On 29 January 2024, the Honourable Madam Justice Linda Chan made a winding-up order against China Evergrande Group (“Company”), setting into motion one of Hong Kong’s largest liquidations. Parties at the hearing were represented by three senior counsel and three juniors from DVC.
The Company is the ultimate investment holding company of Evergrande Real Estate Group, which is one of China’s largest and most indebted property developers.
On 18 April 2022, the Company failed to pay HK$862.5 million to Top Shine Global Limited (“Petitioner”) pursuant to an offshore financing arrangement. After the Company further failed to comply with a statutory demand, the Petitioner presented its petition against the Company (“Petition”) on 24 June 2022.
Hearings of the Petition
The Petition was heard a total of six times. Besides the Petitioner, the main groups of creditors appearing in the Petition were (1) an ad hoc group of noteholders holding over US$3 billion of senior offshore notes (“AHG”) and (2) a group of creditors owed over US$500 million based on guarantees granted by the Company (“Opposing Creditors”).
At the first three hearings (from September 2022 to March 2023), the Company obtained successive adjournments on the basis that it was making progress towards a comprehensive restructuring of its offshore debts through schemes of arrangement (“Scheme”) which, if implemented, would restore the solvency of the Company.
By late September 2023, the Company issued announcements regarding the cancellation of the Scheme meetings and regulatory issues concerning the Scheme. The proceedings in respect of the Scheme were dismissed.
At the fourth hearing of the Petition on 30 October 2023, the Court indicated that unless the Company came up with a fully formulated restructuring proposal at the next hearing, a winding-up order would likely be made.
At the fifth hearing on 4 December 2023, the Company provided an update to the Court on the revised restructuring proposal. The Petitioner did not press for an immediate winding up. The Court granted a further adjournment, but specified the substantial progress it expected the Company to make by the next hearing on 29 January 2024.
Ground for Winding-Up
Prior to the sixth hearing of the Petition on 29 January 2024, the Petitioner wrote to the Court stating that it was prepared not to push for a winding-up order and would not oppose the Company’s intended application for a short adjournment. In light of this, Treasure Glory Global Ltd (“TG”) applied to substitute the Petitioner based on an on-lent loan advanced by other lenders to the Company.
The Company and the Opposing Creditors filed submissions to oppose the substitution on the basis of a bona fide dispute to TG’s debt. The Opposing Creditors also submitted that it was not the usual practice of the Court to wind up a company on the basis of a disputed substituted petition at the first hearing of the substitution (see Liberty Commodities v Citibank  EWHC 2020 (Ch)).
The Court considered that, in light of the stance taken by the Company and the Opposing Creditors, allowing TG to be substituted as petitioner would only result in further delay of the determination of the Petition. The Court held that the Court had discretion to wind up a company even if the parties (including the Petitioner) agreed to have the petition dismissed (see Re Shop Clothing Ltd (t/a Theme)  2 HKLRD 280). The Court considered that there was no proper ground to grant a further adjournment of the Petition and issued a winding-up order on that basis.
Later that afternoon, the Court heard the Official Receiver’s application for a regulating order, the key issue in contention being the identity of the liquidators. The Court took the view that in a winding-up of this scale, some conflict of interest on the part of the liquidators was difficult to avoid and would be tolerated as long as it could be managed. The key consideration was whether the liquidators had the expertise and resources to discharge their office. After considering the submissions and candidates proposed by the various parties, the Court appointed Messrs. Eddie Middleton and Tiffany Wong of Alvarez & Marsal as the joint and several liquidators of the Company.
Full judgment is available at https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=157796&QS=%2B&TP=JU
Mr John Scott SC leading Mr Fergus Saurin, solicitor advocate appeared for the supporting creditor and AHG.
Mr Victor Dawes SC leading Mr Jason Yu appeared for the Opposing Creditors at the hearings on 30 October 2023 and 29 January 2024.
Ms Rachel Lam SC leading Mr Jason Yu appeared for the Opposing Creditors at the hearing on 4 December 2023.
Mr Leo Remedios and Mr Xizhen Wang appeared for the Petitioner.