Administrators sue EY for NMC 'negligence'

25 May 2022 3 min. read

Following the collapse of NMC, administrators from Alvarez & Marsal have levelled a legal claim against EY. The claim suggests the Big Four firm neglected its duties as auditor of the hospital operator over a six-year period.

Alvarez & Marsal (A&M) is a global professional services firm that provides advisory, business performance improvement and turnaround management services. With over 5,400 people across four continents, the firm leverages its restructuring heritage for corporates, boards, creditors, private equity firms, law firms and government agencies facing complex challenges. A&M’s noted capability of delivering multi-jurisdiction results was a key draw in landing it a role on the widely reported NMC restructuring.

Abu Dhabi-based NMC saw its health deteriorate rapidly after, in 2019, short-seller Muddy Waters questioned its financials – leading to a sharp fall in its share price. A subsequent investigation led to the discovery of some $4 billion of debt, which had apparently been hidden from its balance sheet, and saw the firm placed into administration in April 2020.

Administrators sue EY for NMC 'negligence'

A&M worked closely with creditors and a new management team at NMC, led by Chief Executive Officer Michael Davis, to design and implement a three-year business plan. This saw the core operations of NMC Healthcare Group exit administration in the UAE, allowing a newly formed holding company to chart a fresh path in the provision of world class community-first healthcare. However, the United Kingdom-registered NMC Healthcare PLC and UAE-registered NMC Healthcare Ltd remain in administration, while restructuring and legal issues related to these entities are resolved.

What this meant was unclear, until the administrators filed a lawsuit against EY in the UK at the end of April. The administrators had reportedly been preparing the legal action for well over a year, but the paperwork was filed at the High Court in London last month. It has since been reported by Sky News that, if it is proven, EY stands to be sued for at least $2.5 billion for alleged negligence in its audits.

An email from A&M, published by Insurance Journal, stated that as administrators, the professionals have “an obligation to maximize returns for creditors” before noting that this action is “part of those wider efforts.” According to the note from the spokesperson, the lawsuit against EY in the UK pertains to alleged negligence on the audit work it performed between 2012 to 2018.

“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,” the spokesperson went on.

In another email, EY meanwhile stated it was aware of the claim, and would defend it “vigorously.” However, it adds to a string of legal headaches facing the firm globally.

EY is already under a separate investigation by the UK accounting regulator over its work at NMC. And the company is also a defendant in an $8 billion claim filed in New York last year by NMC’s founder BR Shetty. As well as taking aim against the auditor, that claim also implicates NMC’s banks and the hospital group’s former chief executive – who Shetty argues had been central to a “co-ordinated and deliberate conspiracy” in which billions of dollars were stolen from the business empire.