The China Evergrande Group, which is undergoing liquidation, has launched a legal challenge against a HK$1 billion settlement agreement reached between Hong Kong's Securities and Futures Commission (SFC) and PricewaterhouseCoopers (PwC's Hong Kong operating entity).
According to media reports, Evergrande applied for a judicial review on June 12, requesting the court to overturn the SFC's prior agreement with PwC and related decisions, and to order the regulator to reconsider the arrangement in accordance with the law.
On April 23, the Hong Kong SFC announced it had reached an agreement with PwC, allowing the auditor to set aside HK$1 billion to compensate Evergrande's independent minority shareholders without admitting liability.
Evergrande argues that the SFC neglected the interests of the company and its other creditors when handling the matter. The developer claims the regulator neither applied to the court for punitive measures as per standard practice, nor referred the case to the Department of Justice or the Market Misconduct Tribunal.
In its court filing, Evergrande pointed out that PwC acted as its auditor in its capacity as a certified public accountant, and is not a "regulated person" as defined under Hong Kong's Securities and Futures Ordinance. The company contends that the body responsible for regulating PwC should be the Financial Reporting Council.
Consequently, Evergrande believes the SFC lacked the independent authority to enter into a settlement agreement with PwC regarding the alleged market misconduct.
The property developer further questioned the fairness of the process, stating that the SFC did not consult Evergrande—now under the control of liquidators from Alvarez & Marsal—before signing the agreement and also refused to provide the company with a copy of the settlement.
Evergrande stated that it sent a letter to the SFC on May 8, requesting an open and cooperative dialogue regarding the agreement and seeking more information.
Simultaneously, Evergrande asked for the suspension of the settlement agreement's implementation until a final ruling is made in its civil lawsuit against PwC and PwC China for alleged breach of duty of care. However, the SFC rejected these requests in letters dated May 13 and May 28.
Evergrande argues that the settlement prioritizes compensation for independent minority shareholders without considering the overall interests of all creditors. The company claims this could cause "unfair prejudice" to creditors and contravenes the statutory order of payment priority under the liquidation system.
The developer stated that if its future civil lawsuit against PwC and related entities is successful, any compensation awarded would benefit all creditors. In contrast, the SFC's arrangement with PwC only benefits independent minority shareholders, effectively bypassing statutory mechanisms and judicial oversight and depriving Evergrande of the opportunity to protect its interests and voice its opinion.
Therefore, after the SFC repeatedly refused to commit to suspending the implementation of its settlement with PwC, Evergrande decided to seek a judicial review.
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