China Evergrande can still appeal and propose a new debt restructuring plan, and if both the court and creditors accept it, the winding-up can be suspended.
Text |Wang Wentong Gu Lingyu
Edit |Yu Le
At 9:30 a.m. on January 29, China Evergrande (3333.), which had been postponed eight timesHK) winding-up petition hearing was held in the High Court of Hong Kong and the judge formally declared China Evergrande liquidated.
It is reported that the reason pointed out by the judge is the lack of progress in China Evergrande's debt restructuring plan and its insolvency. Under Hong Kong law, China Evergrande can still appeal and propose a new debt restructuring plan, and if the court and creditors accept it, the winding-up can be suspended.
According to **, Evergrande and an overseas creditor failed to reach a last-minute restructuring agreement, and the overseas creditors instead supported Evergrande's winding-up petition. The group collectively holds more than US$2 billion of Evergrande and its guaranteed offshore notes.
Evergrande was also temporarily suspended intraday. Wind data shows that as of the time of suspension, Evergrande, Evergrande Automobile (00708HK), Evergrande Property (06666HK) share price respectively**50%。
At present, Evergrande's two tasks are to solve the debt problem and fully deliver the guaranteed delivery of the building.
According to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance ("Winding Up of Companies Ordinance", Cap. 32 of the Laws of Hong Kong), there are two types of winding-up of a company: winding-up by the court and voluntary winding-up. The liquidation of Evergrande is a liquidation made by creditors applying to the court.
Liquidation is very similar to bankruptcy under Mainland law. There is a high probability that Evergrande's restructuring did not go smoothly before, and the court's liquidation this time is equivalent to a warning signal. A practitioner of a financial institution familiar with Hong Kong business told Caijing 11 that the time limit for creditors to apply for enforcement can be as long as 12 years from the date of the court's judgment.
The liquidator is the next most critical role. A number of capital market lawyers interviewed told Caijing 11 that after entering the formal liquidation process, the court will freeze the bank accounts held by the debtor. The disposition of all property of the debtor company requires the consent of the court. Proceedings may only be instituted with the consent of the liquidators. The liquidator will sort out the company's assets through various channels, dispose of the assets, realise them, pay them off to creditors, and redistribute them.
In other words, the liquidator will be deeply involved in the company's business and have important decision-making power on major matters of the company. In addition, according to the Ordinance, the powers of the directors of the listed company of Evergrande will be suspended after the liquidation, and the liquidator will have the right to replace the directors of the listed company.
The process of liquidation is lengthy, and there is still a lot of uncertainty about the sorting and disposal of assets. For creditors, the previous restructuring has not been fruitful, but entering the winding-up process does not necessarily mean that it is good. "Restructuring is equivalent to exchanging time for space, that is, using various means to postpone debts, but after entering the liquidation process, the sale and redistribution of assets may also become insolvent, and it is difficult to say how much creditors can share. The above-mentioned financial institutions said.
A law professor told Caijing 11 that it is unclear whether the verdict of the Hong Kong High Court will be recognized under the mainland legal system, that is, the liquidation procedure is only for China Evergrande, and it is unclear whether other domestic debts and assets are subject to jurisdiction.
Previously, on 14 May 2021, the Supreme People's Court and the Hong Kong Special Administrative Region** signed the Record of Meeting on Mutual Recognition of and Assistance to Insolvency Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region, agreeing to recognize Hong Kong's bankruptcy orders in Shenzhen, Shanghai and Xiamen, China.
However, on 29 January, the Arrangement of the Supreme People's Court on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region came into effect, which mentions that this arrangement does not apply to judgments in bankruptcy liquidation for the time being.
At the same time, the above-mentioned law professor pointed out that the liquidation hearing of Evergrande should be viewed in the context of the overall debt restructuring of Evergrande Group, and the progress of domestic and overseas debt restructuring should be viewed from a comprehensive perspective.
This is the eighth time that Evergrande has applied for an adjournment of the hearing date of the petition. On December 4, 2023, Evergrande announced that the Hong Kong High Court had approved Evergrande's application for an extension on the same day, which will be extended to January 29, 2024.
The petition was filed by Top Shine Global Limited of Intershore Consult (SAMOA) Limited (Jiasheng Global) in the High Court of Hong Kong on 24 June 2022, represented by Lian Haomin, in the amount of 8HK$62.5 billion (about HK$7.5 billion92.5 billion RMB).
Jiasheng Global was previously one of the strategic investors of Evergrande's "RV Treasure" project. On March 29, 2021, China Evergrande issued an announcement on the introduction of strategic investors for "RV Bao". According to the announcement, if the "RV Bao" cannot be listed within one year, China Evergrande needs to use 115 times the principal to redeem the funds of the strategic investor. Later, because Evergrande fell into a debt crisis, the funds could not be cashed out.
After receiving the petition, Evergrande announced on June 27 that the company strongly opposed the petition and would actively communicate with creditors to promote the restructuring of overseas debts.
However, Evergrande is currently facing difficulties in restructuring its debts. According to Evergrande's announcement on March 22, 2023, China Evergrande has a total of 191A restructuring plan has been proposed for US$4.9 billion of offshore debt, and the offshore debt restructuring will be completed through a combination of issuance of new notes and debt-to-equity swaps.
On April 27, 2023, Evergrande announced that two restructuring plans have been supported by creditors with more than 75% of the corresponding debt amount, and the creditor consent rate of the other two plans has exceeded 30% and 64% respectively, and has not yet reached the restructuring threshold of 75%.
Since then, the restructuring plan has not been able to move forward. Evergrande announced on September 24, 2023 that in view of the fact that Evergrande Real Estate Group***, a subsidiary of the group, is under investigation, the current situation of Evergrande Group can no longer meet the qualifications for the issuance of new notes.
On December 15, 2023, the company announced that the restructuring support agreement signed on April 3, 2023 had expired and had not been extended.
Liu Shui, director of corporate research at the China Index Research Institute, pointed out that the subject of the overseas liquidation order issued by the Hong Kong court is China Evergrande, which is listed in Hong Kong, and will also have a greater impact on the daily operation of its domestic subsidiaries. Due to the company's serious insolvency, the liquidation will have a greater impact on the company's shareholders and related creditors.
In addition to the debt problem, Evergrande's other task is still to ensure the delivery of the building. The latest data on December 2, 2022 shows that from January to November 2022, 25 buildings were delivered60,000 sets. According to the Evergrande project data compiled by the China Index Research Institute, the total number of uncompleted area and stock projects after September 2018 is 1,322, covering various provinces and cities.
According to the Reply of the Supreme People's Court on Issues Concerning the Protection of the Rights of Consumers of Commodity Housing, which came into effect on April 20, 2023, a clear judicial interpretation is made on the issue of the priority of the rights of commercial housing consumers in the suspended real estate: that is, under the corresponding conditions, the claims of commercial housing consumers for their right to claim for housing delivery and the right to claim for price refund have priority over other creditor's rights. This approval can protect the legitimate rights and interests of Evergrande owners after liquidation.