In March 2026, Hong Kong-listed veteran company HC Group encountered an unprecedented financial trust crisis. On March 20, PricewaterhouseCoopers (PwC) officially resigned as the company's auditor. Prior to stepping down, the auditor identified multiple anomalies in the group's B2B business involving large short-term prepayments and refunds, with some suppliers sharing contact details with subsidiaries and transactions lacking sufficient supporting documentation. The auditor explicitly stated that the related transactions "lacked commercial substance" and recommended establishing an independent investigation committee. After the two parties failed to agree on additional audit procedures, the company's board requested PwC to resign, to which the auditor reluctantly consented.
Concurrently, trading in the company's shares was suspended starting March 18, with expectations that the audited 2025 annual results could not be published by March 31, raising the imminent risk of an extended trading halt.
Details of the auditor's resignation reveal that large prepayments were "quickly made and swiftly returned." According to a March 23 announcement by HC Group, PwC identified several critical issues during the audit of the 2025 financial statements that breached auditing standards.
The core concerns centered on the group's B2B business segment: auditors discovered that the group had engaged in short-term, large prepayments to certain suppliers, which were refunded shortly afterward, with high frequency and substantial amounts. More alarmingly, some transaction counterparts shared contact information such as phone numbers and addresses with group subsidiaries, yet these transactions lacked adequate purchase orders and contractual support. This pattern—characterized by rapid fund movements, overlapping connected parties, and incomplete documentation—is a classic red flag for off-balance-sheet financing or fictitious transactions.
PwC clearly recommended forming an independent investigation committee, with professional advisors reviewing the commercial rationale and compliance of such transactions. However, company management did not fully cooperate. The announcement disclosed that due to these unresolved matters, which could significantly impact the audit timeline, the company had ceased providing PwC with the information and documents required for the 2025 audit.
Additionally, the auditor raised questions about the accounting treatment of prepaid transportation costs and related government subsidies in the company's cotton trading business. PwC repeatedly requested detailed 12-month cash flow forecasts to assess going concern assumptions, but sufficient information was not provided. Ultimately, as both sides could not agree on the timeline for additional audit procedures and extra fees, PwC resigned at the board's request.
Suspicions of off-balance-sheet financing are not without precedent. Between 2024 and 2025, HC Group's core subsidiary, Beijing Zhaoxin Information Technology Co., Ltd., attracted regulatory attention due to fund transfer issues.
Zhaoxin, in which HC Group holds an indirect stake of approximately 64.2%, primarily engages in IoT identification and digital solutions. Public records show that from 2016 to 2020, Zhaoxin provided loans totaling over RMB 100 million to a company named "Yuyao Dezhan Trading Co., Ltd." Notably, Dezhan frequently repaid the loans at the end of June and December, only to borrow again the following month. This pattern of "month-end repayments and month-beginning borrowings" suggests potential window-dressing of financial statements or evasion of disclosure requirements for fund utilization.
Deeper connections emerged: Sun Yanting, the former controlling shareholder of Dezhan, shares the same name as the financial director of Zhejiang HC Investment Co., Ltd., a former associate of HC Group. Between 2017 and 2020, Dezhan and Zhejiang HC shared a business phone number, with Zhejiang HC then being a 29.6%-owned associate of HC Group. Zhaoxin consistently claimed no connected relationship with Dezhan, but the coincidence of business records and identical names casts doubt on this assertion.
Ironically, in 2020, Zhaoxin charged Dezhan an annual interest rate of 8.5% on loans, while HC Group provided loans to associate Zhejiang HC at a rate as high as 10%. This inverted interest rate structure—where a subsidiary lends to a purported non-connected party at a lower rate than the parent charges an associate—further fuels skepticism about the rationality of fund flows.
Beyond the B2B fund concerns, the auditor's assessment of the company's going concern capability was a major trigger for PwC's resignation. The announcement explicitly mentioned that PwC requested detailed 12-month cash flow forecasts to evaluate the reasonableness of management's going concern assumption.
However, the company failed to provide adequate information. This detail is critical—under auditing standards, if auditors cannot obtain sufficient evidence regarding cash flow projections to support the going concern assumption, it directly leads to an inability to issue an audit opinion. HC Group had previously projected a massive annual loss of RMB 1.7 to 2 billion for 2023, with cumulative losses nearing RMB 4 billion since 2019. By February 2026, over 73% of the shares in its core subsidiary, Beijing Zhaoxin, were under judicial freeze until 2029, further exposing liquidity pressures at the group level.
On the same day as PwC's resignation, HC Group announced the appointment of Rongcheng (Hong Kong) CPA Limited as the new auditor, effective March 23, 2026. The company stated that it had established an independent investigation committee, supervised by the audit committee, to examine the B2B prepayment issues, with professional advisors engaged to assist. Evaluations by management regarding other matters and discussions with lenders are also underway.
However, changing auditors means the audit process must restart. The company clearly announced that it cannot complete the publication of the audited 2025 financial statements by March 31, 2026. Under Hong Kong exchange rules, if a listed issuer fails to publish annual results on time, share trading will be suspended. The company's shares have been suspended since March 18, and the halt will continue until the results are disclosed.
What lies ahead for this former B2B giant? Once known as "Northern HC," rivaling Alibaba's Jack Ma, HC Group has seen its shares plummet to barely HK$0.10, with market value evaporating over 99%. Its fall from grace serves as a cautionary tale. Transformation toward industrial internet failed to curb persistent losses, subsidiary fund transfers are clouded by suspicion, and the auditor resigned due to insufficient evidence—these are not hallmarks of a healthy enterprise.
For investors, greater risks remain: Can the independent investigation clarify the details behind the "large prepayments"? Can the new auditor complete the audit swiftly? Can the company secure new financing before cash runs dry? A series of questions await answers from this once-peer of Alibaba in the B2B arena.