Wirecard collapsed today owing creditors about €3.5 billion after disclosing a gaping hole in its books in Germany's worst accounting scandal.
The payments company filed for insolvency at a Munich court saying that with €1.3 billion of loans due at the end of the month its survival as a going concern was "not assured".
Its implosion came a week after EY, its auditor for over a decade, refused to sign off the 2019 accounts, forcing out Chief Executive Markus Braun and leading Wirecard to admit that €1.9 billion of its cash probably did not exist.
EY said it had no immediate comment.
Wirecard is the first member of Germany's prestigious DAX stock index to go bust, barely two years after winning a spot among the country's biggest 30 listed companies with a market valuation of $28 billion.
Creditors have scant hope of getting back the €3.5 billion they are owed, sources familiar with the matter said.
Of that total, Wirecard has borrowed €1.75 billion from 15 banks and issued €500m.
"The money's gone," said one banker. "We may recoup a few euros in a couple of years but will write off the loan now."
The collapse of Wirecard, once one of the hottest financial technology companies in Europe, dwarfs other German corporate failures.
It has shaken the country's financial establishment, with the head of regulator Bafin saying this week the scandal was a "total disaster".
Wirecard shares, which were suspended ahead of an earlier announcement that it would seek creditor protection, crashed 80% when trading resumed. They have lost 98% since auditor EY questioned its accounts last Thursday.
EY faces a wave of litigation in a scandal that has been compared to Arthur Andersen's disastrous oversight of US energy company Enron.
Wirecard's new management had been in crisis talks with creditors but pulled out this morning "due to impending insolvency and over-indebtedness".
Its insolvency filing did not include its Wirecard Bank subsidiary, which holds an estimated €1.4 billion in deposits and is already under emergency management by Bafin.
A second source close to talks with creditors said that although the company had a healthy core, about two-thirds of sales had been faked in its accounts.
"There is no way that they could repay their total debt of €3.5 billion with that core, notwithstanding all the legal challenges ahead of them," the source said on condition of anonymity.
The ascent of Wirecard, which was founded in 1999 and is based in a Munich suburb, was dogged by allegations from whistleblowers, reporters and speculators that its revenue and profits had been pumped up through fake transactions.
Marksu Braun fended off the critics for years before finally calling in outside auditor KPMG late last year to run an independent investigation.
KPMG, which published its findings in April, was unable to verify €1 billion in cash balances, questioned Wirecard's acquisition accounting and said it could not trace hundreds of millions in cash advances to merchants.
"Today is a complete vindication for those that exposed the fraud," said Fraser Perring, who bet on a fall in Wirecard's shares and co-authored a 2016 report that alleged fraud.
The Munich prosecutor's office, which is already investigating Braun on suspicion of misrepresenting Wirecard's accounts and of market manipulation, said: "We will now look at all possible criminal offences."
Former CEO Braun was arrested on Monday and released on bail of €5m a day later. Former chief operating officer Jan Marsalek is also under suspicion and believed to be in the Philippines, according to justice officials there.