EY’s Dragged into $2.7 Billion London Lawsuit after it Plans to Split Auditing and Consulting Arms

EY’s Dragged into $2.7 Billion London Lawsuit after it Plans to Split Auditing and Consulting Arms

EY’s plans to split its auditing and consulting arms have been dragged into a $2.7 billion lawsuit brought in London by the administrators of troubled hospital operator NMC Health PLC over concerns EY would be unable to pay if it loses the case.

Previously known as Ernst & Young, the company has been planning to split its auditing division from its consulting division, but reports this month have suggested that the move may be paused.

EY is one of the world’s “Big Four” auditors, along with Deloitte, PwC and KPMG – appeared to confirm the pause in Court filings released for a hearing at London’s High Court on 20 March 2023.

“NMC will be aware from press coverage … that the potential separation under consideration is paused,” the document read.

An EY spokesperson said in a statement, “This transaction is complex and will be the roadmap for re-shaping the profession, so it is important we get this right. We remain committed to the strategic rationale that underpins Project Everest (the proposed separation) and believe that a deal can and should be done.”

Last year a Court order was sought by NMC, which claimed that EY had failed to identify materially misstated financial statements between 2012 and 2018. It wants EY to explain the potential split to the Court.

Its lawyer Simon Salzedo said in Court filings stated that NMC is concerned that the proposed separation would “reduce EY’s assets and future income”, and that EY would be unable to pay $2.7 billion if NMC is successful at trial.

However, EY – which denies any breach of duty to NMC – contended it has already agreed to provide relevant information about the potential split to NMC.

EY’s lawyer Thomas Plewman also said in Court filings that, as the proposed separation has been paused, the application is ‘premature and unnecessary.’

Judge David Foxton opined that he was not going to make a Court order, but asserted that EY should notify NMC four weeks before any partnership vote on the split of EY’s business.

The judge also set a provisional trial date of April 2025.

NMC, which used to be listed in London, encountered trouble in late 2019 when short-seller Muddy Waters questioned its financials, which led to a sharp fall in its share price. As a result of the discovery of more than $4 billion in hidden debts within the company, the company went into administration the following year.