Hong Kong Court Orders Liquidation of Evergrande with 443 Trillion Won Debt... Approval by Chinese Court is Key

2021 China-Hong Kong Cross-Border Bankruptcy Agreement
Actual Liquidation Takes Effect Only After Designated Court Approval

On the 29th, the Hong Kong court issued a liquidation order against Evergrande, a real estate developer symbolizing the Chinese real estate crisis. However, there are also prospects that the Chinese courts may not ultimately approve this, as Chinese authorities are striving to contain the chain reaction in the real estate sector.

[Image source=Yonhap News]

According to the South China Morning Post (SCMP) and others, the Hong Kong High Court on the day approved a creditor petition to liquidate Evergrande, the world's most indebted company. Judge Linda Chan stated, "Considering the clear lack of progress in presenting a viable restructuring plan, I find it appropriate to issue a liquidation order and so order."

This is the first time the Hong Kong court has issued a liquidation order. Immediately after the court order, trading of Evergrande shares was suspended on the Hong Kong stock market. This ruling is expected to have a significant impact on the Chinese financial market.

The lawsuit was filed in June 2022 by Top Shine Global to recover HKD 862.5 million (approximately KRW 147.5 billion) invested in Evergrande. Evergrande is a key group that triggered the chain reaction in the Chinese real estate crisis, starting with offshore bond defaults at the end of 2021, followed by halted housing construction and unpaid subcontractor fees. Evergrande’s total debt is about KRW 443 trillion, making it the most indebted real estate developer in the world. Starting with Evergrande, other Chinese real estate developers also declared chain defaults, plunging the real estate market, which accounts for about 25% of the Chinese economy, into a slump.

Since most of Evergrande’s assets are located in mainland China, the decision of the Chinese courts is expected to be crucial for the liquidation. According to the cross-border bankruptcy agreement signed between China and Hong Kong in 2021, recognition must be obtained from at least one of the three designated courts in China for the liquidation to take effect.

SCMP reported, "Since most of Evergrande’s assets are in mainland China, the Hong Kong court’s order faces issues beyond its jurisdiction." Lance Zhang of the law firm Ashurst LLP added, "If the liquidator does not receive such recognition from the Chinese courts, enforcement authority over assets within China will be very limited."

Some believe there is a possibility that Evergrande could be rescued, as Chinese policymakers are working to control the deepening real estate crisis.

This content was produced with the assistance of AI translation services.