After a complaint from Deutsche Bank, his biggest creditor, the prosecutor's office in Frankfurt said Mr Schneider and his wife were suspected of fraud in connection with Zeil-Galerie, a prestigious shopping centre in Frankfurt. Deutsche loaned DM415m for the project.
A statement released after a meeting between the company and 40 creditor banks said: 'In the current state of affairs, insolvency proceedings are expected, which would set the framework for an orderly handling of the tasks at hand.'
With the whereabouts of Mr Schneider and Claudia, his wife, still a mystery, the banks made no immediate move to put the empire into liquidation.
The banks agreed to set up a coordinating group to find a solution to the problems, which include bank debt of DM5bn - less than previous estimates of up to DM10bn - and trade debt of DM250m.
Giving the first confirmation of suspicions of malpractice at the Schneider group, the prosecutors said Deutsche Bank had claimed it had been given manipulated documents ahead of the final transfer of DM45m to the Zeil-Galerie project.
According to these documents, the centre would offer 20,000 square metres of space for rent and bring in rent of DM57m a year.
In fact the rentable space was only 9,000 square metres and the real income only DM8m a year.
The complaint referred only to one of the eight loans from Deutsche, which refused to confirm they totalled as much as DM1.3bn.
The creditor banks are prepared to continue with the group's property projects, said Hans Eichel, prime minister of the state of Hesse.
He said Deutsche Bank's chairman told him the banks wanted to complete construction projects that had already been started, but will change the conditions.
Jean Peyrelevade, chairman of Credit Lyonnais, said his bank had lent DM140m to two Schneider projects, covered by first mortgages.
Gunter Rexrodt, the German economics minister, said a working group had begun assessing the consequences for small businesses from the collapse.Reuse content