“It is a collapse that the German stock index Dax has not yet seen. Only a week has passed since payment processor Wirecard had to report that EY’s auditors had expressed doubts about the company’s balance sheet.
The Group has now filed for insolvency. The Management Board has decided to file an application for the opening of insolvency proceedings for Wirecard AG at the competent district court in Munich due to the threat of insolvency and over-indebtedness, according to an ad hoc statement from the company. It is being examined whether insolvency applications for subsidiaries of the Wirecard Group also need to be filed.
Obviously, the insolvency filing is the result of internal investigations within the company. Over the weekend, Wirecard found that 1.9 billion euros, which were recorded as balance sheets, were unlikely to exist.
The company announced this in a statement Monday morning. It also mentioned that the transactions behind the alleged assets could not have existed either. Further investigations have now probably led to the conclusion that Wirecard cannot survive given the holes in its own balance sheet.
For the banks, which have been negotiating the extension of credit lines amounting to 1.75 billion euros since last week, the insolvency came as a surprise. They had actually agreed to give Wirecard a few days. During this period, the company should examine its own figures in order to be able to present the financial situation better and more transparently. The consulting firm FTI Consulting was also involved in this.
For Wirecard, the ejection from the German stock index is practically sealed by the insolvency filing. But it will not be completed until 3 September. This is how long Deutsche Börse has to keep the company in the Dax because of its index rules. Under these rules, corporations are allowed to remain in the index even if they are shaken by scandals or balance sheet fraud. And even insolvency proceedings will not lead to a relegation from the index until the next regular review date. The Dax will therefore have a company with ongoing insolvency proceedings in its ranks for the first time.