A decision issued on Wednesday in Hong Kong authorizes the liquidators of Evergrande to take action against PwC International, the entity managing the consulting firm's worldwide network, as well as against its branches located in Hong Kong and mainland China, which were responsible for auditing Evergrande's accounts. This news was reported by the Financial Times (FT).
The liquidators are claiming approximately $8.4 billion (equivalent to €7.2 billion) in compensation from the three entities. This claim follows various regulators determining that PwC auditors in Hong Kong and mainland China failed to meet professional standards when endorsing the real estate developer's financial statements.
Patrick Fung, an Associate Judge of the High Court of Hong Kong, stated that it is minimally justifiable for PwC International to have a duty of care towards Evergrande. He also emphasized the importance of document disclosure and responses to inquiries, believing this will help clarify the case.
This determination is a victory for Eddie Middleton and Tiffany Wong, both from the consultancy Alvarez & Marsal, who were appointed as Evergrande's liquidators. According to the FT, these two executives directed much of their legal efforts toward holding PwC accountable due to difficulties encountered in recovering Evergrande's assets in mainland China, which would be used to pay creditors.
Evergrande, once one of China's largest property developers, defaulted in 2021, accumulating approximately $300 billion (€257 billion) in debt. Subsequently, Chinese authorities concluded that the company had fraudulently inflated revenues in the years leading up to its collapse.
The liquidators allege that PwC International should be held responsible for the failures of the network firms in Hong Kong and mainland China because they allowed Evergrande to distribute about $6 billion (€5.1 billion) in dividends between 2017 and 2020, even while the company was in poor financial condition. Specifically, the liquidators demand $5.6 billion (€4.8 billion) solely from PwC International.
This decision may have repercussions for the operational model adopted by the four largest global auditing firms—PwC, Deloitte, EY, and KPMG—known as the 'Big Four'. Unlike conventional multinational corporations, these firms operate through networks of legally independent national firms, coordinated by a global entity responsible for branding and standardization. This structure allows compliance with different national auditing regimes and aims to prevent each firm from being legally liable for errors made by other members of the network in other countries.
However, the Hong Kong court's ruling opens the possibility that the financial and legal risks associated with the Evergrande case could extend to the rest of the PwC network. The FT points out that the largest national firms, including those in the United States and the United Kingdom, finance a large portion of PwC International's costs, which generally does not generate profits or possess substantial assets.
PwC International defended itself by arguing that it should not participate in the lawsuit, asserting that Evergrande was never its client. A spokesperson for the PwC global network, cited by the FT, stated that the company disagrees with the decision and is 'evaluating legal options.' This spokesperson declared that PwC International is the coordinating entity of the PwC network and never provided services or maintained any relationship with Evergrande, expressing confidence that the accusations against it are unfounded.
Previously, in April, PwC Hong Kong agreed to pay $1.3 billion (HKD) (€142 million) to settle litigation related to Evergrande with local regulators. In mainland China, the PwC branch made a fine payment of 441 million yuan (€56 million) in 2024, after the Chinese Ministry of Finance concluded that the consultancy's employees had 'concealed or even tolerated' fraud at Evergrande.
