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Following the setback in Evergrande Auto’s attempt to introduce a strategic investor, China Evergrande has been involved in new litigation developments.

China Evergrande announced on the Hong Kong Stock Exchange on the evening of August 5, involving a huge financial recovery action.

The announcement shows that China Evergrande is taking legal action to recover about US$6 billion in dividends and remuneration from its executive director Xu Jiayin, former CEO Xia Haijun, former chief financial officer Pan Dayong and seven defendants including Xu Jiayin's spouse or ex-spouse Ding Yumei.

The announcement shows that the lawsuit started on March 22, 2024, and was formally filed by the liquidator of China Evergrande on behalf of the company in the High Court of the Hong Kong Special Administrative Region.

The lawsuit initially targeted Xu Jiayin, Xia Haijun and Pan Dayong, and then gradually expanded to include Ding Yumei and three entities related to the two, a total of seven defendants.

China Evergrande claimed in the announcement that the recovery amount involved dividends and remuneration that were erroneously paid between December 31, 2017 and December 31, 2020 due to "misstatements" in its financial statements.

It is worth noting that China Evergrande has been granted a number of injunctions in this lawsuit, restricting Xu Jiayin, Ding Yumei and Xia Haijun from disposing of, selling or reducing the value of their assets globally to prevent the defendants from transferring property during the litigation.

These injunctions were imposed on Xu Jiayin and Xia Haijun from June 24, 2024, and later extended to Ding Yumei. All writs and injunctions related to this lawsuit were previously subject to a confidentiality order from the Hong Kong High Court, which was not officially lifted until August 2, 2024.

The announcement pointed out that since the lawsuit is still ongoing, the possibility of successful recovery and the amount that can be recovered in the end are uncertain. The liquidator of China Evergrande said that it will release the latest progress announcement on this lawsuit in due course in accordance with the provisions of the Securities Listing Rules of the Stock Exchange of Hong Kong Limited.

In addition to financial recovery, China Evergrande's shares have been suspended from trading since 10:18 a.m. on January 29, 2024, and will continue to be suspended until further notice. China Evergrande reminds the company's shareholders, investors and potential investors to exercise caution when buying and selling the company's securities.

At the same time, Evergrande Auto, a subsidiary of China Evergrande, is also facing severe financial and operating pressures. Evergrande Auto issued an announcement in the morning of August 5, announcing that it had issued a notice on July 28 regarding the receipt of a notice by a subsidiary, and that there has been new progress.

Evergrande Auto stated that the relevant local people's court held a hearing on the bankruptcy reorganization of the relevant subsidiaries on August 2, and the relevant local people's court ruled that the relevant subsidiaries entered the bankruptcy reorganization procedure.

Looking back at the whole incident, on the evening of July 28, Evergrande Auto announced that its subsidiaries Evergrande New Energy Automobile (Guangdong) Co., Ltd. and Evergrande Smart Automobile (Guangdong) Co., Ltd. received notices issued by the relevant local people's courts on July 26. The main contents of the announcement are as follows: Individual creditors of the relevant subsidiaries applied to the relevant local people's courts on July 25 for bankruptcy reorganization of the relevant subsidiaries.

Evergrande Auto disclosed in its 2023 annual report that despite a reduction in net losses, the company still faces huge debts and operating pressures. As of the end of 2023, Evergrande Auto's total liabilities reached 72.543 billion yuan, far exceeding its total assets.

Facing financial difficulties, Evergrande Auto is actively seeking the introduction of strategic investors to resolve the debt crisis and support the company's continued operation and development. The company announced earlier that its potential sellers (including China Evergrande Group, etc.) have reached a term sheet with an independent third-party buyer to negotiate cooperation on possible share sales and credit financing.

As of now, the two parties have not signed a final agreement, and Evergrande Auto’s process of attracting strategic investment and debt restructuring is still ongoing.

Editor: Chen Lixiang

Proofreader: Yang Lilin