Evergrande liquidators challenge watchdog’s HK$1 billion settlement with auditor PwC

Hong Kong's securities watchdog has defended a HK$1 billion settlement with auditing firm PwC in connection with China Evergrande's auditing scandal, asserting its authority to discipline and protect investor interests. At a judicial review hearing, Evergrande's liquidators argued that the settlement amounted to an abuse of power and sought its dismissal, claiming the watchdog's broad powers under the Securities and Futures Ordinance allowed for pre-litigation settlements.

The liquidators also accused the regulator of circumventing judicial safeguards by threatening legal action against PwC and forcing it to pay, preventing a court determination of the SFC's requests. The case came as the liquidators filed a separate corporate lawsuit seeking 57 billion yuan (US$8.4 billion) from three PwC entities, one of the largest claims ever filed in Hong Kong.

PwC Hong Kong agreed to set aside HK$1 billion to compensate Evergrande's minority shareholders, acknowledging no liability for alleged professional duty breaches. The agreement sparked concerns that creditors would be left HK$1 billion worse off if PwC lacked sufficient assets to cover both the settlement and the separate lawsuits.

The liquidators' lawyer argued that the SFC lacked the express power to enter into a settlement without legal action, while the SFC's lawyer countered that the agreement was rational given litigation uncertainties, allowing aggrieved parties to seek further redress in court. The hearing concluded with Justice Russell Coleman reserving his judgment.