Justice Linda Chan, of the Hong Kong High Court, decided on Monday, January 29, to liquidate Chinese property developer Evergrande Group, which has more than $300 billion of total liabilities and around $240 billion of assets.
Chan noted that no satisfactory restructuring plan has yet to be put in place two years after a default on a bond repayment.
The High Court has appointed Edward Middleton and Wing Sze Tiffany Wong, managing directors of Alvarez & Marsal Asia, as the liquidators of China Evergrande Group. Middleton has extensive experience in insolvency and restructuring, including as the lead liquidator of Lehman Brothers' Asia operations. Wong has over 20 years experiences in restructuring and insolvency, including the restructuring of China's Luckin Coffee.
Wong said in a media release: "It is important to emphasise that the winding up order had been made to the parent company only. It doesn't have a direct impact on the operations of the subsidiaries, most pertinently the subsidiaries operating in the mainland. Our intention is to work with existing management to address the interests at stake and achieve a resolution that minimises further disruption for all stakeholders."
The decision will be felt throughout the Chinese property market, although Evergrande has said it plans to finish any unbuilt homes across the country. The Guangzhou-based developer can also still appeal against the verdict.
Lance Jiang, restructuring partner at law firm Ashurst, commented in a media release: “The market will pay close attention to what the liquidators can do . . . especially whether they can achieve recognition from any of the three designated PRC courts under the 2021 Arrangement regarding Cooperation on Cross-border Insolvency Cases between the mainland and the Hong Kong SAR. The liquidators will have very limited powers of enforcement over onshore assets in mainland China if they cannot get such recognition.”
Jiang added: “If Evergrande is put into bankruptcy administration by a PRC court, international investors will need to see whether the PRC court-appointed administrator can work with the liquidators appointed by the Hong Kong court to achieve a transparent, cooperative and fair restructuring or liquidation of Evergrande.”
Trading was halted in China Evergrande and its listed subsidiaries, China Evergrande New Energy Vehicle Grou, and Evergrande Property Services, after the verdict.
Some reports have suggested that creditors are only expecting a recovery rate of aroud 3% from Evergrande.
