Hong Kong Court Orders China Evergrande Liquidation: A New Phase in Property Developer’s Collapse
Liquidation Order Puts China Evergrande in Unpredictable Terrain
A Hong Kong court has ordered the liquidation of China Evergrande, marking a turning point in the downfall of the world’s most indebted property developer. The court decision comes over two years after Evergrande’s official default, which has greatly impacted the struggling Chinese developer landscape. The inability to deliver a satisfying restructuring plan to international creditors during lengthy negotiations has led to this development. High Court Judge Linda Chan stated, “It would be a situation where the court says enough is enough. I consider that it is appropriate for the court to make a winding-up order against the company, and I so order.”
Test of Hong Kong Courts’ Influence in Mainland China and Impact on Beijing
The court’s ruling is expected to test the jurisdiction of Hong Kong courts in mainland China, where foreign claims tend to hold little influence. The property slowdown has become a significant political challenge that Beijing continues to grapple with. While Evergrande is listed in Hong Kong, most of its assets and liabilities exceeding $300 billion are in China. Chinese authorities have so far prioritized the completion of unfinished projects by developers.
In the wake of the court order, a liquidator may attempt to gain control of Evergrande’s assets outside of China, including its Hong Kong-listed subsidiaries that were involved in the failed restructuring negotiations. The liquidation order may also spur lawsuits arising from losses resulting from the company’s collapse.
Conflicting Legal Tensions between Hong Kong and Mainland China
The Hong Kong court order may pave the way for liquidators to attempt taking control of certain Evergrande assets in mainland China. However, uncertainties remain regarding the acceptance of the Hong Kong winding-up order by mainland courts. Given the mutually recognized agreement on insolvency and restructuring of certain mainland parts, it remains to be seen if mainland courts will acknowledge this order.
Following the court ruling, Evergrande’s Chief, Shawn Siu, expressed the company’s commitment to ensuring the continued delivery of property development projects in China. Siu emphasized that the operations of both onshore and offshore subsidiaries will remain unaffected by the court order, as it is grounded in Hong Kong.
Financial and Market Impact
Evergrande’s Hong Kong-listed shares and the shares of two of its subsidiaries were temporarily halted after the court ruling. The company’s shares took a significant hit, declining over 20% to HK$0.16, while its offshore dollar bonds traded at deeply distressed levels.
The decision has significant implications not just for Evergrande, but also for other developers entangled in drawn-out restructuring negotiations with offshore creditors. In a similar case last year, the same judge issued a winding-up order against Jiayuan, another Chinese developer.
