The Financial Times reports that the liquidators of China Evergrande are suing PwC, alleging “negligence” and “misstatements” during their audit engagements with the company.
Lawyers for the liquidators initiated legal proceedings against PwC Hong Kong and PwC Zhong Tian, its mainland China affiliate, back in March. The documents obtained by the Financial Times do not specify the amount being sought in the claim.
The filing in the Hong Kong High Court in March, known as a summons, sets the foundation for a legal case that will add to the woes PwC is already facing as it prepares to receive penalties from Chinese authorities over its audits of Evergrande.
PwC resigned as the property group’s auditor last year. As the auditor, PwC had attested to Evergrande’s financial health for over a decade before its collapse. According to a separate court document seen by FT, the liquidators have also commenced proceedings in court against CBRE, a commercial real estate services firm, and Avista Valuation Advisory, a consulting group, over valuation reports they provided for Evergrande and its subsidiaries in 2018.
China Evergrande is the world’s most indebted property developer, defaulting on its international debt in 2021 with over $300 billion in liabilities. This triggered a broader cash crunch in the property sector, shaking China’s entire financial system.
The court filings on behalf of Evergrande’s liquidators, Alvarez & Marsal restructuring experts Eddie Middleton and Tiffany Wong, signal that the fallout from the property developer’s collapse could have significant consequences for the global professional services firms that facilitated its rapid growth.
In the filings, lawyers representing the liquidators state that the claims against PwC relate to “loss and damage” concerning “breach of contract, breach of duty… misstatements, negligence and/or unjust enrichment.”
PwC is already facing the prospect of penalties from Chinese authorities for its audits of various Evergrande entities. China’s securities regulator said in March that its mainland property unit had inflated revenue by $78 billion in 2019 and 2020.
Liquidator – A person or entity responsible for managing and liquidating the assets of a company, supervising its business operations, and distributing the proceeds to creditors and shareholders.
Partners at PwC are concerned that they may face some of the largest penalties ever imposed on a Big Four firm in China. FT reported in February that Middleton and Wong were preparing to sue PwC over potentially “negligent” behavior.
In January, a Hong Kong judge appointed the two restructuring experts as liquidators of Evergrande’s Hong Kong-listed entity after the company’s offshore restructuring plan failed. However, the restructuring experts noted that it remains unclear how much they can recover as most of Evergrande’s assets are in mainland China, which operates under a separate legal system.
On Monday, Evergrande’s liquidators disclosed in a stock exchange filing in Hong Kong that they had initiated court proceedings to “recover” amounts including “dividends and remuneration” totaling around $6 billion from founder Hui Ka Yan and other former senior executives.
A separate court document obtained on Tuesday detailed Hui’s global assets, valued at up to $7.7 billion. His assets include two Rolls-Royce Phantoms, three jets, two yachts, and properties in London and Los Angeles.
Source: Financial Times
