Ernst & Young faces order

PUBLISHED : Monday, 20 October, 2003, 12:00am
UPDATED : Monday, 20 October, 2003, 12:00am


Liquidators of failed Akai Holdings will ask the High Court to force the accounting firm to hand over key documents

A court order is being sought to force Ernst & Young to hand over key documents relating to Akai Holdings, the flagship company of tycoon James Ting that spectacularly collapsed in 2000 after posting a record US$1.72 billion loss.

Staff from the firm, which audited Akai's accounts, may also be subjected to a public or private examination at the High Court, where they would be forced to answer questions before a judge.

An application is scheduled to be made by liquidators of Akai this week for the court to wield its power - in the context of an insolvency - to question people under oath and force them to produce books and documents in their custody.

It is the second time in less than six months that the 'Big Four' firm has found itself on the receiving end of such an application.

In May this year, a court gave the green light for a judge to question the accountancy firm's chairman Anthony Wu Ying-yuk on his 'apparently close personal involvement' with the collapsed New China Hong Kong (NCHK) group of companies that his firm audited.

The application this week concerns Akai, with creditors owed more than US$1 billion when it was ordered to be wound up in August 2000. The consumer electronics firm, formerly known as Semi-Tech (Global), recorded a US$1.72 billion loss in the year to January 2000, against a US$71.8 million loss the previous year.

Mr Ting, a former Akai chairman, was arrested in May this year by Hong Kong detectives after landing by helicopter at the Macau ferry terminal. He had been absent from Hong Kong for two years.

In May 2001, the Official Receiver's Office listed a number of concerns at Akai, including the apparent transfer of the entire business of the company to the Grande Group in December 1999. This was not disclosed to shareholders.

Ernst & Young provided auditing and consulting services to Akai more than two years after the accountancy firm's Toronto and New York offices stopped acting for Mr Ting's Semi-Tech operations. The reason given for dropping Semi-Tech as a client was a 'breakdown in trust'.

Bondholders of Semi-Tech filed a lawsuit in New York seeking US$578 million from Mr Ting, Semi-Tech directors, Bankers Trust and Ernst & Young in November 2001.

Liquidators from RSM Nelson Wheeler, who have been attempting to trace and seize assets in Hong Kong, are to ask a judge to order Ernst & Young to hand over books and accounts detailing Akai's assets and liabilities.

An order is also being sought to enable the liquidators to quiz two accountants from Ernst & Young who were responsible for audit or other accountancy work at Akai, according to sources close to the case.

Ernst & Young declined to comment.

In the case of NCHK, the accountancy firm was ordered to hand over audit papers to help liquidators 'fill important gaps' in the affairs of the company that left creditors HK$1.5 billion out of pocket.

Businessman Tsui Tsin-tong's NCHK went into voluntary liquidation in March 1999. The company had net assets of HK$221 million in 1993, but slid into the red with net liabilities of $590 million in 1996, and $564 million by 1997.

Mr Wu had sat on NCHK's executive committee while his firm acted as its auditor. Liquidators found that Mr Wu signed off on a number of audits and had the power to jointly sign cheques on behalf of the group.

Liquidators of NCHK informed the High Court that Mr Wu also failed to disclose a number of personal dealings with companies within the group while maintaining an account with NCHK Capital, one of the accounts on which he signed off as auditor.

It is understood that Ernst & Young will appeal the decision to allow an examination of Mr Wu.