Troubled fintech company Wirecard, which powers many of the crypto debit cards on the market, has reportedly filed to open insolvency proceedings.
As reported by Wall Street Journal and others, Wirecard filed an application with the Munich district court to begin preparing for insolvency resolution procedures.
The company cited its “impending insolvency and over-indebtedness” as motivation for the filing, alluding to the $2.1 billion of its balance sheet that went missing.
Events unfolded quickly for Wirecard since discovering that 32% of its balance sheet never existed. The company quickly became leaderless as the founding CEO and other top executives resigned, with the former subsequently being arrested on Tuesday.
Insolvency, but not yet bankruptcy
Calling for insolvency implies that the company is unable to meet its debt obligations in the short term, either due to negative cash flow or a negative net asset balance. Given the scope of the incident, this appears to be a case of the latter.
According to its latest financial filing in 2018, the company has a net income of about $350 million, though given recent history, investors may want to take a closer look at the numbers.
During insolvency procedures, companies will generally enact drastic measures to stay afloat, such as cutting staff and expenses, restructuring debt, selling a portion of its assets and others.
Bankruptcy occurs when the company is completely unable to pay its debt obligations. While insolvency is a prerequisite of that, it does not indicate complete failure of the company.
As Cointelegraph previously mentioned, Wirecard is the issuer of many crypto debit cards including those of Crypto.com, Cryptopay, some Wirex cards and TenX.