By Sam Tobin
LONDON (Reuters) -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.
The company, formerly known as Ernst & Young, has been planning to separate its auditing and consulting businesses, though reports this month suggested the move is likely to be paused.
EY – 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 Monday.
"NMC will be aware from press coverage … that the potential separation under consideration is paused," the document said.
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."
NMC, which sued EY last year for allegedly failing to identify that NMC’s financial statements were materially misstated between 2012 to 2018, asked for a court order requiring EY to provide details of the potential split.
Its lawyer Simon Salzedo said in court filings 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 – says 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 said on Monday that he was not going to make a court order, but 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, ran into trouble in late 2019 when short-seller Muddy Waters (NYSE:WAT) questioned its financials, which led to a sharp fall in its share price. It went into administration the following year after it disclosed more than $4 billion in hidden debt.