EY tries to wriggle out of legal liability - how aggrieved Wirecard investors go on the counterattack

Very unusual things are currently happening at Ernst & Young Wirtschaftsprüfungsgesellschaft ("EY"). Aggrieved Wirecard investors are preparing to counterattack.

What EY is currently doing: Double change of legal form

On 29 January 2024, EY passed a resolution in accordance with the German Reorganisation Act (Umwandlungsgesetz, UmwG) and changed its legal form to that of a limited partnership (KG). EY's four key service lines - audit, tax, strategy and consulting - joined this limited partnership as limited partners. Three of these service lines, namely tax, strategy and consulting, had a special right of cancellation, meaning that they were allowed to leave the limited partnership immediately after its formation and withdraw their own business. All experts agree that this was an extremely unusual contractual arrangement, this "quick in and out".

And lo and behold: Immediately after this conversion decision, namely on 1 February 2024, tax, strategy  and consulting exercised their special right of termination and left the newly founded KG immediately. The "quick in and out" was therefore implemented within a few days.

The result of this double change of legal form:

1) The formerly unified German EY company, to which all four "service lines" belonged with their entire business, is now only a limited partnership (KG) with significantly reduced business volume. In addition to an insignificant general partner, this limited partnership now only includes the auditing department as a limited partner. This shrunken KG continues to be liable for the Wirecard scandal.

2) The three other "service lines", i.e. tax, strategy and consulting, are also liable for the Wirecard scandal for a further 5 years. After that, however, they will be exempt from liability unless they can be brought to justice first. 

What EY says about the process: "Everything is completely harmless", "Nothing to do with Wirecard"

EY claims that the change in legal form has nothing to do with liability for the Wirecard scandal. Allegedly, EY Germany only wants to adapt its legal structures to what is customary in other countries.

How Schirp & Partner Rechtsanwälte assess the process

Schirp & Partner Rechtsanwälte in Berlin/Germany, who are representing the largest group of aggrieved Wirecard shareholders who brought legal action before the Munich courts against EY, assess the situation differently. Dr. Wolfgang Schirp says:

„We believe that EY is not telling the truth. We are convinced that EY is primarily concerned with limiting liability for the Wirecard scandal and getting the three fleeing "service lines", i.e. tax, strategy and consulting, out of liability. A nasty trick that EY is trying to pull! But the good thing is: If Wirecard plaintiffs act decisively now, they can beat the opponent at its own game and put themselves in a position where EY has to come to an agreement with them.“

What needs to be done: Request collateral

In the case of reorganisations and changes in legal form, such as those carried out by EY here, creditors have the right to demand collateral if the fulfilment of their claims would otherwise be jeopardised. This is regulated in Section 22 of the German Reorganisation Act (UmwG). These conditions apply to the Wirecard plaintiffs. Plaintiffs should therefore issue such a request for collateral. Dr. Wolfgang Schirp points out two main aspects:

„The requirements for a request for security pursuant to section 22 of the German Reorganisation Act are met. In particular, there is no doubt that the enforcement of legal claims is jeopardised if EY is allowed to shift liable assets.“

„A very important question will be against whom plaintiffs can enforce the request for security. It is clear that plaintiffs can make a claim against the remaining KG, although this has now been reduced in size. This means that, in terms of economic substance, they can lay their hands on the auditing division. However, the three "fugitive" service lines, namely tax, strategy and consulting, are the ones they will not catch.“

„At first glance, it is not entirely clear whether plaintiffs can also lay their hands on the three "fugitive" service lines, i.e. tax, strategy and consulting, with a request for collateral. Still, after careful consideration we answer this question in the affirmative. This is because the double change of legal form (conversion resolution and immediate withdrawal of the three fugitive "service lines" from the KG) must be viewed as a single overall transaction from an evaluative perspective. This is primarily because the special right of termination for the three fugitive service lines was already provided for and regulated in the transformation resolution of 29 January 2024, including a provision on how the business is to be withdrawn from the KG. If the double change of legal form of 29 January / 1 February 2024 is therefore, from a legal point of view, a uniform process, then plaintiffs can direct their request for collateral against all newly created legal entities, including the three fugitive "service lines“. And this is absolutely what they should do".

For further information, please contact:

Dr. Wolfgang Schirp, Schirp & Partner Rechtsanwälte mbB, Leipziger Platz 9, D – 10117 Berlin, tel. 0049-30-3276170, mobile 0049-179-5320213, mail: schirp@schirp.com, URL: www.schirp.com