Abu Dhabi court finds NMC Healthcare founder Dr BR Shetty liable in case involving $5.39bn

NMC Healthcare founder Dr BR Shetty and the group's former chief executive, Prasanth Manghat, have been found liable for knowingly participating in a fraud that helped bring down one of the UAE's largest private healthcare groups.

The Abu Dhabi Global Market Court of First Instance's Commercial and Civil Division ruled that both men dishonestly participated in the fraud against the NMC Group between April 2, 2012 and April 9, 2020.

In a judgment issued on November 5 by Justice Sir Andrew Smith, the court held both men liable for fraudulent trading and wrongful trading.

It identified $5.39 billion as the starting point for determining the financial contributions they should make to reimbursing NMC Healthcare's assets in relation to the fraudulent trading claims. The figure is not a final award or an order for each man to pay that amount.

The ruling also favoured Abu Dhabi Commercial Bank, which brought a separate case against Mr Manghat over losses linked to the NMC case. The bank succeeded in establishing claims that included more than $1.19 billion in damages, subject to certain adjustments.

The case concerns the movement of large amounts of money out of the NMC Group from April 2, 2012, to April 9, 2020. The fraud involved misappropriating NMC Group assets, alongside efforts to hide the true state of its finances.

The court found that the group had substantial borrowings that it failed to disclose properly. Misleading financial statements also made its financial position appear different from reality.

NMC Healthcare was founded by Dr Shetty in 1975. It grew from a single clinic to become the UAE’s largest privately owned healthcare operator, employing thousands of people. The company’s shares were listed on the London Stock Exchange in 2012 and at its peak in 2018, it was valued at £8.58 billion ($10.5 billion).

However, the business crashed after a report from short seller Muddy Waters in December 2019 alleged that the company had inflated the value of its assets and understated its debt. An independent investigation uncovered more than $4.4 billion of previously unreported debt, leading to the company being placed into administration in April 2020.

In 2022, the restructuring process was completed and allowed 34 NMC companies to exit administration and become subsidiaries of a new group. NMC Healthcare said its board appointed David Hadley, former chief executive of Mediclinic Middle East, as the group’s new chief executive.

What the court found against Dr Shetty

The court found that Dr Shetty had dishonestly participated in the fraud throughout the relevant period.

Among its findings, the court said he knowingly received substantial amounts of money improperly transferred from the NMC Group and used some of those funds to acquire assets.

He also failed to disclose securities linked to his personal financial facilities and allowed misleading financial statements to be published.

He also helped conceal the group's borrowings from auditors Ernst & Young.

ADCB wins its case against Manghat

The court also found that Mr Manghat knowingly enabled the unlawful transfer of NMC funds for the benefit of Dr Shetty, himself and others.

In the separate action brought by ADCB, the court found that the bank had established its claims against Mr Manghat under Articles 282 and 285 of the UAE Civil Code and Article 84 of the UAE Commercial Companies Law 2015.

The damages recoverable by the bank included $1.02 billion relating to outstanding liabilities and approximately $168.98 million for loss of profits, subject to certain adjustments.

The court found Mr Manghat liable for the losses the bank sought to recover.

However, the case is not entirely over.

The court has directed a further hearing to resolve outstanding matters, including the financial and other consequences of its findings.

For NMC's creditors and those seeking to recover money lost in the collapse, the judgment marks an important step towards determining the financial responsibility of those the court found to have participated in the fraud.