A couple of days after the arrest of its ousted CEO, the payments giant Wirecard collapsed on Thursday with a debt to creditors worth almost $4 billion. The company had disclosed earlier this month a shortfall in its books which, according to its auditor EY, was the outcome of a sophisticated global fraud.
Filing for insolvency procedures at a Munich court, the payments company said that its survival as a going concern was “not assured” in the wake of a debt of 1.3 billion euros ($1.5 billion) that is due to be served within a week.
It was just about a week that EY, the auditor of the company for more than a decade, refused to sign off the 2019 accounts of the company. That resulted in the ouster of its Chief Executive Markus Braun and the company acknowledging the non-existence of $2.1 billion of its cash.
“There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world,” EY said in a statement. The auditor was provided with false confirmations in relation to the escrow accounts which prompted the auditor to refuse to sign the 2019 accounts, EY said. It then reported the matter to the relevant regulators.
There have been no comments available from Wirecard after EY issued its statement.
It was just two years ago that the financial technology company managed to get a spot in the top 30 listed companies of Germany with a market valuation of $28 billion and turned out to be the first company in the prestigious DAX stock index to go bust.
“The Wirecard case damages corporate Germany. It should be a wake-up call for reforms,” said Volker Potthoff, chairman of corporate governance think-tank ArMID.
According to reports quoting sources, there is little chance that the creditors would get back the 3.5 billion euros they are owed. Of the total debts owned by Wirecard, the company had borrowed 1.75 billion from 15 banks while also issuing bonds worth 500 million.
“The money’s gone,” one banker was quoted in the reports as saying. “We may recoup a few euros in a couple of years but will write off the loan now.”
Some of the previous collapses of German companies have been dwarfed by the collapse of Wirecard which was once one of the hottest fintech companies in Europe.
The financial establishment of Germany has been shaken up by the collapse which was described as a “total disaster” by Felix Hufeld, the head of regulator BaFin.
There was an 80 per cent drop in the shares of Wirecard, which were suspended ahead of an earlier announcement that the company would be seeking creditor protection.
EY, one of the world’s “Big Four” accountancy and consulting firms, faces a wave of litigation in a debacle that has drawn comparisons with Arthur Andersen’s disastrous oversight of U.S. energy company Enron.
It would file class actions against EY on behalf of shareholders and bondholders now that Wirecard has been effectively sidelined, said German law firm Schirp & Partner.
“It is frightening how long Wirecard AG was able to operate without being objected to by the auditors,” partner Wolfgang Schirp said.
(Adapted from Reuters.com)