Wirecard AG will eliminate more than half of its staff, about 730 jobs, and make other “far-reaching cuts” to preserve cash as a Munich court opened insolvency proceedings against the embattled German payments company.
The court named lawyer Michael Jaffe to be permanent administrator in a statement on Tuesday. The current supervisory board will surrender its control of the company and may resign following the announcement. A representative for Wirecard didn’t immediately respond to a request for comment on the board’s status.
The rate the company was burning cash was “enormous” when Wirecard filed for insolvency and the company will have to be resized urgently, the administrators said in the statement. About 570 employees, including 350 at Wirecard’s insolvent entities, will remain in employment, Jaffe said. The management board’s contracts will also be terminated.
“The economic situation of Wirecard AG was and is extremely difficult in light of the lack of liquidity and the well-known scandalous circumstances,” Jaffe said in the statement. “The usual restructuring and cost-adjustment measures are therefore not sufficient, as such a massive loss situation is not feasible at full cost in the insolvency proceedings.”
Wirecard is at the center of a widening controversy over its accounting and business practices that’s raising questions about the regulators and auditors who were supposed to have oversight over the fintech. The company filed for insolvency in June after acknowledging that 1.9 billion euros (US$2.2 billion) it had listed as cash probably didn’t exist. Prosecutors have said that former executives knew about massive losses as early as 2015 and conspired to obtain billions of euros in fraudulent loans to inflate the books with fake assets.
The company has begun offloading assets to pay creditors. Last week, Wirecard agreed to sell its Brazilian business to a subsidiary of PagSeguro Digital Ltd., and the U.K. business reached an agreement in principle to sell some assets to Railsbank Technology Ltd. The sales process for the subsidiary Wirecard North America Inc. is also well advanced, the administrator said in Tuesday’s statement.
The first creditors’ meeting will take place on Nov. 18.
In April, Wirecard said supervisory board member Susana Quintana-Plaza had stepped down from the payment processor’s oversight committee for “personal reasons” and to allow the Galp Energia SGPS SA executive board member to focus on her other role.