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PwC has delayed payouts to recently retired partners in Hong Kong and mainland China as it navigates the financial fallout from its role auditing failed Chinese property developer Evergrande.
Several equity partners who retired in recent months have yet to be repaid any of the capital they contributed when they joined the partnership, said four people with knowledge of the matter.
The Big Four firm has in the past repaid partners about half of the sum within months of retiring, with the rest following later, the people said. The recent changes mark a delay to the normal schedule for repayment and would help the firm conserve cash.
There is no suggestion that by taking longer to repay the money, PwC has breached its obligations to the former partners under the shareholder agreement governing the firm.
The delays come as PwC grapples with the financial consequences of its audits of Evergrande, to which it gave a clean bill of health for more than a decade.
Since the developer’s collapse, PwC has been fined Rmb441mn ($62mn) and was banned from doing business for six months by mainland Chinese authorities, which said the firm “concealed or even condoned” fraud in its Evergrande audits.
Although the ban has ended, PwC has lost revenues from Chinese clients that switched to rival auditors, the Financial Times reported in July. It also faces a possible lawsuit from Evergrande’s liquidators that could saddle it with significant costs, though court filings did not say how much money the liquidators might sue for.
The firm “needs to have ample liquidity” amid the turbulence, said a recently retired PwC partner. The payout delays apply to a broad group of partners, not only those who worked on Evergrande’s audits, said the people.
PwC declined to comment for this article.
The firm resigned as Evergrande’s auditor in 2023. In March last year, Beijing accused the developer and its founder Hui Ka Yan of inflating its revenues by almost $80bn over 2019 and 2020.
At least 66 PwC China partners have left their roles in recent months, the biggest wave of departures in five years.
When partners exit, the firm buys back their shares at face value, according to PwC’s Hong Kong shareholders’ agreement, seen by the FT.
All of the money must be repaid within 12 months, except for up to HK$200,000 (US$25,640) which can be withheld until 18 months after the termination date.
The capital owed can amount to about 40 per cent of partners’ final-year income, meaning it is a significant sum but typically not the mainstay of their retirement plan, said two former partners.
Repayments could run to the millions of Hong Kong dollars for some senior partners, said two people familiar with the situation.
PwC has been struggling to retain key clients in China. In addition to the ban, Chinese regulations bar state-owned groups and mainland-listed companies from hiring auditors that have been fined in the past three accounting years. Some Hong Kong-listed clients have also dropped PwC in recent months.
The firm’s China unit lost about two-thirds of its accounting revenues from mainland-listed clients in the first half of last year, the FT previously reported, underscoring the scale of the fallout from its Evergrande audits.
