Evergrande liquidators pursue claims against PwC in Hong Kong court

[HONG KONG] China Evergrande’s liquidators head to court on Monday (May 18) for the opening hearing of their lawsuit against PricewaterhouseCoopers (PwC) International, in a case that will test the scope of claims against auditors of insolvent companies.

The case centres on PwC’s auditing work for Evergrande, which has become an emblem of China’s property crisis since it defaulted in 2021. While it originally focused on PwC’s mainland China and Hong Kong affiliates, liquidators later added PricewaterhouseCoopers International, the umbrella entity for units worldwide, to the lawsuit.

PwC International is looking to extricate itself from the case and strike down liquidators’ claims against it. Even if it succeeds, liquidators could still pursue the case against the original PwC affiliates.

The case could help define how much auditors can be held liable for their work with companies accused of fraudulent accounting. Any financial ruling against PwC would add to the regulatory pressure the firm already faces over its audits of Evergrande. Separately, its Hong Kong unit last month agreed to pay HK$1.3 billion (S$213 million) in fines and compensation to settle investigations into its work for the collapsed developer.

The proceedings are also critical to liquidators’ years-long effort to recover at least part of creditors’ investments. Evergrande’s debt burden is larger than previously estimated, reaching HK$350 billion, according to court-appointed liquidators. They have said asset recoveries to date have been “modest”, at about US$255 million.

Edward Middleton and Tiffany Wong of US turnaround firm Alvarez & Marsal, acting as liquidators for Evergrande’s creditors, filed the original case in March 2024, about two months after the developer was ordered to be wound up. The lawsuit relates to PwC’s audit reports on Evergrande’s financial statements for 2017 and the first six months of 2018, according to the filing.

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PricewaterhouseCoopers International does not practice accountancy or provide services to clients, according to its website, and is “liable only for its own acts or omissions”. BLOOMBERG