Wirecard collapse puts Aussie and Kiwi arms in the frame

George Lekakis

Wirecard’s German holding company has filed for insolvency, a move that casts uncertainty on the future of the group’s subsidiaries operating in Australia and New Zealand.

In a statement issued on Thursday the directors of Wirecard AG said they were unable to renegotiate terms for billions of loans with a consortium of bank lenders that included ING, ABN Amro and Commerzbank.

“The management board of Wirecard AG decided today to file an application for the opening of insolvency proceedings on behalf of Wirecard AG at the competent Munich Local Court due to the threat of insolvency and over-indebtedness,” the directors said.

“It is being examined whether insolvency applications must also be filed for subsidiaries of the Wirecard Group.”

Wirecard AG has been in negotiations with its lenders since last week following revelations that a cash item on its balance worth 2 billion Euros could not be accounted for.

However, the group was unable to restructure the schedule for repaying 1.3 billion Euros of loans that were due to expire on July 1.

“The Management Board has come to the conclusion that a positive going concern forecast cannot be made in the short time available,” the directors said.

“Thus, the company's ability to continue as a going concern is not assured.”

The collapse of the holding company is set to create fallout in Australia and New Zealand on a number of fronts.

Wirecard operates two Australian subsidiaries – Wirecard Australia Pty Ltd and Wirecard Australia A&I Pty Ltd.

Wirecard Australia Pty Ltd provides software management platforms for card transactions to a string of local ADIs including Bendigo Bank, ME Bank and Cuscal.

Little is known about the financial performance of this subsidiary.

However, closure of the Australian card technology business presents operational risks for the banks and credit unions that use Wirecard’s software.

In the current environment those risks would only be mitigated if a new owner was found for the business.

The second subsidiary – Wirecard Australia A&I Pty Ltd – covers merchant acquiring and card issuing operations. Most of this business was acquired from Citibank in 2018.

According to the latest set of financial accounts filed with ASIC this subsidiary was balance sheet insolvent at the end of December last year to the tune of $4.3 million.

The subsidiary has continued to trade with special financial support from its German-based parent, which pumped $10 million of fresh capital into the business in May this year.

While Wirecard AG is the ultimate parent of Wirecard Australia A&I Pty Ltd, the subsidiary might continue trading because its immediate parent is Wirecard Acquiring & Issuing GmbH – an entity that is not named in the insolvency filing lodged with German courts on Thursday.

However, the situation facing the Australian arms is precarious given the announcement by Wirecard’s group directors that they were considering whether the insolvency application should apply to all subsidiaries.

Another subsidiary - Wirecard NZ Limited – employs about 25 people in Auckland.

It made a loss of $NZ 8 million in 2018 and reported a net asset deficiency of $NZ3.5 million on 31 December 2018.

That precarious financial position required its immediate Wirecard parent to commit additional capital so that outstanding loans could be settled.