China Evergrande Group has been ordered to be liquidated after the Hong Kong High Court approved a petition by creditors to wind up the world’s most indebted property developer, making history as the city’s first court-ordered liquidation. The big question is to what extend this will affect Evergrande's projects in mainland China.
Justice Linda Chan granted the winding-up order on January 29 after a 18-month long hearing. The Guangzhou-based company can still appeal against the order. The court also appointed provisional liquidators. “The hearing has lasted for one and a half years, and the company still has not been able to bring forward a concrete proposal” to restructure its USD328 billion in liabilities, Justice Chan said in her ruling. “I think it is the time for the court to say enough is enough.” The provisional liquidators will now take over Evergrande’s management and handle its affairs. This includes negotiating debt restructuring with creditors and taking control of its assets, books and records in accordance with the liquidation procedures in Hong Kong.
Creditors will each have to complete and submit a proof of debt form to the provisional liquidators. They can also urge the liquidators to hold meetings to update them about the progress of the restructuring. Evergrande’s Hong Kong staff can also claim unpaid salaries and dues from the Protection of Wages on Insolvency Fund. The court order, however, faces cross-jurisdictional challenges as most of the company’s assets are located in mainland China. Evergrande has more than 1,200 projects at different stages of progress, ranging from near completion to under construction, according to its 2022 annual report. “The market will pay close attention to what the liquidators can do, especially whether they can achieve recognition from any of the three designated courts in the People’s Republic of China under the 2021 Arrangement regarding Cooperation on Cross-border Insolvency Cases between the mainland and Hong Kong,” said Lance Jiang, Partner at Ashurst. “The liquidators will have very limited powers of enforcement over onshore assets in mainland China if they cannot get such recognition.” Anne Stevenson-Yang, Founder of J Capital, expects the liquidation process to be difficult as China and Hong Kong are two different judicial jurisdictions. “I think the point is there isn't really an orderly process,” she told The Guardian. Redmond Wong, Chief China Strategist at Saxo Markets, said the likelihood of Evergrande shareholders in Hong Kong getting anything out of the winding up process was “very low”.
For many years Evergrande succeeded in persuading the authorities to grant it more time to restructure its debts. It won its seventh reprieve on December 4 when creditors surprisingly failed to push for a liquidation. An ad hoc group of offshore creditors that collectively hold more than USD6 billion in offshore notes joined the petition to liquidate the company afterwards. The debt restructuring plan promised by Evergrande’s team failed to materialize, “so why should the company still ask for further adjournment?” Justice Chan said in response to the developer’s plea for another adjournment. The lawsuit was initiated in June 2022 by Top Shine Global, whose ultimate beneficiary was Lin Ho-man, in an attempt to recover HKD862.5 million from a botched investment in Evergrande made in March 2021. Lin, 32, said in an interview with Tencent News earlier this month that he had offloaded his debt holdings in September by selling Top Shine, but did not offer details. Evergrande Founder Hui Ka Yan is under investigation for corruption and other crimes.
This overview is based on reports by the South China Morning Post and The Guardian.
