Wirecard AG is insolvent. The company announced on June 25, 2020 that it was submitting paperwork to the Amtsgericht München – the District Court of Munich – to open insolvency proceedings on account of impending insolvency and over-indebtedness. For the shareholders and bond investors, the accounting scandal and subsequent insolvency i
The British Financial Times has been reporting on accounting irregularities from as early as 2019. These reports were categorically denied by the company, which felt it necessary to commission a special audit. However, this brought no reprieve. On the contrary, the auditors criticized, among other things, the company’s willingness to cooperate and missing documents.
Nearly two billion euros missing
The accusations were borne out on June 18, 2020 when Wirecard AG was once again unable to present the annual and consolidated financial statements for 2019. The auditors refused to issue an audit certificate, pointing to a lack of evidence accounting for 1.9 billion euros supposedly held in escrow accounts at banks in the Philippines. Shortly thereafter, the company was forced to admit that the escrow accounts in question with a purported overall balance of just under 2 billion euros likely do not exist. Wirecard AG subsequently filed for insolvency, having issued 500 million euros worth of bonds as late as fall of 2019. The public prosecutor’s office is investigating the scandal on suspicion of, among other things, market manipulation and fraud.
Claims in connection with insolvency proceedings
Investors in stocks, bonds and derivatives are potentially facing enormous losses. If insolvency proceedings are opened, the creditors will be able to register to have their claims included in the insolvency schedule. Yet given the substantial liabilities, there will not be much left for them. The shareholders will find themselves right at the back of the queue, their claims treated as low priority (assuming there is still anything left to distribute). While things look a little rosier for investors as far as insolvency proceedings are concerned, they too should not expect to receive much. Even if individual parts of the business are sold and the sums generated go towards the insolvency estate, this is unlikely to be enough to satisfy creditors’ claims.
Asserting claims for damages
To ensure that not all their money is gone for good, investors can assert claims for damages. The pickings from the insolvent company are expected to be slim. Given the inflated balance sheet figures and suspicion of market manipulation, claims can also be directed against members of Wirecard AG’s executive and supervisory boards as well as the auditors. The latter rubber-stamped the balance sheets over the years despite blatant incongruities.
As lawyers with experience in the field of capital markets law, we can advise Wirecard investors on their legal options, including the possibility of damages claims.