This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at Like stern, Capital belongs to RTL Deutschland.

For companies seeking a larger state guarantee in Germany, the route always leads through another company: PwC. For many years, the testing and consulting giant has also been responsible for running the guarantee program as a so-called federal mandate.

Those interested in a state guarantee send their applications directly to PwC. Experts from the Big Four group examine the applications and make recommendations, which are then decided on by the ministries. The mandatary also comes into play in the event of damage, when a default guarantee is drawn, for example because a company is insolvent and cannot repay a government-backed loan: PwC experts then examine whether the company has complied with all of the guarantors’ requirements and conditions.

Because of the influence on decisions for millions in state aid that comes with these tasks, the PwC contract with the federal government provides for regulations for possible conflicts of interest. Before each guarantee process, it is checked whether there are potential conflicts of interest – for example because PwC also acts as an auditor or advisor for the applying company (“conflict check”). So far, PwC has not violated the regulations in any case, assures the responsible Federal Ministry of Economics.

But in a current case at the luxury department store group KaDeWe Group, research by Capital is now raising doubts about this. This is about a dual role for PwC – as a federal government contractor on the one hand and the company on the other.

At the beginning of the corona pandemic in spring 2020, the luxury department store chain received a government guarantee. It has now found itself caught up in the maelstrom of Austrian investor René Benko’s foundering Signa Group and has been in self-administration insolvency proceedings since the end of January. This is a default guarantee from the federal and state governments for a working capital loan from the major bank BNP Paribas worth up to 90 million euros.

As is usual in such cases, the guarantors are also responsible for 90 percent of the loan amount in the case of the KaDeWe Group. The federal government is liable for half of the amount. The federal states of Berlin, Bavaria and Hamburg are liable for the other half, in which the company, in which the Thai Central Group holds 50.1 percent and Signa 49.9 percent of the shares, operates its three luxury department stores: Berlin’s KaDeWe and Hamburg’s Alsterhaus and the Munich Oberpollinger.

For the Federal Ministry of Economics, which is in charge of federal-state guarantees, its representative PwC has also been supporting the process at the KaDeWe Group since 2020. As early as 2021, “Manager Magazin” quoted from a report from the testing company, which was apparently created as part of the application process. Accordingly, experts from the Big Four group determined that the department store company had so far failed to provide “proof of a profitable business model (…)”. In addition, PwC also pointed out the burdens caused by Signa’s high internal rents – according to KaDeWe Group boss Michael Peterseim, non-market rents were the trigger for the bankruptcy filing at the end of January.

Nevertheless, the federal and state governments waved the guarantee application through at the time – while internal managers were happy about the “once in a lifetime gift from the German state”, as the “Bild” newspaper recently reported.

But in the case of the KaDeWe Group, PwC does not only work for the federal government. According to information from Capital, PwC is also working for the company in parallel: As internal documents show, PwC experts were involved in preparing the luxury department store group’s insolvency application in January – together with the Finkenhof law firm, which specializes in insolvency law. Accordingly, the main task of the PwC consultants was to compile an overview of all open items.

Even in the months before filing for bankruptcy, the company had major problems paying invoices from suppliers and service providers – due to the massive impact of a cyber attack by Russian hackers on the IT systems and a failed SAP conversion, but also because of an already strained liquidity situation. According to reports, around half a dozen PwC consultants specializing in restructuring were working in the KaDeWe Group from the beginning of January in order to get a complete overview of the paid and outstanding invoices. There are also rumors circulating in the company that PwC could also support the ongoing insolvency proceedings, for example when it comes to the sale process for the previous Signa shares in the department store group.

But how does working for the federal government and for the company reconcile with the supposedly strict precautions against potential conflicts of interest in the mandate agreement? And why does PwC accept the politically explosive appearance of a conflict of interest when working for the public sector for what is probably a comparatively small order?

At Capital’s request, PwC did not want to comment on specific questions about its role in the KaDeWe Group, citing confidentiality obligations. A company spokesman said only in general terms that concerns were “unfounded.” You don’t do any “self-examinations”.

The Federal Ministry of Economics, which is responsible for the KaDeWe guarantee, also did not want to comment on the specific case when asked and referred to company and business secrets. However, one sentence in the answer from a ministry spokeswoman makes it worth noting against the background of PwC’s recent use of consultants in the company: “The mandatary is obliged to provide any and all for the entire duration of the case support, i.e. the term of a surety or guarantee from the application to the return of the certificate To avoid a conflict of interests.”

In an answer to a current question from the left-wing Bundestag member Pascal Meiser, which is available to Capital, the ministry is even more specific on this topic: “In particular, after issuing a surety or guarantee, the mandate does not provide any services in connection with the negotiation of a restructuring solution, what effect on the guaranteed loan commitment and does not prepare a restructuring report for the company supported by a guarantee from the federal government.”

It is not immediately clear how these requirements relate to an advisory assignment as part of the preparation of an insolvency application – especially since insolvency generally massively increases the risk that a government-guaranteed loan cannot be repaid and the taxpayer has to step in. The prerequisite for this would be a positive vote that the company has complied with all requirements and conditions for the guarantee. According to the usual standards, this audit at the KaDeWe Group would again be carried out by PwC – after the consultancy had recently worked for the company.

“The closer you look, the more problematic PwC’s central role in the decision to issue state guarantees appears,” said economic politician Meiser. “If it turns out that PwC is involved in the decision on state guarantees for companies for which it itself advises elsewhere, there must be consequences.” This also raises very fundamental questions, Meiser continued: “Instead of systematically relying on private consulting companies with unclear loyalties, the federal government should urgently develop its own competencies for issuing guarantees.”

However, it has not yet been determined whether the state will also lose money from the KaDeWe group – similar to Benko’s Galeria department store chain. The company, which left an inquiry from Capital about the order to PwC and the status of the guarantee unanswered, made the comments in a public statement last week. The press release stated that the default guarantee had not yet been used. The loan from BNP Paribas is being repaid as planned. Repayments “in a relevant amount” have already been made.

However, what exactly that means remains unclear. In any case, the major bank is one of the department store group’s creditors who are now monitoring the progress of the insolvency proceedings in the creditors’ committee.