Auditor faces $2.5bn lawsuit over collapse of NMC
Auditor EY faces a $2.5 billion lawsuit for damages after the collapse of UAE healthcare operator NMC Health.
Administrator Alvarez & Marsal alleges the UK arm of EY was negligent in its work on NMC’s accounts between 2012 and 2018.
It filed the lawsuit seeking at least $2.5bn in damages in the Commercial Court in London on Friday.
“The issues that we found at NMC Health following our appointment were broad, complex and multilayered,” a representative for Alvarez & Marsal said.
“As part of our wide-ranging investigation into the situation, we have looked at the role of the auditors and have now launched formal legal proceedings against EY in the UK for audit negligence with regards to its work with the company between 2012 and 2018.”
EY will “defend the claim vigorously”, Reuters cited a representative as saying.
London-listed NMC Health collapsed in 2020 after activist investor Muddy Waters claimed that it had inflated its cash balances and understated its debt. An investigation revealed more than $4bn of hidden debt that led to the company’s failure.
NMC Health was founded by BR Shetty in 1975 and grew from a single hospital into the UAE’s biggest privately owned healthcare operator. The company was listed on the London Stock Exchange in 2012 and was valued at $11.32bn at its peak but went into administration in April 2020 after it declared $6.6bn debts, materially higher than the $2.1bn stated in its accounts.
Mr Shetty lived in the UAE for 50 years but returned to India in 2020. He has launched his own legal action in the US against former executives, banks and an auditor, claiming that they were responsible for a complex $5bn fraud.
The company’s creditors approved a restructuring plan in 2021 and in March, 34 NMC companies exited administration and became subsidiaries of a new group.
However, both UK-registered NMC Health and UAE-registered NMC Health will remain in administration until their restructuring and legal issues are resolved.
NMC said earlier this year that it was pressing ahead with the restructuring after 95 per cent of its creditors approved its plan to reduce its debt pile to $2.25bn.
“As administrators, we have an obligation to maximise returns for creditors and this action is part of those wider efforts,” the Alvarez & Marsal representative said on Friday.
The UK’s Commercial Court is part of the High Court of Justice. It handles complex and high-value national and international business disputes, often involving parties based outside the UK.