On the 29th, the High Court of Hong Kong officially issued an order requiring China Evergrande to liquidate, which will become the largest liquidation case of real estate developers in history. So what is a winding-up order? How big is the impact of this winding-up order on Evergrande's operations? Is China Evergrande powerless?
What is the background to the winding-up order?
It is an indisputable fact that Evergrande is seriously insolvent and unable to repay its debts. China Evergrande failed to pass the postponement of the winding-up hearing again (which had been adjourned seven times for up to 18 months), and the winding-up was already doomed. Previously, Evergrande had also proposed a restructuring plan, but the restructuring progress was slow due to market performance, being investigated, and the failure of ** equity, which led to the court finally issuing a winding-up order.
What is a winding-up order?
A winding-up order is an order issued by a Hong Kong court, and "winding-up" is a Hong Kong term, and the French language in the mainland means "bankruptcy liquidation", that is, China Evergrande has officially entered the bankruptcy liquidation procedure in Hong Kong.
Why is a winding-up order made?
The purpose of a winding-up order (bankruptcy liquidation) is to protect the interests of creditors and shareholders and to avoid greater losses caused by the company's continued operations.
What does it mean to be subject to a winding-up order?
Entering this process means that the company will cease its business operations, lose the right to dispose of the company's property, and the court will appoint a liquidator to dispose of the company's assets and repay the debts in order of priority of creditors' claims, and dissolve the company after the liquidation, which is a historical term for the "Evergrande Group", once the largest real estate developer in China.
For the time being, the overseas winding-up order issued by the Hong Kong High Court only involves Evergrande Group, which is listed in Hong Kong, and does not involve other domestic and foreign subsidiaries that are independent legal persons. At present, Evergrande Group and its management and operation system can remain unchanged as a whole, but the Group must actively communicate with the liquidators in accordance with the law, cooperate with the relevant procedures, and do everything possible to ensure the stability of domestic business and operation.
Is liquidation fast?
The liquidation process itself is complex, and the average company is fine.
It is normal for two or three years to not be completed, let alone a behemoth like China Evergrande, and Evergrande's assets are mainly in the mainland, which makes it even more difficult to liquidate. It remains to be seen whether and to what extent a Hong Kong court's liquidation order can be enforced in the Mainland. Therefore, we should not be surprised if the future reckoning is protracted.