Auditors at EY are facing a possible $4bn (£3bn) legal action by administrators following a major accounting scandal at NMC Health.
In a bid to recover funds for the FTSE 100 company's out-of-pocket creditors, administrators at Alvarez & Marsal (A&M) said they have begun the process of making a legal claim against the Big Four firm by issuing a “preliminary notice of potential claim”.
EY is reported to have raised red flags about shortcomings in NMC’s accounts last year but has faced questions over its independence because the former head of its operations in the UAE, Abdulrahman Basaddiq, served as a non-executive director at NMC until February.
A preliminary notice is the first step in the litigation process. A decision by the administrators to press ahead and issue proceedings would be a fresh blow to EY, which is reeling from the collapse of another major audit client - German payments firm Wirecard.
Corporate undertakers from A&M have been assessing possible legal claims against parties with deep pockets to recover money owed to NMC’s creditors after the UAE-based firm collapsed with billions of dollars of undisclosed debt.
A claim against EY could be for as much as $4bn, the bulk of NMC's undisclosed debts, a person close to the administration said. However, any award would be likely to take into account the role of other parties in the firm's demise.
NMC is at the centre of several investigations, including one by the Financial Conduct Authority, following allegations of a complex fraud, including by its founder and former chief executive BR Shetty, an Indian businessman.
Mr Shetty claims he is the victim of a scam led by some of his trusted associates and is himself the subject of a criminal complaint in the UAE.
In a progress report on Friday, the administrators said they had racked up £12.1m in costs and drawn payments of £10m so far.
They said they do not expect to exceed either a previous fee estimate of £37.2m or an additional £24.9m earmarked for expenses such as legal advice.
A&M has secured $30m from investors to fund its work and has hired lawyers from DLA Piper and Quinn Emanuel to advise on possible legal claims.