Here is a (German, but easily translatable) overview:
https://www.buhl.de/meinbuero/gutschrif ... umgekehrt/

Now, DR GmbH might try to dispute these claims, but since THEY issued these credit notes, and THEY in all their communication promised they would eventually pay out what the credit note says, and were actively requesting KYC stuff to be able to pay out, my view is that there is no substance in court for the "merchant debts are not valid obligations" position.

There is also a second issue that especially for the larger claims might be interesting to the authorities: The credit notes to German businesses include German VAT 19%. And DR might have reclaimed that VAT portion in their VAT decleration ("Umsatzsteuer-Voranmeldung") and actually received money back from the German state. So there might or might not be VAT fraud involved.

Now, it makes no sense for them to dispute these claims. But do you think there's any money left in the house after it has been looted?

When they said "merchant debts are not valid obligations" they meant that, at that moment, they hadn't been legally obliged to pay anything, since there hadn't been issued any court order. They indeed were contractually obliged but they can dispute this in the court, even though they know they are not right and will lose. This way they gain time and this is what they wanted.

[alexcmn1]

>they hadn't been legally obliged to pay anything

Does the confirmation of debt and promise in support ticket to pay "immediately" can be considered as "obligation"?

[theProsecutor]

>they hadn't been legally obliged to pay anything

Does the confirmation of debt and promise in support ticket to pay "immediately" can be considered as "obligation"?

They can be used as a proof in case of a legal dispute for breaching the contract.

If one party fails to fulfill their contractual obligation, the other party can seek legal enforcement through the courts. The court may order remedies like damages or specific performance, making the originally voluntary contractual obligation a legally enforceable matter.

There is no other way than the legal one to prove that a contractual obligation exists and to force its fulfillment.

If the invoice is "due and enforceable" ("fällig und durchsetzbar"), it still must be enforced via legal means such as a collections agency.