Evergrande Ordered to be Wound-Up by Court of First Instance

On 29 January 2024, the Honourable Madam Justice Linda Chan made a winding-up order against China Evergrande Group (the “Company“).

The Company is the ultimate investment holding company of a group of companies known as Evergrande Real Estate Group, which is engaged in property development business mainly in Mainland China. In August 2021, funding constraints and overdue payments caused the halt of construction of housing projects across Mainland China, and by the end of 2021, it was clear that the Company was severely in debt.

In the proceedings in Hong Kong, one of the Company’s creditors, Top Shine Global Limited, filed a petition to wind up the Company on 24 June 2022. The winding up proceedings were protracted, with several adjournments and the hearing on 29 January 2024 was ultimately the sixth hearing of the petition.

For the purposes of the winding up proceedings, there was no dispute that the 3 core requirements for the court to exercise its jurisdiction over the Company were satisfied:

  1. The Company is listed in Hong Kong, has a principal place of business in Hong Kong, and some of its senior management are based in Hong Kong.
  2. The Company has substantial assets within the jurisdiction, mainly in the form of subsidiaries incorporated in Hong Kong, and receivables owed by these subsidiaries.
  3. There are many creditors within the jurisdiction, or who have submitted to the jurisdiction, including the petitioner and the ad hoc group of creditors (who filed notices of intention to appear in the Petition).

However, the Company opposed the petition on the ground that it intended to put forward a comprehensive restructuring scheme in respect of its offshore debts, which, if implemented, would restore the solvency of the Company. The Company made attempts to draft schemes for discussion with creditors, which were the reasons for the adjournments of the first three hearings. However, the Company failed to secure approval from creditors, and the relevant scheme meetings were adjourned and eventually cancelled, and the proceedings in respect of the schemes were dismissed.

On 30 October 2023 (the fourth hearing), the Court stated that if the Company failed to come up with a fully formulated restructuring proposal by the next hearing, it was likely that the Court would make a winding-up order against the Company.

The fifth hearing was on 4 December 2023, where the Company provided an update to the Court which fell “far short” of a fully formulated restructuring proposal. However, at the hearing, the petitioner informed the Court that they would not seek an immediate winding-up order against the Company and would not oppose the adjournment sought by the Company.

At the sixth hearing, the Company did not provide any further proposal nor did they file an affirmation to update the court on their restructuring efforts. The petitioner wrote to the Court, stating that they were “prepared not to push for a winding-up order“, and invited parties to substitute as a petitioner. Treasure Glory Global Ltd (“TG“) then made an application to substitute for the petitioner.

The Court stated that allowing TG to be substituted as creditor or allowing an adjournment for substantive arguments would only result in further delay in the determination of the petition, and it would be better for the Court to instead determine whether there is a proper basis to exercise its discretion to grant a further adjournment of the petition.  In this regard, the Court stated that even if all the parties to the petition agreed to have the petition dismissed, the Court still had discretion to order the Company to be wound up, if circumstances warranted (Re Shop Clothing Ltd (t/a Theme) [1999] 2 HKLRD 280).

As the Company had not laid out any restructuring proposal, the Court was of the view that the creditors’ interests would be better protected if the Company was wound up, so that liquidators can take over, secure and preserve the Company’s assets, and review and formulate a restructuring proposal if they consider that such course is appropriate. The Court remarked that is not uncommon for a Company to put forward and implement a scheme of arrangement after it is wound up by the Court.

Please see here for the full decision.

8 February 2024
Key Contact(s):