China Evergrande Group, once the largest property developer in China, was ordered to be liquidated in January after failing to present a viable restructuring plan for its massive debt. As part of the liquidation process, lawyers appointed by the liquidators are now looking into the actions of some of Evergrande’s service providers, including its former auditor PricewaterhouseCoopers (PwC). This investigation aims to potentially recoup losses for the creditors of Evergrande.
The law firm Karas So, in collaboration with the court-appointed liquidators Tiffany Wong and Eddie Middleton from Alvarez and Marsal (A&M), are leading the investigation into Evergrande’s service providers. This includes examining the roles played by PwC and other institutions that provided financial and other services to the embattled property developer.
The decision to investigate service providers in a liquidation case such as this indicates initial steps being taken towards the liquidation of Evergrande, which holds the title of being the world’s most indebted property developer with over $300 billion in total liabilities. If evidence of wrongdoing and negligence is found, legal claims may be filed against the service providers, potentially setting a precedent for future corporate winding up processes in China.
PwC, Evergrande’s former auditor, has come under scrutiny since the China Securities Regulatory Commission uncovered that the property developer had overstated revenue by $78 billion over a two-year period. This led to a regulatory fine of at least 1 billion yuan and potential suspension of operations at some of PwC’s offices in mainland China. The audit watchdog in Hong Kong has also launched investigations into Evergrande’s financial accounts, further intensifying the focus on PwC’s auditing practices.
It is unclear when Karas So and A&M will take further actions following the investigation. If legal claims are filed against PwC or other service providers, Evergrande’s liquidation process could become a model for other companies facing similar financial distress. The outcome of this investigation could have significant implications for the recovery of financial losses by creditors in liquidation cases.
The ongoing investigation into China Evergrande’s service providers, particularly PricewaterhouseCoopers, highlights the complexities involved in the liquidation of a major corporate entity with significant debts. As the legal process unfolds, the actions taken against the service providers could shape the future of corporate liquidations in China and set a precedent for holding external advisers accountable for their roles in financial mismanagement. Industry insiders anticipate that the outcome of this investigation will have far-reaching implications for creditors seeking to recover losses in similar cases.