Xu’s three homes at 10 Black’s Link have all been seized by creditors, with house 10B having been sold in May
Reported to be detained since September last year, life is getting worse for China Evergrande Group founder Xu Jiayin and some of his crew, as liquidators of the mainland developer are now seeking to recover $6 billion in dividends and remuneration in an effort to repay creditors.
The amount is based on allegations that the company misstated its financials from 2017 through 2020 and is part of legal proceedings the liquidators commenced in March against the defendants, who include Xu’s ex-wife Ding Yumei, former CEO Xia Haijun, former CFO Pan Darong, and three entities linked to Xu and Ding.
“The Proceedings are ongoing and there is no certainty as to whether or not they will be successful and as to the amount that may ultimately be recovered by the Company,” Evergrande’s joint and several liquidators – Edward Simon Middleton and Tiffany Wing Sze Wong of restructuring firm Alvarez & Marsal – said in a stock exchange filing on Monday.
The liquidators also disclosed that they have obtained injunctions in Hong Kong limiting Xu, Ding, and Xia’s rights regarding management of their worldwide assets.
Modest Realisations
The liquidators commenced the High Court actions against Xu, Xia, and Pan on 22 March, with those proceedings having since been expanded to include Ding and three entities associated with Xu and his ex-wife. The injunctions were initially granted against Xu and Xia on 24 June and have since been expanded to include Ding.
Evergrande founder Xu Jiayin, also known as Hui Ka-yan (Image: Getty Images)
Both the legal proceedings and injunctions were previously under confidentiality orders issued by Hong Kong’s High Court, which were lifted on 2 August.
The actions are the liquidators’ latest attempts to secure assets to repay creditors amid Evergrande’s bankruptcy process, which began in January with the High Court’s order to wind-up the company, which is saddled with some $329 billion in debts.
With over 90 percent of Evergrande’s balance sheet located onshore and little precedent for offshore liquidators seizing onshore assets, the liquidation process is testing the enforceability of Hong Kong court decisions in mainland China. Realisations of the company’s assets have been “modest”, according to an update in May, with the liquidators now seeking investors for the company’s restructuring.
“Whilst the Liquidators have made modest realisations of assets of the Company, the Company’s liquidity and other internal resources remain limited,” the liquidators said in a May filing. “In view of the Company’s level of indebtedness and the challenges faced by the Group’s business and operations, in the absence of substantial new investment into the Company, the Liquidators do not currently see a path to a restructuring that would enable the Company to satisfy the Resumption Guidance and a resumption of trading in the Shares. The Liquidators would welcome any potential investors interested in pursuing a restructuring of the Company, or any of its constituent parts, to contact them.”
Lawyers appointed by the liquidators are investigating some of Evergrande’s service providers, including its former auditor PricewaterhouseCoopers, for evidence of wrongdoing and negligence that would enable liquidators to potentially make claims that could recoup losses for creditors, according to a Reuters report in June citing sources with knowledge of the matter.
Ongoing EV Unit Sale
On Monday, Evergrande’s HKEX-listed electric car unit China Evergrande New Energy Vehicle Group Limited disclosed that a local mainland court had ruled that two of its onshore units should enter into bankruptcy and reorganisation, a week after individual creditors of the units filed for such proceedings.
Liquidators entered into a non-binding agreement in May with an unidentified buyer to purchase Evergrande’s 58.5 percent stake in the struggling electric vehicle business in addition to providing a line of credit to finance its continued operations, with those discussions still ongoing as of 26 July. Evergrande NEV warned in May that it faces confiscation of land and other physical assets if it fails to comply with a local government order.
Xu’s personal assets are also on the liquidation block. In May, receivers sold a mansion on Hong Kong’s Victoria Peak linked to Xu for HK$448 million, representing a 44 percent discount to the property’s HK$800 million valuation.
In June, mainland firm Hexin Hengju Shenzhen Investment Holding Center filed a petition to the High Court demanding a Kowloon flat belonging to Xu be sold to repay debts.
Earlier this year, the China Securities Regulatory Commission dismissed statements of defense provided by Xu and other executives penalised for their role in financial fraud and disclosure lapses at the bankrupt developer, rejecting Xu’s argument that there was insufficient evidence to determine that he had instructed and organised others to engage in illegal acts.
The CSRC also fined Evergrande $577 million for fraudulently issuing bonds based on inflated revenue from 2019 to 2020 and imposed a fine of RMB 47 million on Xu, who was also banned for life from China’s securities market.
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