The liquidators of China Evergrande are facing a more complicated path to recovering money for creditors after a mainland Chinese court sentenced the developer’s founder, Hui Ka Yan, to life in prison and ordered all his personal property confiscated.
The sentencing on 20 August landed in the middle of a set of Hong Kong cases in which Evergrande’s liquidators, Edward Middleton and Tiffany Wong of Alvarez & Marsal, are trying to claw back funds. The liquidators, who also act as court-appointed receivers of Hui’s personal assets, are pursuing about $6 billion in dividends and pay given to him and other former executives, Reuters reports. The Edge puts the value of Hui’s worldwide assets they are chasing at about $7.7 billion.
The case against PwC
The biggest commercial claim targets Evergrande’s former auditor. The liquidators are seeking 57 billion yuan, about $8.5 billion, from PricewaterhouseCoopers’ mainland China and Hong Kong firms and its global umbrella entity, alleging negligence in audit work. They are also challenging, through a judicial review, a HK$1 billion fund that PwC’s Hong Kong affiliate agreed to set up for shareholders in a settlement brokered by the Securities and Futures Commission. A hearing on that challenge was set for 19 August; its outcome has not been reported in the sources TradeWar reviewed.
Two legal systems are now laying claim to the same founder’s assets, and offshore creditors are not sure which queue they are standing in.
Competing claims on Hui’s assets
Hong Kong insolvency specialist Foreky Wong told The Edge the liquidation was the most complicated he had seen, because the liquidators have not yet won their case against Hui. Chinese law in principle ranks compensation and debt repayment ahead of fines and confiscation, but how that will work across the border is unclear. Hui’s companies were also fined a combined 15.8 billion yuan.
On 2 September the Hong Kong High Court refused a request by Hui’s lawyer to draw HK$1.2 million from liquidator-controlled funds for legal costs. She told the court her team did not have the full mainland judgment. Evergrande has defaulted on most of its $300 billion in liabilities, and its offshore bonds traded below two cents on the dollar after the verdict.
What to watch
- The outcome of the judicial review of the PwC compensation fund.
- Whether mainland authorities recognise Hong Kong creditors’ claims on Hui’s confiscated assets.
- Progress of the PwC negligence claim in the Hong Kong courts.
