Participating Employer

I have a plan that has multiple Participating Employers in it. One of those PE's terminated with the original Employer 401(k) plan. They are wanting to start their own 401(k) plan. Would this cause any issues?

Probably.  What became of the prior benefits? - the "easy" way would have been to just spin off "their sub-plan" into its own and carry on from there for their employees.

Was there any change is the relationship between the PE and OE (change in ownership, spinoff, ...)?  Was or is the PE part of a controlled group with the OE?  If not, was or is there any other affiliation between the PE and OE?  Is the OE 401(k) plan a MEP?

There is a pathway forward and likely it will be influenced by the answers to these questions.