Liquidators for China Evergrande Group have filed a lawsuit in Hong Kong’s High Court against three PwC entities: PwC Hong Kong, PwC China, and the global umbrella group PwC International. They are seeking 57 billion yuan, equivalent to $8.4 billion, in damages. The lawsuit alleges negligence and misrepresentation in PwC’s audit work related to Evergrande's massive accounting fraud in 2019 and 2020, where the developer reportedly overstated revenue by 564 billion yuan by prematurely recognizing property sales.
The case is one of the largest corporate claims in Hong Kong's judicial history and aims to determine if global audit networks can be held responsible for the work of their local member firms. PwC International is attempting to be removed as a defendant, arguing it does not conduct audits or provide services to clients directly, and is not a parent company to its member firms. However, liquidators are seeking 38 billion yuan from all three PwC entities, with an additional 19 billion yuan solely from the Hong Kong and mainland China affiliates.
Separately, Evergrande's liquidators are also challenging a deal between PwC Hong Kong and Hong Kong’s Securities and Futures Commission (SFC). This deal, struck in April, involved PwC Hong Kong setting aside HK$1 billion ($128 million) to compensate Evergrande’s minority shareholders. The liquidators argue that this agreement improperly prioritizes shareholders over creditors, which is contrary to Hong Kong law where shareholders are paid last in liquidation cases. They are seeking to have the SFC's decision declared unlawful, void, or invalid, contending that the SFC lacks the statutory authority to make such a settlement with a non-regulated entity like PwC HK.
Evergrande's total debt burden is now estimated at HK$350 billion, and liquidators have indicated that asset recoveries to date have been modest, amounting to approximately $255 million. The firm faces significant financial and regulatory pressures, with PwC’s mainland China affiliate previously fined 441 million yuan for its role in auditing the developer. Partners at PwC's local affiliates are reportedly exploring ways to safeguard their personal assets given the escalating legal and regulatory challenges.
The lawsuit and the challenge to the SFC settlement highlight the ongoing efforts by liquidators to recover funds for creditors and raise important questions about auditor liability and regulatory authority in complex cross-border financial cases. The outcome could set precedents for how international audit networks are held accountable and how creditor and shareholder claims are prioritized in major corporate insolvencies.
