Judge orders liquidation of Chinese property giant Evergrande

A liquidation order has been issued by a Hong Kong court against Chinese property giant Evergrande.

The company has over $325 billion in liabilities.

Judge Linda Chan expressed frustration over Evergrande’s repeated failure to restructure its debts.

The decision is expected to impact China’s financial markets, especially given the property sector’s significant contribution to China’s economy.

Evergrande’s shares plummeted by over 20% following the announcement, and trading has been suspended.

The liquidation means the company’s assets will be seized and sold off to pay its debts.

The proceedings were initiated by Hong Kong-based Top Shine Global, an investor in Evergrande, alleging that the company failed to honour a share buyback agreement.

Most of Evergrande’s debts are owed to lenders in mainland China, where legal options for recovery are limited. In contrast, foreign creditors have more freedom to initiate legal actions, often choosing Hong Kong for this purpose. After the liquidation order, control of Evergrande will shift from its directors to a provisional liquidator, likely appointed by the court.

Despite the ‘one country, two systems’ principle, only a few liquidator appointments have been recognised in mainland China, with the Chinese government keen to keep developers like Evergrande afloat to ensure delivery of pre-paid homes to buyers.

The liquidation of Evergrande’s parent company does not automatically extend to its subsidiaries, and liquidators may face challenges in taking control of these entities, reports say. Unsecured creditors are unlikely to recover the full amount of their claims, and foreign creditors may not receive priority over mainland creditors.

This is the lastest chapter in a financial saga that has gone on for two years, as Evergrande sought to restructure its debts and even filed for bankruptcy protection in the US for its American assets.