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according to the securities times, on september 11, the hong kong economic daily cited foreign media reports that ding yumei, the ex-wife of china evergrande founder xu jiayin, was allowed to withdraw up to 20,000 pounds (approximately 186,000 yuan) per month for living expenses.

in march 2024, the bankruptcy liquidator of evergrande group initiated a lawsuit in the hong kong court to recover the improper transfer of assets from its shareholders and executives from the company. the british court's ruling is the recognition and enforcement of the hong kong court judgment.

this is an initial victory in the legal battle launched by the bankruptcy liquidator of evergrande group to protect the interests of creditors. this legal battle not only reflects the complexity of cross-border bankruptcy, but also has implications for improving my country’s relevant legal systems.

evergrande group was ruled bankrupt by the hong kong court and has a long way to go to recover the losses of creditors

on january 29, 2024, ms. linda chan, judge of the high court of hong kong, ordered the bankruptcy liquidation of evergrande group, a listed company in hong kong. the judge also appointed two turnaround management experts, edward middleton and tiffany wong, appointed by alvarez & marsal, a world-renowned turnaround management company, as joint liquidators.

the primary task before the joint liquidators is to maximize the value of the bankruptcy estate and recover losses to creditors. however, given the complexity of evergrande group, this is a difficult task.

evergrande group is registered in the cayman islands and is legally a cayman islands company. evergrande group is registered in hong kong as an overseas company (non-hong kong company) and listed on the hong kong stock exchange.

evergrande group, listed in hong kong, is an investment holding company that includes many companies, especially evergrande real estate group registered in guangzhou.

evergrande real estate group itself is also a holding company, including a number of real estate companies.

evergrande group is the main overseas financier of evergrande real estate group, providing the latter with overseas financing and development of real estate projects.

on the basis of straightening out the above basic relationships, the complexity of evergrande group’s bankruptcy case is not difficult to explain.

evergrande group has issued a lot of debt denominated in us dollars and hong kong dollars abroad. these bondholders are the main creditors in the bankruptcy case of evergrande group. the main assets of evergrande group are actually real estate located in mainland china, and they are mainly the real estate assets of evergrande real estate group.

the real estate companies under evergrande real estate group are also filing for bankruptcy. for example, on august 9, 2024, evergrande group announced on the hong kong stock exchange that the guangzhou intermediate people's court had accepted the bankruptcy application of its indirect wholly-owned subsidiary guangzhou kailong real estate co., ltd.

in view of the fact that many real estate companies in mainland china have entered bankruptcy proceedings one after another, the bankruptcy liquidators of evergrande group can only seek cooperation through cross-border bankruptcy proceedings, which must be synchronized with the hearing of bankruptcy cases in mainland courts.

at the same time, the bankruptcy liquidator of evergrande group has initiated recovery procedures for another important type of bankruptcy property, which is the property that evergrande group’s shareholders and former executives have transferred from the company over the years.

in order to recover the illegally transferred property of evergrande group shareholders and executives, the bankruptcy liquidator took up the legal weapon of "revocation power"

although evergrande group has been in a state of crisis in recent years, from debt defaults to bankruptcy, its dividends to shareholders and compensation to executives have been generous.

for example, ding yumei indirectly holds 5.99% of the shares of evergrande group through its wholly-owned subsidiary. from 2018 to 2020, ding yumei received a total of hk$2.8 billion (us$359 million) in dividends from evergrande group.

in view of this, the bankruptcy liquidator of evergrande group initiated a revocation right lawsuit in the hong kong court in march 2024, requesting the recovery of a total of us$6 billion from seven former evergrande shareholders and executives. ding yumei is one of the seven defendants.

according to the cross-border bankruptcy proceedings, the british court cooperated with the hong kong court's judgment and froze ding yumei's assets in the uk and restricted her monthly consumption amount.

the legal basis for the bankruptcy liquidators of evergrande group to recover the assets illegally transferred from evergrande group by former shareholders and executives is the bankruptcy revocation rights stipulated in articles 49 and 51 of the hong kong bankruptcy ordinance (cap.5 bankruptcy ordinance) and the rights of hong kong companies regulations (cap.32 companies ordinance) sections 265d, 265e and 266b. these provisions provide for the right of avoidance in corporate insolvency proceedings.

according to these two regulations, if the debtor engages in transactions that are below fair value within five years before the bankruptcy filing, the bankruptcy liquidator has the right to request the court to order the cancellation of the transaction and the counterparty to the transaction to return the unfair benefits obtained. (i.e., restoring the debtor's property to the condition it would have been in had the transaction not occurred)

the condition for reversing an unfair transaction is that the debtor was insolvent when engaging in such a transaction that was lower than fair value or the debtor was insolvent as a result of engaging in such a transaction.

obviously, the actions of evergrande’s former shareholders and key executives meet the conditions for unfair transactions. as a result, the hong kong court supported the bankruptcy liquidator’s claim, and the british court also recognized the validity of the hong kong court’s judgment in accordance with the basic rules of cross-border bankruptcy.

taking the evergrande bankruptcy case as a mirror, my country’s bankruptcy law-related systems are in urgent need of reform

the right to rescind bankruptcy is an important system to protect creditors and curb bankruptcy fraud. its power lies in that as long as it is proved that the debtor (its shareholders, actual controllers, directors, executives, etc.) has engaged in unfair or illegal transactions that transfer the company's property within the legal period before filing for bankruptcy, it does not matter how complicated the transaction relationship is, nor does it matter. whether the transaction form complies with laws other than bankruptcy, in order to maximize the value of the bankruptcy property, the court can cancel the transaction, increase the distribution to creditors, or increase the property base for the bankruptcy debtor to continue operating (at this time, the debtor does not liquidate, but re-opens the business) all).

the bankruptcy case of evergrande group is a very convincing example. previously, when people read the information that ms. ding had been divorced from the information disclosure documents released by evergrande group on the hong kong stock exchange, they lamented that this divorce operation might allow ms. ding to leave safely with a huge amount of property and avoid possible recourse in the future. .

as everyone knows, after entering bankruptcy proceedings, the right of bankruptcy revocation can penetrate the transaction maze carefully woven by these parties and use simple and direct standards to determine whether it is a "voidable transaction". as long as it is deemed revocable, no matter how complicated the transaction arrangement is, it will be of no use. therefore, the liquidators of evergrande group are pursuing property recourse against the major shareholders and former executives of evergrande group. only then did ms. ding become one of the seven defendants.

compared with the revocation rights system in developed market economies, the bankruptcy revocation rights rules of my country's current bankruptcy law are seriously lagging behind.

its basic flaw is that, on the one hand, the right of rescission is too short and can revoke transactions up to one year before bankruptcy. this resulted in numerous bankruptcies in which transactions orchestrated a year earlier to transfer company assets escaped.

on the other hand, the right to rescind in my country's bankruptcy law only presupposes that creditors will be fairly compensated for the bankruptcy property when the debtor becomes bankrupt. it does not presuppose that the debtor's actual controller may transfer assets in an ant-like manner through various superficially legal transactions in the years before bankruptcy. as for the inability to do anything about the massive hollowing out of company assets caused by corporate governance failures.

at present, when the bankruptcy law is being revised, it is necessary to absorb the effective legislative achievements of developed market economies and improve the bankruptcy law conceptually and technically.

(the author wang zuofa is an associate professor at the school of law, southwestern university of science and technology)