The liquidation of China Evergrande Group, the collapsed property developer, is raising concerns among some partners at its former auditor PricewaterhouseCoopers China about the potential impact on their own finances.
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Several partners at PwC’s Hong Kong and mainland China affiliates say they are exploring strategies to safeguard personal assets, in case legal and regulatory challenges facing the firms ever spill over into any financial or legal burdens for themselves. One says he has even contemplated divorce as a means to shield wealth, while another is cutting education budgets for his children.
A couple of former senior leaders at the Hong Kong affiliate who departed in recent years say they are also considering steps to protect assets. Current and former partners at PwC who spoke for this story asked not to be identified because the information is private.
Evergrande’s liquidators have claimed “negligence” and “misrepresentation” in the auditing work done by PwC’s mainland and Hong Kong affiliates for the failed property giant. They
The amount that liquidators are seeking marks one of the largest corporate claims ever in Hong Kong, and will be the highest-profile test in Greater China of the extent to which audit firms could be held liable when clients are accused of
The partners say they weren’t directly involved in auditing Evergrande. Even so, some are worried that liquidators might eventually bring lawsuits against them. Another concern is the risk that they will be asked to help cover any legal damages through their equity in the firms. They also fear that the broader financial impact on the businesses could affect their compensation packages.
A spokesperson for PwC China declined to comment on ongoing litigation. “Our businesses continue to perform well and we remain focused on delivering high-quality outcomes for our clients, supporting our people, and investing in the future of the firm and our profession in China,” the spokesperson said.
PwC International didn’t respond to requests for comment. Evergrande’s liquidators declined to comment.
For auditing firms in Hong Kong, it’s common to register as unlimited partnerships as PwC’s local affiliate did, which means partners share in any liabilities as well as profits. Moreover, so-called equity audit partners own stakes in the business. These structures also leave them open to potential legal liability, which can carry on even if they leave the roles, according to a
In the Evergrande case, the situation is particularly acute for equity audit partners listed on PwC Hong Kong’s roll between 2017 and 2020, the period targeted by the liquidators’ lawsuit.
The partners said their planning for the worst intensified after the May court hearing in Hong Kong, which
A partner who had previously felt that divorce would be too extreme said it became a more serious consideration after the claim emerged. Several partners said they are weighing options including shifting assets to family. Two said they are expediting plans to leave the firm. One decided to scale back school expenses for his children to ease any financial burn.
PwC has already decided to withhold proceeds from the 2022 sale of a business unit, after three years of distributions, which were due to be paid out to members of the partnership at the time, people with knowledge of the matter said. Instead the funds will be kept for operations and investment of the firm, the people said, confirming an earlier Financial Times report.
The partners who spoke with Bloomberg News are among several hundred at the firms, and it’s unclear how many overall are concerned about the impact of the Evergrande liquidation on their personal finances. While consolidated data across the affiliates aren’t available, there are some
While there have been no known lawsuits from the Evergrande liquidators against any individual partners, two formerly of PwC HK were
PwC has faced penalties from regulators in Beijing and Hong Kong over its audit work for Evergrande. In late April, PwC HK
The SFC said the agreement resolves the matter “fully and finally.”
PwC
“We acknowledge that the work on the Evergrande audits fell well below our high expectations and the expectations of our stakeholders,” it said. In that same press release, Hemione Hudson, chair and CEO of PwC China, said the “outcomes reached with the AFRC and SFC conclude regulatory matters related to the Evergrande audits from over five years ago with no impact for our existing clients.”
Separately, the mainland partnership PwC Zhong Tian was
While it’s rare in Hong Kong for liquidators to include individual partners in lawsuits, it has happened before.
In 2017, liquidators of China Medical Technologies Inc. brought a contempt of court
Although the case didn’t involve claims against the partners’ personal assets, the judge said in the ruling that any individual partner had an obligation to take steps to facilitate compliance. KPMG eventually agreed to disclose the documents, people familiar said.
KPMG hasn’t made any public statements on the matter, and the company didn’t respond to requests for comment.
Long road
For the broader Evergrande liquidation, the road ahead could be long. Such cases involving action against auditing firms in Hong Kong have often taken years before any final resolution.
Even so, the partners weighing steps to protect their assets said now is the time to start making preparations.
Equity partners, who become co-owners of the firm when they put their money into it, have precedent to worry about the impact on salaries at a time when revenue is declining. In 2024, when the regulator in China
PwC’s mainland China revenue fell about 43% over two years,
Under Hong Kong industry practice, auditing firms are required to maintain professional liability insurance, which could
So far, the partners have received no official internal guidance on whether they could be required to contribute financially, they said.
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