Chinese court accepts Evergrande liquidation petition 1 day after founder’s life sentence

A court in Guangdong province, southern China, officially approved a bankruptcy liquidation petition against China Evergrande Group's main onshore unit, Hengda Real Estate. This final step concludes the downfall of the once-largest property developer in the country. The Guangzhou Intermediate People's Court determined that the Huaxia branch of Guangzhou Rural Commercial Bank met the legal requirements under China's Enterprise Bankruptcy Law, driven by the firm's inability to pay off its mature debts and lack of sufficient total assets.

This decision occurred just a day after the Shenzhen Intermediate People's Court sentenced Evergrande founder Hui Ka-yan, also known as Xu Jiayin, to life imprisonment following a high-profile trial for financial fraud and mismanagement. Hui was found guilty on several financial charges, had his political rights revoked for life, and required him to surrender all personal property.

He was also fined 8.82 billion yuan (US$1.32 billion) by the Shenzhen court and 7 billion yuan by Evergrande Real Estate, with further orders to recover any remaining illegal gains. The swift sequence of events highlights Beijing's resolve to put an end to the lengthy debt crisis surrounding Evergrande. The property developer, once a symbol of China's debt-fueled property boom, had slid into crisis in 2021 after violating Beijing's "three red lines" - regulatory limits on overleveraged developers.

Its default on over US$300 billion in total liabilities had a ripple effect across China's second-largest economy, causing a systemic property downturn, public protests over unfinished flats, and a Hong Kong liquidation order against its offshore holding company in early 2024. The liquidation filing came alongside broader structural overhauls to China's insolvency framework, with the country's top legislative body considering potential changes to how corporate restructurings will be handled in the future.

Huang Haihua, a spokesman for the National People's Congress Standing Committee's Legislative Affairs Commission, announced proposed revisions to China's Enterprise Bankruptcy Law during a press conference on Friday. These draft amendments aim to bolster temporary protection measures for restructuring procedures, clarify creditor and debtor filing criteria, and enforce stricter information disclosure standards during corporate reorganizations.

The proposed legislation also seeks to improve cross-border bankruptcy rules, clarifying Chinese courts' jurisdiction over international insolvency cases. The legal overhaul is set for a second reading from August 25 to 28.