The extensive legal examination of the Wirecard accounting fraud has produced its first concrete result – five and a half years after the collapse of the former Dax company. In a landmark ruling on creditor hierarchy, the Federal Court of Justice (BGH) clarified that shareholders are not entitled to compensation for their losses from the insolvency estate (case no. IX ZR 127/24). Germany’s highest civil court reaffirmed the established legal framework for insolvency proceedings, even when shareholder losses stem from criminal conduct by the company’s management. The latter point had been a key area of legal dispute.

Shareholders, the BGH’s Ninth Civil Senate emphasised, are not creditors. As owners, they bear the full risk of their proportional stake in the company. Therefore, „shareholders of an insolvent AG cannot participate in the distribution of the insolvency estate on the basis of their capital-markets-related claims for damages as ordinary insolvency creditors“, the court ruled.

This means shareholders’ compensation claims cannot be listed in the §38 Insolvency Code ranking table. Instead, they have a subordinated status. Banks, insurers, and bondholders must be compensated first. Shareholders are only entitled to compensation if the insolvency estate ultimately generates a surplus – which, as in the case of Wirecard, is almost never the case.

As a result, the defrauded shareholders of the former payments group will walk away empty-handed. The current insolvency estate of 650 million euros stands against financial creditor losses totaling 3.3 billion euros. This figure was calculated by the Munich public prosecutor’s office in the ongoing criminal proceedings against former CEO Markus Braun and two other former executives.

The BGH largely followed the arguments of Wirecard insolvency administrator Michael Jaffé, and of the bondholders. The case was initiated by Union Investment with a declaratory action. The asset manager for Germany’s cooperative banks argued that Wirecard’s leadership had fabricated a non-existent business model and misrepresented the company’s financial condition. This deliberate concealment of insolvency, it argued, gave rise to damages claims related to the purchase of the shares. Union Investment lodged claims of 9.8 million euros as an ordinary insolvency claim.

By doing so, Union Investment opened a pilot case. After Wirecard entered insolvency proceedings in August 2020, more than 50,000 shareholders filed damages claims totaling 8.5 billion euros. Including other creditor claims, the total amounted to 15.4 billion euros, as per the BGH.

Three years ago, the Munich Regional Court dismissed the action (case no. 29 O 7754/21). In the next instance, however, the Munich Higher Regional Court (OLG) ruled in favor of Union Investment in September 2024 (case no. 5 U 7318/22 e). That decision initially raised hopes among shareholders that they might recover at least part of their losses. The judges at the BHG have now overturned that ruling.

The BGH ruling is one element of the broader legal reckoning in the Wirecard affair. The criminal trial against the main defendant, Markus Braun, and two former executives has been underway at the Munich Regional Court for nearly three years. Prosecutors accuse the three of operating a fraudulent racket, falsifying accounts, and manipulating markets. Braun, who faces a lengthy prison sentence, has been in pre-trial detention since August 2020. A verdict is expected in 2026.

For Wirecard shareholders, the ongoing capital markets model case had long been one of the last remaining avenues to recover at least part of their losses. The Bavarian Supreme Regional Court (BayObLG), which is responsible for the proceedings, is reviewing the matter again. But an earlier ruling by the court in February had already dampened many investors’ hopes of holding former Wirecard auditor EY liable. According to the Bavarian Supreme State Court (BayObLG), claims for damages against the audit firm cannot be brought within the model-case proceedings. The court argued that the procedure is limited to bundling claims related specifically to misleading information provided to the capital markets.

The judges concluded that EY did not itself publish the falsified Wirecard financial statements and accompanying audit opinion – that had been done by Wirecard management. Claims against EY are therefore inadmissible in the model case. In total, around 8,500 shareholders have lodged claims, with the court hearing the case of a bank employee from Hesse as representative.

However, lawsuits against the auditor remain possible on the basis of alleged breaches of audit duties, the BayObLG emphasized – and there may be prospects of success. Germany’s audit regulator Apas found that EY had violated professional standards. In April 2023, Apas imposed a fine and a temporary ban on the firm from taking on new mandates. EY later accepted these sanctions.

Wirecard collapsed in June 2020 under the weight of heavy debt after it emerged that 1.9 billion euros supposedly held in trustee accounts in Asia did not exist. Following a special audit by KPMG, EY refused to sign off on the 2019 financial statements.