Liquidators for China Evergrande Group are seeking a judicial review in the Hong Kong High Court to block a HK$1 billion ($128 million) payout from PwC Hong Kong to the collapsed developer's minority shareholders. The liquidators, Tiffany Wong Wing-sze and Eddie Middleton of Alvarez & Marsal, contend that this agreement between the Securities and Futures Commission (SFC) and PwC Hong Kong unfairly prejudices Evergrande's creditors, leaving them HK$1 billion worse off, as PwC's assets may not cover both the settlement and separate lawsuits.
In April, the SFC had reached this agreement with PwC Hong Kong, requiring the firm to pay the compensation without admitting liability, following serious breaches of professional duties that contributed to Evergrande's falsified financial statements in 2019 and 2020. Evergrande had overstated its 2019 revenue by 45% and its 2020 revenue by 69%. The SFC had stated that this was the first such settlement where an auditor would compensate minority shareholders for harm caused by misleading financial statements, aiming to protect investors and ensure market integrity.
The liquidators argue that the SFC lacks the statutory authority to settle a market misconduct claim against a non-regulated entity like PwC Hong Kong. They claim the Accounting and Financial Reporting Council (AFRC) is the appropriate regulator for auditors. The AFRC itself had previously imposed a HK$300 million fine and a six-month practice limitation on PwC, in addition to fines on former responsible persons for the Evergrande audits. The liquidators had written to the SFC on May 8 to express their concerns and urge against implementing the settlement, but their requests were rejected days later.
The core of the liquidators' argument is that the SFC failed to consider the interests of China Evergrande Group and its creditors when entering into the agreement. They assert that the deal effectively deprives the applicant (China Evergrande Group) of its interests being properly considered. The liquidators are asking the court to prevent the SFC from taking further steps to implement the settlement, especially not to distribute the compensation, until their claims are resolved.
