Abu Dhabi court holds NMC founder Shetty liable in $5.39bn fraud

The latest:

NMC Healthcare founder Dr BR Shetty and former chief executive Prasanth Manghat were found liable for knowingly participating in a fraud that helped collapse one of the UAE’s largest private healthcare operators. The Abu Dhabi Global Market Court of First Instance ruled they dishonestly took part in the scheme between April 2, 2012 and April 9, 2020, holding both liable for fraudulent and wrongful trading.

Details:

• The ruling: The judgment was issued on November 5 by Justice Sir Andrew Smith in the ADGM Court of First Instance’s Commercial and Civil Division. It found both men liable on two counts, fraudulent trading and wrongful trading, over the same eight-year window.
• The $5.39bn figure: The court identified $5.39 billion as the starting point for determining the financial contributions the two men should make to reimburse NMC Healthcare’s assets on the fraudulent trading claims. It was explicit that this is not a final award, nor an order for each man to pay that sum.
• Findings on Shetty: The court found Shetty knowingly received substantial sums improperly transferred out of the NMC Group and used some of that money to acquire assets. It also found he failed to disclose securities linked to his personal financial facilities and allowed misleading financial statements to be published.
• The auditors: According to the judgment, Shetty also helped conceal the group’s borrowings from Ernst & Young, NMC’s auditors. The court found the group carried substantial undisclosed borrowings, with misleading statements making its financial position appear different from reality.
• Findings on Manghat: The court found the former chief executive knowingly enabled the unlawful transfer of NMC funds for the benefit of Shetty, himself and others. The scheme involved misappropriating group assets alongside efforts to hide the true state of the company’s finances.
• The bank’s case: Abu Dhabi Commercial Bank won a separate action against Manghat over losses tied to the collapse, establishing claims exceeding $1.19 billion in damages, subject to certain adjustments. The court found Manghat liable for the losses the bank sought to recover.
• The legal basis: ADCB established its claims under Articles 282 and 285 of the UAE Civil Code and Article 84 of the UAE Commercial Companies Law 2015. Recoverable damages included $1.02 billion in outstanding liabilities and roughly $168.98 million for loss of profits.
• How it unravelled: Short seller Muddy Waters alleged in December 2019 that NMC had inflated asset values and understated debt. An independent investigation uncovered more than $4.4 billion of previously unreported debt, and the company was placed into administration in April 2020.
• After the collapse: Restructuring completed in 2022, allowing 34 NMC companies to exit administration as subsidiaries of a new group. NMC Healthcare said its board appointed David Hadley, former chief executive of Mediclinic Middle East, as group chief executive.

Background:

Shetty founded NMC in 1975, growing it from a single clinic into the UAE’s largest privately owned healthcare operator. Its shares listed on the London Stock Exchange in 2012, and at its 2018 peak the company was valued at £8.58 billion, about $10.5 billion.

Between the lines:

The $5.39 billion is a calculation base, not a bill: the court set it as the opening point for working out each man’s contribution, leaving the actual numbers to a later stage. ADCB’s $1.19 billion is further along, with specific components already itemised, though still subject to adjustments.

What’s next

The court has directed a further hearing to resolve outstanding matters, including the financial and other consequences of its findings. That stage will determine how much Shetty and Manghat are each ordered to contribute.