PwC International can't exit Evergrande case, HK court rules

A Hong Kong court declined to remove PricewaterhouseCoopers International Ltd. from a multibillion-dollar lawsuit brought by China Evergrande liquidators against the firm and its Hong Kong and mainland Chinese affiliates.

Deputy High Court Judge Patrick Fung said the evidence PwC International submitted as part of its arguments to exit the case was "inadequate and unsatisfactory," according to a judgment delivered on Wednesday.

The ruling is significant because it means a global firm may not be able to distance itself from work done by its local affiliates in accounting fraud cases in Hong Kong. That could offer a playbook for other liquidators looking to broaden their cases against local auditors.

The case centers on PwC's auditing work for Evergrande, an emblem of China's property crisis since it defaulted in 2021. Liquidators launched the proceedings in 2024 claiming "negligence" and "misrepresentation" in PwC's auditing work. PricewaterhouseCoopers International is the umbrella entity for the firm worldwide.

In the judgment, Fung explained that PwC International shouldn't be removed from the case because all the facts weren't yet known and it was crucial to look at related documents and conduct questioning.  

A PwC International spokesperson said that while the company respected the decision, it disagreed with it. 

"PwCIL is the coordinating entity within the PwC network and has never provided any services to Evergrande or had any relationship with the company," the representative said in an emailed response to a request for comment. "PwCIL is confident that the claims against it have no merit. We are reviewing the Court's decision and evaluating our legal options."

Liquidators welcomed the court's decision, but also said that it "does not determine the ultimate merits of the claims, which will be decided by the court in due course."

Liquidators are targeting a total of 57 billion yuan ($8.5 billion) in their lawsuit, among the largest corporate claims ever sought in the city. 

Of that amount, they are seeking 38 billion yuan from PwC International, along with its mainland Chinese and Hong Kong affiliates, lawyers from both sides said earlier. They're also seeking 19 billion yuan solely from the Hong Kong and mainland entities.

The proceedings are critical to liquidators' yearslong effort to recover at least part of creditors' investments. Evergrande's debt burden is larger than previously estimated, reaching HK$350 billion ($44.6 billion), according to court-appointed liquidators. They have said asset recoveries to date have been "modest," at about $255 million.

Edward Middleton and Tiffany Wong of U.S. turnaround firm Alvarez & Marsal, acting as liquidators for Evergrande's creditors, filed the original case in March 2024, about two months after the developer was ordered to be wound up. 

The lawsuit originally related to PwC's audit reports on Evergrande's financial statements for 2017 and the first six months of 2018, according to the filing. At a recent court hearing, liquidators focused on audits from 2017 to 2020.

The claim further weighs on PwC's Hong Kong and mainland China entities' struggles related to the Evergrande audits. Earlier this year, the Hong Kong entity separately agreed to pay HK$1.3 billion in fines and compensation to settle investigations into its work for the collapsed developer.

The liquidators, trying to pursue related parties, including PwC entities and the builder's former management, are also jostling with authorities in Hong Kong and China. 

Last week, a mainland Chinese court sentenced Evergrande founder Hui Ka Yan to life in prison and ordered that his assets be confiscated. Evergrande's liquidators have been pursuing Hui's around $7.7 billion in assets worldwide as they try to claw back funds. For offshore creditors, one concern is that some of Hui's assets could be drawn into mainland enforcement proceedings. 

Meanwhile, a Hong Kong court began hearing arguments on a challenge brought by liquidators to a HK$1 billion deal that set up a fund to compensate Evergrande's minority shareholders. That case underscores the battle over seniority in winding-up cases, and could affect how much money creditors are eventually able to recover.