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A Hong Kong court has ordered China Evergrande to go into liquidation, beginning a new and unpredictable phase in the collapse of the world’s most indebted property developer.
The liquidation order comes just over two years after the company formally defaulted on its debts, which left Chinese developers with a cash crunch that still holds back 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 that satisfied international creditors despite lengthy negotiations.
“There will be a situation where the court says enough is enough,” Chan said. “We believe it is appropriate for the court to issue a liquidation order against the company, and we do so.”
The decision will test the influence of Hong Kong courts in mainland China. Foreign claims are widely seen as having little influence in mainland China, and the real estate slump has become one of Beijing’s biggest political challenges.
Evergrande is listed in Hong Kong, but nearly all of its assets and most of its more than $300 billion in debt are in China. Officials have previously prioritized completing unfinished projects by developers.
The judge’s order allows liquidators to attempt to take control of Evergrande’s assets outside China, including its Hong Kong-listed subsidiary that took part in failed restructuring negotiations.
It could also trigger further lawsuits stemming from billions of dollars in losses related to the company’s bankruptcy.
Following the ruling, trading in Hong Kong-listed shares of Evergrande and its two subsidiaries was suspended.
Fergus Solin, a partner at the law firm Kirkland & Ellis, which represents a major group of Evergrande’s creditors, said after the hearing.That is the result of the company’s lack of involvement. [us].
“There is a history of last-minute involvement that has resulted in no results. And in these situations, the only person responsible for the company being dissolved is itself.”
In theory, Hong Kong has a Mutual Recognition Agreement on Insolvency and Restructuring that applies to some parts of China, so the ruling could give the liquidator control over some of the Evergrande assets in mainland China. This could pave the way for attempts to seize power.
However, it is unclear to what extent mainland courts will accept Hong Kong’s liquidation order. Asked about the issue, Saurin declined to comment.
Immediately after the court order, according to Chinese media reports, Evergrande President Sean Xiu responded that “we will do everything possible” to ensure the continued implementation of real estate development projects in China, and that It added that the subsidiary’s operations “continue to have no impact” because the court order was based in Hong Kong.
Mr Siu also said the court’s decision 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 written comments: An expensive process is unlikely to yield significant returns in the end. ”
Before the trading suspension and after the order, Evergrande’s share price fell more than 20% to HK$0.16, while the outstanding dollar-denominated bonds issued by the developer were trading at highly distressed levels, with 2025 A single maturing bond was trading at less than 2 cents at market price. dollar.
A previous agreement between Evergrande and foreign investors collapsed in September after Chinese authorities refused to grant some regulatory approvals. Authorities announced at the time that Evergrande Chairman Hui Kar Yang was placed under “enforcement measures” days later on suspicion of “unlawful crimes.”
The liquidation suit was filed in 2022 by offshore creditor Top Shine Global, alleging that Evergrande had failed to meet claims worth HK$863 million (US$110 million).
The decision could have implications for other developers who remain locked in lengthy restructuring negotiations with offshore creditors. Another Chinese developer, Jiayuan, was ordered liquidated by the same judge last year.