CHINA Trends and Developments Contributed by: Lingyue Sun, Xiang Mao and Yi Wu, Merits & Tree Law Offices
• the Group’s “commitment to timely deliver - ies of pre-sold properties” policies under the government’s direct guidance. In addition, the winding-up of Evergrande also has a wide impact on numerous market par - ticipants such as the purchasers of pre-sold properties, financial investors, banks and so on. Therefore, due to the specificity and complexity of this case, it brings uncertainty to each entity that has a relationship with Evergrande. The failure of Evergrande is an epitome of many Chinese real estate companies that are strug - gling with the debt crisis. In addition to Ever - grande, a winding-up petition dated 27 Febru - ary 2024 was filed by Ever Credit Limited at the High Court against the Country Garden Hold - ings Company Limited (HK.02007). Furthermore, Moody’s, an international credit rating agency, has downgraded Vanke, one of the largest Main - land real estate developers’ credit rating to a non-investment grade. It is apparent that many Chinese real estate companies are still facing high levels of debt that need to be mitigated. In this regard, the liquida - tion of Evergrande and its follow-up actions may provide other Mainland real estate companies that are facing the debt crisis with guidance and a point of reference. Disposal of Assets: A Common Concern of Cross-Border Listing Developers As a number of domestic developers are listed on an overseas stock exchange, like Evergrande is, the winding-up case raises the question of whether the winding-up order issued in other jurisdictions can affect the developer’s assets in Mainland China.
Pursuant to Part 3 of Schedule 25 of CWUMPO, the liquidator has the power to dispose of the Company’s assets. Therefore, the compulsory winding-up order against the Company may have direct legal effect on its assets located in Hong Kong. However, from a legal perspec - tive, whether the order is also binding on Ever - grande’s main assets located in Mainland China will depend on whether the order can be recog - nised and enforced by the courts in Mainland China. On 11 May 2021, the Supreme People’s Court of China issued the Opinions on Launching the Pilot Programme of Recognition of and Assistance to Bankruptcy Proceedings in the Hong Kong Spe - cial Administrative Region (“Opinions”), which specifies the scope, jurisdiction, acceptance requirements as well as the rules for distribution and settlement of bankruptcy estates in relation to the recognition and assistance procedure by the Mainland court. Therefore, in the authors’ opinion, the said Opinions should apply to the Evergrande liquidation case. Nevertheless, the authors are of the view that the liquidation of the Company may not directly and inevitably lead to the disposal of the assets of the Company’s subsidiaries such as Evergrande Real Estate registered in Shenzhen, China. According to the applicable law, the equity held by the Company in its subsidiaries should be a bankruptcy estate. However, the assets of the subsidiaries of the Company should not be included in the bankruptcy estate since the rel - evant subsidiaries have independent legal per - sonality at law. Therefore, even if the Mainland court recognises the winding-up order against the Company, the administrator in the Mainland bankruptcy procedure (if any) has no right to directly identify the assets of the relevant sub -
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