The accounting scandal facing Wirecard AG has ended in insolvency for now. Those who invested in Wirecard stocks and bonds find themselves faced with the question of whether they can claim damages.
The writing was clearly on the wall when Wirecard AG failed once again to present its annual and consolidated financial statements for 2019, with the auditors refusing to issue an audit opinion and the company shortly thereafter announcing that 1.9 billion euros supposedly held in escrow accounts in the Philippines probably do not exist. Wirecard AG later announced on June 25 that it was submitting paperwork to the Amtsgericht München – the District Court of Munich – to open insolvency proceedings due to impending insolvency and over-indebtedness.
Wirecard AG”s meteoric rise to the heights of the DAX is matched only by its dramatic fall. Once worth almost 200 euros, a single share is valued today at less than one euro. For those holding shares or bonds in the company, the collapse in value entails severe financial losses.
Wirecard shareholders cannot file to have their claims included in the insolvency schedule until insolvency proceedings have been officially opened. However, those anticipating a high insolvency dividend should not get their hopes up; shareholder claims will be treated as low priority, i.e. the claims of the other creditors will be given priority. While things look a little rosier for bond investors in this respect, they too should not expect to receive a large payout in the course of insolvency proceedings.
We at the commercial law firm MTR Rechtsanwälte note that Wirecard investors can assert claims for damages as a means of minimizing financial losses, citing a breach of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG). Wirecard may have breached its reporting obligations by including false information in mandatory stock market disclosures. Investigations by the Munich Public Prosecutor”s Office due to suspected market manipulation are already underway.
Following the events of the past few days, the scope of these investigations has widened. In addition to inflated balance sheet figures and blatant incongruities, suspected fraud is now also part of the equation. This means that board members and those responsible at Wirecard are facing possible claims for damages. The auditors who apparently rubber-stamped the balance sheets over the years, despite them showing sums that clearly never existed, may be facing the same fate.
Wirecard investors can turn to lawyers with experience in the fields of capital markets and stock corporation law.