The liquidators of China Evergrande have initiated legal action against the audit firm PwC, accusing the company of "negligence" and "misrepresentation" in its audit work for the collapsed real estate conglomerate.

Lawyers of the liquidators filed a lawsuit against PwC Hong Kong and PwC Zhong Tian, the firm's mainland China branch, in March. This is according to court documents that were presented to the Financial Times on Tuesday. The documents, which had not been publicly available until now, do not specify how much money the liquidators may seek in damages.

The complaint filed with the Hong Kong High Court in March lays the groundwork for a legal dispute that could further burden PwC as the company anticipates sanctions from Chinese authorities over its work for Evergrande. PwC, which resigned as auditor of the real estate conglomerate last year, had certified Evergrande's clean financial record for over a decade before the company collapsed.

The liquidators have also taken legal action against the international real estate consulting company CBRE and the advisory group Avista Valuation Advisory over valuation reports they prepared for Evergrande and its subsidiaries in 2018.

China Evergrande was the world's most indebted property developer when it defaulted on international debts exceeding $300 billion in 2021. This triggered a comprehensive liquidity crisis in the real estate sector, sending shockwaves through the Chinese financial system.

The lawsuits filed in the name of the Evergrande liquidators, the restructuring specialists Eddie Middleton and Tiffany Wong from Alvarez & Marsal, illustrate how the developer’s collapse could have significant consequences for the global service companies that contributed to its rapid ascent.

In the lawsuit against the PwC entities, the liquidators' attorneys argue that the claims are based on "losses and damages" in connection with "breach of contract, breach of duty, misrepresentation, negligence, and/or unjust enrichment.

The lawsuit relates to a PwC audit report from March 2018 on Evergrande, covering the year up to December 2017, as well as other work for the developer and its subsidiaries. Such claims typically become time-barred if they are not filed within six years of the related events, said two lawyers familiar with the Hong Kong procedure.

Separate from this, PwC faces a potential fine from Chinese authorities for auditing Evergrande's mainland operations. The Chinese securities regulator stated in March that Evergrande's mainland real estate unit had inflated its revenues by $78 billion in 2019 and 2020. PwC partners fear that one of the highest penalties ever imposed in China against one of the Big Four firms may be imminent.

The Financial Times reported in February that Middleton and Wong were preparing a lawsuit against PwC over potential negligence. A Hong Kong judge appointed the pair as liquidators of Evergrande in January, after the offshore restructuring plans failed. However, restructuring specialists have said that it is unclear how much the liquidators could recover, as most of Evergrande's assets are located on the Chinese mainland, which operates under a different legal system.

On Monday, the liquidators of Evergrande announced in a statement to the Hong Kong Stock Exchange that they had initiated legal proceedings to recover "funds, including dividends and compensations" totaling approximately $6 billion from founder Hui Ka Yan and other top executives.

Another court document received on Tuesday revealed details about Hui's global assets, estimated to be worth up to 7.7 billion dollars. Hui's assets include two Rolls-Royce Phantoms, three jets, and two yachts, as well as properties in London and Los Angeles.

The Supreme Court of Hong Kong lifted a confidentiality order for judicial proceedings of the Evergrande liquidators in the region last week, as the liquidators explained in a stock exchange announcement on Monday.

PwC and CBRE declined to comment. Avista did not immediately respond to a request for comment.