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A Hong Kong court has ordered China Evergrande to be wound up, in a ruling that opens a new and unpredictable phase in the collapse of the world’s most indebted property developer.
High Court Judge Linda Chan issued the liquidation order on Monday after the developer was unable to come up with a restructuring plan that would satisfy international creditors, despite months of negotiations.
“It would be a situation where the court says enough is enough,” Chan said. “I consider that it is appropriate for the court to make a winding-up order against the company, and I so order.”
Trading was halted in the Hong Kong-listed shares of Evergrande and two of its subsidiaries after the ruling.
The court order is a critical milestone in the drawn-out failure of Evergrande, which defaulted on its international debts in late 2021 and sparked a liquidity crisis across China’s property developers.
It will allow a liquidator to attempt to take control of Evergrande assets outside China, and could open up other lawsuits related to the billions of dollars of losses related to its collapse.
But its practical implications in the Chinese mainland, where almost all of Evergrande’s assets and the vast majority of its more than $300bn in liabilities are located, remain uncertain.
Evergrande “is still insolvent” and “there is still no viable restructuring proposal” despite multiple adjournments, Judge Chan added, rejecting a request from Evergrande’s lawyer seeking another adjournment with a revised timetable.
Speaking outside the courtroom after the hearing, Fergus Saurin, a partner at law firm Kirkland and Ellis, which represents a key group of Evergrande creditors, said: “We are not surprised by the outcome. It’s a product of the company failing to engage with [us].
“There has been a history of last-minute engagement which has gone nowhere. And in the circumstances, the company only has itself to blame for being wound up.”
In theory, the ruling could pave the way for liquidators to attempt to seize control of some Evergrande assets in mainland China, since Hong Kong has a mutual recognition agreement on insolvency and restructuring that applies in some parts of China.
But it is not clear that mainland courts would accept the Hong Kong winding-up order.
Asked about the issue, Saurin declined to comment.
Brock Silvers, chief investment officer of Hong Kong private equity group Kaiyuan Capital, said in a written comment that a newly appointed liquidator could gain control over offshore assets, but “any such authority would remain unrecognised onshore”.
“Offshore creditors may lack good alternatives, but a wind-up order from the Hong Kong court today would be the beginning of a multi-year, very costly process ultimately unlikely to yield significant recoveries,” he said.
Bond investors said the ruling would have little immediate impact in mainland China and that creditors stood a slim chance of making effective claims onshore.
“At best they can liquidate offshore assets first, then make a claim onshore,” said the head of fixed-income trading at one Chinese wealth manager in Hong Kong. “If they don’t do this step, they can’t make a claim onshore at all.”
Before the trading halt, shares in Evergrande fell more than 20 per cent to HK$0.16 following the order, while outstanding dollar bonds issued by the developer traded at deeply distressed levels, with one bond maturing in 2025 trading at less than two cents on the dollar.
A previous deal between Evergrande and international investors fell apart in September after Chinese authorities failed to grant some regulatory approvals. Hui Ka Yan, Evergrande’s chair, was placed under “mandatory measures” days later on suspicion of “illegal crimes”.
The winding-up lawsuit was filed in 2022 by offshore creditor Top Shine Global, which said Evergrande had failed to honour HK$863mn (US$110mn) worth of claims.
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