Questions Raised About PWC Destroying Documents

Media Release
Wednesday 10th May 2017

QUESTIONS RAISED ABOUT PRICEWATERHOUSECOOPERS DESTROYING DOCUMENTS

The liquidator of David Henderson’s failed property development company, Property Ventures Limited (“PVL”), this week headed to the High Court to contest a security of costs application, ahead of next year’s landmark case against PricewaterhouseCoopers (PwC) and the Directors of PVL.

“The case against PwC was outlined in Court for the first time this week, and the evidence raises serious questions about the actions of PwC,” liquidator Robert Walker said today.

“Justin Smith QC submitted in Court today, that plainly, relevant documents have gone missing or have been destroyed, including documents which the plaintiffs can regard as supporting their case

“PWC has admitted after four years that it no longer has key documents relating to the critical audit period, and cannot recover its electronic files as part of the Court discovery process – which in the words of its own lawyer in a case could reach $1 billion in liability” said Mr Walker.

“This is the largest accounting firm in New Zealand. PwC specialises in document management, forensic IT services, disaster recovery and document retention, and it supplied just two emails from the lead auditor as part of the discovery process. According to PwC, it kept only one hard copy of key PVL documents that were lost in the Christchurch earthquake, and its electronic system failed to back up relevant documents over several years.”

Mr Walker added “It was also alleged in Court that PwC knew from 2006 that PVL had serious cash flow issues when it was appointed as auditor, yet evidence presented yesterday alleges that PWC assisted PVL to declare a materially better financial position than was warranted”

“PWC’s lawyer admitted in the Court of Appeal last year that property development companies are always insolvent – essentially confirming that PVL was insolvent in 06/07 because it was a property development company. However, PWC issued audit reports for both those financial years which gave confidence to PVL’s creditors and investors, that PVL had the ability to meet its financial obligations.

If PVL was insolvent, those audit reports from PWC should not have been issued,” he said.

“It is also alleged that PWC failed to properly scrutinise the enormous increases in the land valuations of Ladies Mile and Gardez – the valuation jumps in 2006, at a time when PVL had serious cash flow issues and was insolvent, should have raised significant red flags.”

Mr Walker said “It is alleged that PWC required documents relating to the increase in the Gardez land valuation by over $19m be backdated so that it could be included in PVL’s 31 March 2006 annual return – instead of the following year. This enabled PVL to declare a materially better position for 2006 than was warranted.”

“It is also alleged that, in direct conflict with its role as auditor, PWC assisted PVL in avoiding major GST penalties amounting to at least $1.228m over the Te Anau development - PVL’s inability to pay the GST owing indicated it was in financial difficulties”

“PWC was also advising on PVL’s Kapiti transaction in 2007 to get cashflow, at the same time as PVL was defaulting on loans and couldn’t pay its creditors – again, in direct conflict with its role as auditor. This was described in Court as an example of loan washing – a term used to describe a situation in which a new loan is used to pay off an old one, so that the lender can avoid having to acknowledge a loan default to the market” he said.

The case against both the PVL Directors and the auditors is a landmark case. Not only do the out of pocket investors and creditors have a chance of recovering some of their losses, but it sets a bench mark for the standards that are required in future for the conduct of directors, and the standard of care required by auditors in New Zealand.

ENDS

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