Court-appointed liquidators of collapsed Chinese property giant Evergrande are preparing to sue the developer’s decade-long auditor PricewaterhouseCoopers (PwC), potentially claiming ‘negligence’, a new report said on Saturday.
The debt-ridden developer’s liquidators Alvarez & Marsal have been in talks with at least two law firms about a potential lawsuit against PwC, the Financial Times reported, citing people with knowledge of the conversations.
The talks were at an early stage, the report cited the people as saying, adding that it was not yet certain that the liquidators will go ahead with a lawsuit.
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An insolvency expert told the FT that liquidators often look to sue the auditor in order to ‘recover value’ for creditors involved.
FT’s sources said the talks between liquidators and lawyers did not indicate that there was any evidence of wrongdoing by PwC.
To bring a claim against the auditor, Evergrande’s liquidators will need to “build a case that PwC made mis-steps” that hurt the developer’s creditors, FT reported.
Once China’s top-selling developer, Evergrande defaulted on $300 billion worth of liabilities in late 2021. Various efforts since, to restructure its debt — roughly the size of South Africa’s GDP — failed, leading to the liquidation order last month.
PwC had been Evergrande’s auditor since 2009 — when the developer listed in Hong Kong. It resigned from that position in January last year, over disagreements relating to the audit of Evergrande’s 2021 accounts.
The auditor’s resignation came at a precarious time as Evergrande was racing a deadline to publish its long-delayed 2021 annual results and complete a probe into its property services unit.
In its resignation letter, PwC noted it had not received information on certain material matters surrounding the group’s consolidated financial statements for the year 2021.
Separately, Hong Kong’s audit regulator was also investigating Evergrande and PwC since 2021 over the developer’s 2020 accounts. PwC’s last audited report for Evergrande was for the financial year to December 31, 2020.
The watchdog initiated two probes into the two firms. First, in October 2021, on the adequacy of PwC’s reporting on whether Evergrande could continue operating as a going concern. And the second, in August 2022, on seized deposits worth $2 billion of China Evergrande Group’s property services unit.
- Reuters, with additional inputs from Vishakha Saxena
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Hui Ka Yan and The Rise and Fall of China Evergrande
PwC Counts Cost of China, HK Audit Staff Exam Cheating – FT
