The liquidator of Chinese real estate developer Evergrande has brought a lawsuit against global accounting firm PwC, seeking 57 billion yuan (approximately $8.1 billion) in damages. The Hong Kong High Court has ruled that PwC International, the global headquarters of PwC, will also be held accountable in this case.
In May, the liquidator filed the lawsuit against three entities: PwC Hong Kong, PwC China, and PwC International. PwC International had requested to be dismissed from the case, but the Hong Kong High Court rejected this request on August 26.
Previously, in January 2024, the Hong Kong High Court issued a liquidation order for Evergrande and appointed global consulting firm A&M as the liquidator. A&M contends that PwC failed to detect Evergrande's financial misstatements, leading investors to trust PwC and invest in the company. The liquidator is seeking 19 billion yuan in damages from PwC Hong Kong and PwC Zhongtian (PwC China), as well as 38 billion yuan from PwC International. The liquidator argues that PwC International has played a crucial role in overseeing audit standards and quality control for its regional firms, thereby establishing and maintaining global credibility.
In response, PwC International claims that the firms involved in the audit and contracts with Evergrande are independent member firms in Hong Kong and mainland China, not subsidiaries of PwC International. However, the Hong Kong High Court found that there is a possibility that PwC International has a duty of care towards Evergrande, indicating that the liquidator's claims should not be dismissed without a full trial.
PwC has already faced significant penalties in mainland China and Hong Kong related to its audit of Evergrande. According to investigations by Chinese authorities, Evergrande inflated its revenue by approximately 564 billion yuan from 2019 to 2020, a fact that PwC failed to uncover during its audits.
The China Securities Regulatory Commission (CSRC) imposed a fine of 297 million yuan on PwC Zhongtian in September 2024 and confiscated 27.7 million yuan in illicit gains related to the Evergrande audit. The CSRC criticized PwC for allegedly concealing or tolerating Evergrande's financial misconduct. Additionally, the Chinese Ministry of Finance imposed a separate fine of 116 million yuan and suspended PwC Zhongtian's operations for six months.
In April of this year, the Hong Kong Accounting and Financial Reporting Council (AFRC) fined PwC Hong Kong 300 million Hong Kong dollars and restricted its ability to audit new listings for six months. The Hong Kong Securities and Futures Commission (SFC) also reached an agreement with PwC Hong Kong to set aside 1 billion Hong Kong dollars for compensation to Evergrande's independent minority shareholders. The SFC determined that Evergrande inflated its revenue by approximately 45% in 2019 and about 70% in 2020, concluding that PwC Hong Kong had seriously violated its professional duties.
Evergrande defaulted in 2021, with total liabilities exceeding $300 billion. The Hong Kong court issued a liquidation order for Evergrande in January 2024, and the liquidators are working to recover assets from various parties, including PwC, related to Evergrande's financial mismanagement and accounting fraud.
* This article has been translated by AI.
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