Evergrande liquidators eye legal action against PwC
HONG KONG, CHINA — The liquidators overseeing the dissolution of Evergrande, a major Chinese property developer that collapsed, are contemplating a lawsuit against PwC for alleged negligence in its auditing practices.
Alvarez & Marsal’s Eddie Middleton and Tiffany Wong, recently appointed to manage Evergrande’s liquidation, are reportedly consulting with Hong Kong law firms to assess the feasibility of suing PwC, which audited Evergrande for more than ten years.
The crux of the potential lawsuit revolves around accusations that PwC’s audit failures contributed to financial losses for Evergrande’s creditors. This comes after Evergrande’s 2021 default on debts exceeding $300 billion, exacerbating a financial crisis within China’s real estate sector.
The company’s move into liquidation followed unsuccessful attempts at financial restructuring.
The focus for Middleton and Wong is to compile evidence against PwC, which withdrew from its auditing role, citing insufficient financial disclosures from Evergrande for the 2021 audit.
The urgency in these preparations stems from a desire to secure the right to sue within the legal timeframe allowed by Hong Kong’s statute of limitations, which typically grants liquidators six years to initiate legal action against professional advisors.
This potential lawsuit against PwC is part of a broader trend of legal challenges faced by auditors in Hong Kong, particularly those associated with failed Chinese enterprises.
A successful claim against PwC could significantly influence future cases concerning the responsibilities of auditors to identify and report financial risks.
PwC’s relationship with Evergrande dates back to the company’s 2009 IPO, with the auditor endorsing Evergrande’s financial statements as recently as 2020.
