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The crash of the Chinese real estate group could give rise to a negligence claim against the auditor.
Evergrande’s insolvency administrators are considering a potential lawsuit against PwC, which audited the Chinese real estate group for more than a decade, and the Financial Times reported.
Evergrande’s crash could give rise to a negligence claim against PwC.
Eddie Middleton and Tiffany Wong, the restructuring experts at Alvarez & Marsal appointed as insolvency administrators for the Hong Kong-listed company last month, have already held meetings with at least two law firms to assess the possibility of bringing action against the company audit.
Evergrande, with a debt of more than 300 billion dollars, defaulted in 2021, triggering a broader liquidity crisis in the Chinese real estate sector.
The liquidators’ talks with lawyers are an early sign of how this latest phase of Evergrande’s collapse, which began when a Hong Kong court last month ordered it to be liquidated, could result in significant costs for global companies.
PwC was Evergrande’s auditor when the property developer was admitted to the Hong Kong stock exchange in 2009, and audited the accounts as the group expanded rapidly using astronomical leverage during China’s property boom.
PwC is not unique in Hong Kong when it comes to negligence claims. In 2021, KPMG resolved legal complaints brought by insolvency administrators about its audit of China Forestry.
PwC signed off on Evergrande’s accounts in 2020, but when it resigned as Evergrande’s auditor in 2022, it said it had been unable to obtain the information needed to carry out the 2021 audit of the real estate group.
Hong Kong’s Financial Accounting and Reporting Board said in 2021 that it was investigating PwC’s audit of Evergrande’s 2020 accounts, considering there were reasons to investigate whether PwC’s work “complied with applicable auditing standards”.
