What’s going on here?

China's property titan Evergrande faces liquidation, pushing law firm Karas So to investigate service providers like former auditor PwC to recover creditor losses.

What does this mean?

Evergrande, once China's top property developer, defaulted on $23 billion in offshore debt, becoming the world's most indebted property firm with over $300 billion in liabilities. Hong Kong court-ordered liquidation began in January 2024 after Evergrande failed to present a restructuring plan. Hong Kong-based law firm Karas So, alongside court-appointed liquidators from Alvarez and Marsal (A&M), is investigating potential misconduct by service providers, including PwC, which is facing hefty fines and possible operational halts in mainland China due to auditing deficiencies. Evergrande's case exemplifies the intense scrutiny and lengthy processes that major Chinese corporate liquidations could face in the future.

Why should I care?

The investigation into Evergrande's collapse highlights significant risks in investing in Chinese real estate. Inaccurate financial reporting and corporate mismanagement can lead to catastrophic outcomes, shaking investor confidence. With at least five other Chinese developers ordered to liquidate since 2021, the ripple effects on global markets are worth monitoring closely.

Evergrande's liquidation could serve as a template for handling future large-scale corporate failures in China. Regulatory findings, such as overstating revenue by 564 billion yuan ($78 billion) at Evergrande’s unit Hengda, set an example of stringent oversight. As legal claims against PwC and others unfold, this case could establish new standards for accountability and transparency in the Chinese corporate sector.