posted on September 21, 2001 10:52:48 PM new
Paypal revised its Terms of Use yesterday, effective immediately, to include the following statement:
"PayPal will at all times hold your funds separate from its corporate funds, will not use your funds for operating expenses, and will not voluntarily make funds available to its creditors in the event of bankruptcy or for any other purpose."
This is the first time, AFAIK, that PayPal's terms have made any reference to the possibility that it might declare bankruptcy and what would happen to its users' funds in that event. (I believe it is also the first time that Paypal has assured customers that their funds would not being used to cover operating losses.)
While it's possible that this language is simply some lawyer's attempt to cover all possible contingencies, or an attempt to reassure those users who question Paypal's financial prospects or the manner in which it handles their funds, it's also possible that this represents actual preparations for a Chapter 11 reorganization. (In a Chapter 7 liquidation, Paypal wouldn't care what happened to the users' money; only if they intended to continue operating under Ch. 11 would protection of the users be a corporate priority.)
Whether this language would actually protect users in the event of bankruptcy is doubtful, since much of what happens in bankruptcy is not "voluntary", but that's a question that would need to be answered by an attorney who specializes in bankruptcy law.
posted on September 22, 2001 07:44:28 AM new
booksbooksbooks,
I do not think it makes any difference what PayPal states in their TOU. With bankruptcy, what is important is what ordered by the bankruptcy court.
posted on September 22, 2001 08:46:41 AM new
This is all abstract, a case of getting it in writing. There is no suggestion of anything other than that.
Consider what it says ... that, in the event of bankruptcy, PayPal will do everything it can to preserve customer funds for customers.
posted on September 22, 2001 08:50:52 AM new
Yes, I agree it is all abstract, with bankruptcy what is important is what is ordered by the bankruptcy court.
posted on September 22, 2001 09:02:20 AM new
I agree that it won't make much difference, but what concerns me is that Paypal suddenly feels the need to incorporate an attempt at bankruptcy planning into their TOU.
posted on September 22, 2001 09:36:47 AM new
Did you also happen to notice that PayPal has released a new feature where you can make purchase over the internet with funds from your balance from any merchant that accepts MasterCard? What is the PayPal Debit Bar? Personally I think it is a very clever feature. Now folks even without the PayPal debit card can make internet purchases.
I see the announcement nothing more than something to quell any fears some might have about leaving funds in their balance to use that new service.
posted on September 22, 2001 04:36:16 PM new
Hi - go read the thread on the main page
"Paypal rip off" and, combined with this thread, makes us a little worrisome as to what may be next.
PayPal is strengthening its User Agreement to clarify that, if you carry a
balance in your PayPal account, you continue to be the owner of those funds,
and PayPal will act as your agent to move those funds according to your
instructions. This is different than a banking service, where once you
place your money in a bank account, the bank is free to use those funds as
it chooses. Under the new User Agreement, PayPal is legally bound to place
your funds only in an FDIC-insured bank or in a highly-rated liquid security
until you decide to spend or withdraw the funds. As part of this
commitment, PayPal will also continue its practice of holding your money
entirely separate from its general corporate funds, and legally commits not
to make your funds available to its creditors.
We have made this clarification at the request of our customers and based on
legal advice, not out of any problems with our financial condition. Thanks
to the participation of you and our more than 10 million other customers,
our financial condition is strong. We work hard to keep it that way by
improving our service with new features that our customers request, like our
new Shop Anywhere feature.
posted on September 23, 2001 01:29:20 PM new
[q]This is different than a banking service, where once you place your money in a bank account, the bank is free to use those funds as it chooses.[/q]
this sounds like something RoofGuy woould utter. Super misleading!!1! Are you now saying PayPal is safer than your bank?
posted on September 29, 2001 07:50:06 AM new
I wonder if there is any connection between Paypal's revised terms of use concerning their policy in the event of bankruptcy and the news concerning the proposed IPO listing that was announced yesterday.
posted on September 29, 2001 11:43:02 PM new
$225 milion in equity funding so far; $231 in losses; I repeat my question: Is Paypal contemplating bankruptcy? That certainly looks more likely than a successful IPO at this point.
posted on October 1, 2001 09:35:41 PM new
My best bet is that all the work done in connection with the IPO caused someone in charge to realize that something was not being done precisely according to law. It wouldn't surprise me too if this were done to make PayPal look less like a bank, and thus subject to a whole different set of regulatory issues.
FYI, companies with 2 years worth of cash, who have just filed for their IPO, are not bankruptcy candidates. However, in response to the earlier poster, YES, this language does make a difference, the bankruptcy court doesn't control everything. The court only has jurisdiction of what rightfully belongs in the debtor's "estate" and that would NOT include funds held on behalf of another.
