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Evergrande Liquidators ‘Probing PwC, Others to Recoup Losses’

A Hong Kong law firm is working with court-appointed liquidators to see if they can recoup creditor losses from its auditor PwC or other firms that provided services to the developer


PwC signage is seen in the lobby of their offices in the Barangaroo tower in Sydney, Australia, in June 22, 2023 (Reuters file image).

 

Liquidators of the massively indebted China Evergrande Group are reviewing if they can recoup creditor losses from its auditor PricewaterhouseCoopers (PwC) or other firms that provided services to the developer, sources say.

A Hong Kong court ruled in January that Evergrande, once the country’s biggest developer, be liquidated, after it failed to deliver a firm restructuring plan for $23 billion of offshore debt deemed to be in default.

Hong Kong-based law firm Karas So is working with two court-appointed liquidators, Tiffany Wong and Eddie Middleton from Alvarez and Marsal (A&M), according to three sources with knowledge of the matter.

 

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The move, which is common in liquidation cases, indicates initial steps being taken towards liquidation of the world’s most indebted property developer with more than $300 billion of total liabilities.

A&M, Evergrande, and Karas So declined to comment. PwC also declined to comment.

Evergrande’s liquidation could take more than a decade to be completed, according to some offshore investors, and become a blueprint for future major Chinese corporate winding up processes.

In March sources said that lawyers working on Evergrande’s liquidation would look for evidence of wrongdoing and negligence across the company, its management and external advisers that could have led to it defaulting on its debt.

Karas So, which specialized in liquidation-related legal matters, is looking into Evergrande’s insolvency and whether some service providers to the embattled property developer played a role in the rapid fall in its financial profile.

Apart from PwC, Karas So has also been examining the roles played by other institutions that provided financial and other services to Evergrande, one of the sources said.

All the sources declined to be named as they were not authorised to speak to the media.

It is not clear when Karas So and A&M will take actions, if any, after the completion of the investigation.

 

‘Overstated revenue by $78 billion’

PwC has been in the spotlight in China since the China Securities Regulatory Commission earlier this year found Evergrande had overstated revenue at its main unit Hengda by 564 billion yuan ($78 billion) over two years through 2020.

The auditor is facing a record fine of at least 1 billion yuan and a halt to operations at some of its mainland China offices, according to a report in late May, as a result of those regulatory findings.

Hong Kong’s audit watchdog has also been probing Evergrande and PwC since 2021 over the developer’s financial accounts. It initiated another probe against PwC in April after a whistle blower letter alleging auditing deficiencies became public.

If legal claims are filed against PwC or other service providers, Evergrande’s liquidation might set an example for other liquidators that are likely to move towards recovering financial losses for creditors, industry insiders said.

At least five Chinese developers have been ordered by the Hong Kong court to be liquidated since the property debt crisis in the world’s second-largest economy unfolded in 2021, while liquidation court proceedings are going on against a few others.

 

  • Reuters with additional editing by Jim Pollard

 

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Evergrande Chief Suspected Of Transferring Assets Offshore: WSJ

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Hui Ka Yan and The Rise and Fall of China Evergrande

Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.

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