Evergrande liquidators seek $8.4 billion from PwC, accusing it of negligent audits

By Clare Jim

HONG KONG, May 18 (Reuters) – Liquidators for Evergrande Group, the failed Chinese property giant, are seeking 57 billion yuan ($8.4 billion) in damages from PwC, accusing it of being negligent in its auditing work, a Hong Kong court was told on Monday.

Potential damages would come on top of hefty fines imposed on the global auditing group by mainland Chinese and Hong Kong authorities after Evergrande collapsed with more than $300 billion of liabilities, becoming one of the biggest casualties of China’s property sector crisis.

Of the 57 billion yuan, 38 billion yuan is being sought from PwC International, PwC Hong Kong and PwC’s China arm. The rest is being sought from just PwC Hong Kong and PwC’s China arm.

Monday’s hearing was focused on how much responsibility PwC International should bear.

Richard Handyside, a lawyer representing PwC International, argued that the firm should not be a party to the case as the Big Four company consists of several firms and the Hong Kong and China entities were not its subsidiaries.

There were no communications between PwC International and Evergrande, and it did not have a “duty of care” with respect to the developer’s financial audits, he argued.

But a lawyer for the liquidators, Adrian Beltrami, argued that PwC International sits at the top of the group and is responsible for maintaining the standards of member firms.

FINES AND REPRIMANDS

Evergrande defaulted on its offshore debt in late 2021 and was ordered by the Hong Kong High Court to liquidate in 2024.

In 2024, PwC’s Chinese arm was penalised by Chinese regulators with a six-month suspension and a record fine of 441 million yuan ($65 million) over the firm’s audit of Evergrande.

An investigation by the China Securities Regulatory Commission found that PwC Zhong Tian LLP “turned a blind eye” to and “even condoned” Evergrande’s inflation of revenues and issuance of bonds based on those falsified statements.

The Hong Kong authorities have also found that PwC Hong Kong seriously breached its professional duties in its auditing of Evergrande.

It was hit with a HK$300 million fine and a six-month suspension and it also reached an agreement with the city’s securities watchdog to set aside HK$1 billion ($128 million) to compensate Evergrande’s independent minority shareholders.

Creditors’ claims against Evergrande total some $45 billion, but only about $255 million worth of assets have been sold as of last August, according to the firm’s liquidators.

($1 = 7.8313 Hong Kong dollars)

($1 = 6.8130 Chinese yuan)

(Reporting by Clare Jim; Editing by Edwina Gibbs)