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A Hong Kong court ordered China to wound up Evergrande, opening a new and unpredictable phase in the collapse of the world's most indebted property developer.
The liquidation order comes two years after the company's official default, which triggered a cash crunch for Chinese developers that still occupy the world's second-largest economy.
High Court Judge Linda Chan issued the order on Monday after the developer failed to come up with a restructuring plan to satisfy international creditors despite lengthy negotiations.
“This will be a situation where the court says enough is enough,” Chan said. “I consider it appropriate for the court to grant a winding-up order against the company, and so I order.”
The decision is set to test the reach of Hong Kong courts on the Chinese mainland, where foreign claims are widespread and the property slowdown has become one of Beijing's biggest political challenges.
Although Evergrande is listed in Hong Kong, almost all of its assets and most of its $300bn of liabilities are in China. Officials have so far prioritized completion of unfinished projects by developers.
The judge appointed Eddie Middleton and Tiffany Wong of restoration firm Alvarez & Marcel as Evergrande's liquidators. Speaking outside court, Wong said he would start by meeting the management to understand the company's affairs and discuss next steps.
In his written ruling, Chan said he decided to wind-up because Evergrande had “no restructuring proposal, let alone a viable proposal with the support of the requisite majority of creditors.”
His decision could spark further lawsuits stemming from billions of dollars in losses related to the company's collapse.
Trading in Hong Kong-listed Evergrande and two of its subsidiaries was halted after the ruling.
Speaking after the hearing, Fergus Saurin, a partner at the law firm Kirkland and Ellis, which represents a key group of Evergrande creditors, said: “The outcome does not surprise us. It's a product that fails to engage with the company [us].
“Last-minute engagements have a history of going nowhere. And in those situations, the company has only itself to blame for the failure.
In theory, the ruling could pave the way for liquidators to seize control of some of Evergrande's assets in mainland China, as Hong Kong has a mutual recognition agreement on insolvency and restructuring in parts of China.
However, it is unclear how far mainland courts will accept the Hong Kong winding up order. Asked about the issue, Saurin declined to comment.
Chinese media reported that after the court order, Evergrande chairman Shan Xiu responded that it would “do everything possible” to ensure it continued to deliver property development projects in China, and that the operational structure of its offshore and offshore subsidiaries was “not affected” by the court order based in Hong Kong.
Chiu was also quoted as saying the court ruling was “regrettable”.
Evergrande did not immediately respond to a request for comment from the Financial Times.
Brock Silvers, chief investment officer at Hong Kong private equity group Kaiyuan Capital, said in a written opinion: “Offshore creditors may not have good alternatives, but today's final order by the Hong Kong court will mark the beginning of a multi-year The expensive process is unlikely to yield significant recovery in the end.”
Before the trading halt and following the order, Evergrande's shares fell more than 20 percent to HK$0.16, while outstanding dollar bonds issued by the developer traded at deeply distressed levels, with a bond maturing in 2025 trading at less than two cents a share. dollar.
An earlier deal between Evergrande and international investors collapsed in September after Chinese authorities failed to provide certain regulatory approvals. Hui Ka Yan, Evergrande's chair, was placed under “mandatory measures” days later on suspicion of “illegal crimes,” officials said at the time.
A winding-up suit was filed by offshore creditor Top Shine Global in 2022, claiming Evergrande failed to honor claims worth HK$863mn (US$110mn).
The decision could have implications for other developers who are still locked in protracted restructuring talks with offshore creditors. Another Chinese developer, Jiayuan, received a cease-and-desist order from the same judge last year.
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