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

Hong Kong’s securities market regulator has defended a HK$1 billion (US$128 million) settlement with an accounting firm at the centre of an auditing scandal involving developer China Evergrande Group, saying it has unfettered powers to enforce discipline and a duty to protect the interests of independent investors.

In a judicial review hearing on Wednesday, lawyers for the Securities and Futures Commission (SFC) asked the High Court to dismiss a challenge by the developer’s liquidators, who are seeking to have the agreement with PricewaterhouseCoopers (PwC) Hong Kong quashed on the grounds of an abuse of power.

They argued that the watchdog had broad powers under the Securities and Futures Ordinance to settle disciplinary actions through pre-litigation settlements.

The lawyers suggested that the liquidators’ challenge was driven by a grievance that China Evergrande’s minority shareholders had been allowed to “jump the queue” and receive payment first when PwC’s ability to compensate the developer and its creditors remained in doubt.

The applicants’ legal counsel accused the regulator of circumventing judicial safeguards by threatening to take legal action against PwC Hong Kong and forcing it to make a payment, thereby preventing the court from determining the merits of the SFC’s requests.