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The Dubai Financial Center Court has decided to hear a long-delayed $600 million claim from managers of collapsed private equity firm Abraaj against KPMG.

The case has been mired in legal limbo since March 2021, when Abraaj first sought $600 million in damages over alleged KPMG auditing errors.

In April 2021, KPMG filed a competing claim against Abraaj in the domestic courts of Dubai. Both sets of proceedings were brought before the Joint Judicial Council, a legal body that adjudicates jurisdiction between local Arabic-speaking and common-law English-speaking courts in the Dubai International Financial Centre.

Subsequently, the parties agreed in January 2022 to suspend the DIFC proceedings. However, the JJC has not ruled on the KPMG case since March 2021 and has not yet issued any decision.

In an online hearing, DIFC Court Judge Wayne Martin last week lifted the stay on DIFC Court proceedings, despite objections from KPMG’s legal team.

“The court can exercise jurisdiction and it is very much in the interests of justice for the court to do so given the undue delay (in the JJC ruling),” he said.

KPMG will appeal the decision, calling it a “procedural step” that “does not address the substance of the plaintiff’s claim.”

“We will continue to vigorously defend any claims related to the Abraaj affair,” KPMG said. “Responsibility for its failure lies with Abraaj’s board and management, who committed significant fraud and deliberately misled auditors and investors.”

Abraaj founder Arif Naqvi, who is challenging extradition proceedings in the United States, denies any wrongdoing, as do most former managers and board members. Two former executives have pleaded guilty to fraud charges brought by the U.S. Department of Justice.

The DIFC ruling could expose KPMG to further legal issues arising from Abraaj’s work. The company went bankrupt in 2018 with $1 billion in debt after investors accused it of mishandling funds. Former employees said they have yet to receive their full dues.

Last year, the DIFC regulator provisionally fined KPMG and its former partners $2 million for failing to follow international standards in its audit of Abraaj Dubai Holdings.

A separate Dubai case brought by the Abraaj Fund against KPMG found the Big Four accounting firm liable for $231 million in damages. The ruling was overturned by the Supreme Court and remanded to the Court of Appeal for review. KPMG said it welcomed the decision but declined to comment further.

Executives at KPMG and other firms have privately warned that large fines tied to audits of large, troubled regional companies could undermine their ability to perform audit functions in the future.

Auditors face numerous questionable accounting cases in other jurisdictions involving the collapse of other companies.

Additional reporting by Michael O’Dwyer


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