The administrators of NMC Health have begun legal action against the company's auditors, Ernst & Young.
In an initial progress report, administrators Alvarez & Marsal said that they are continuing to assess what legal action can be taken against individuals or third parties to recover some of the money that went missing from the company and have chosen lawyers to advise on potential actions.
Administrators "have initiated the legal process of making a claim against the company's auditor, Ernst & Young LLP, by issuing a preliminary notice of potential claim", the report states. It did not indicate the size of the potential claim, but a source told the Financial Times it was likely to be "in excess of £1bn" ($1.3bn).
Theoretically, the claim could be as large as the difference between the $6.6bn of debt the company was discovered to owe during an investigation into its affairs and the $2.1bn declared in its last set of publicly filed accounts.
Ernst & Young is also facing a probe by the UK's accounting industry watchdog, the Financial Reporting Council, into its work at NMC Health.
"We can confirm that EY has received a preliminary notice to a letter of claim from the administrators to NMC Health. It would be inappropriate to comment further," a spokeswoman for EY told The National.
The filing of a preliminary notice kick-starts a process by which a claim will need to be brought within six months. It is understood that the case will likely be filed in London, where NMC Health was listed on the stock exchange.
NMC Health is the UAE's largest private healthcare provider. The company reached a peak valuation of £8.58 billion in August 2018. However, its shares came crashing down after US-based short seller Muddy Waters Research published a report in December 2019 alleging the company had inflated its cash balances, overpaid for assets and understated its debts. It was placed into administration in April after investigators highlighted suspected fraudulent behaviour.
Progress reports are documents filed to UK company registrar Companies House in six-month increments after administrators are appointed.
The report states that "given the complexity of the investigation and legal claims / asset recovery strategy", it is not yet possible to say how much administrators expect to recover from legal action or how long it will take.
"It remains likely that the investigation and claims recovery strategy will require significant resources over a period of time," the report said.
"Given the sensitivity and potential to prejudice prospective claims, we are unable to provide further details at this time."
Administrators had continued to allow the UAE operations of the company to trade outside of an insolvency process, but had to place its main UAE business, NMC Healthcare, and 35 other local entities into administration through the Abu Dhabi Global Markets Courts last month to protect against creditor claims filed against them in the UAE.
Following this, Alvarez & Marsal managing director Max Frangulov told creditors that an investigation report will be filed by December which will outline “details of the fraud that took place" and will identify "the perpetrators and any colluding parties”.
Creditors were also told that administrators will look to achieve either a lender-led restructuring or a sale of the business, which still employs about 15,000 staff in the UAE and about 1,800 doctors, by April next year.
The administrators' fees for the work done during the first six months of the administration have reached more than £12.1 million, having spent more than 23,000 hours on the case, the progress report shows. A further £9.5m in expenses has been incurred, the bulk of which relates to legal costs and liability insurance.