Chinese property giant Evergrande ordered to liquidate

The Liquidation of Chinese property developer Evergrande is huge news for the industry, it was the second largest developer in China by sales and was founded nearly 28 years ago but a Court has ordered that it enter into Liquidation.

The company has $240 billion in assets but $300 billion in debts, making it balance sheet insolvent i.e. its liabilities exceed its liabilities. Hong Kong High Court Judge Linda Chan also stated the company was cashflow insolvent i.e. it cannot pay is debts as and when they fall due, and thereby granted the Liquidation order.

Although, this may not have come as a shock as a couple of years ago it defaulted on its debt. The shares have fallen by 20% today and sale of its shares has been suspended, it is not known at this stage what knock on effect it will have.

What is Liquidation and what will happen to Evergrande? Liquidation is a formal insolvency procedure that brings the business to an end. The assets are sold by the Liquidator and the sale proceed are used to distribute to its creditors after the cost of the Liquidation. However, in this exceptional circumstance it may not be the end of Evergrande as it is yet to be confirmed whether Evergrande will stop trading.

Original article: https://www.bbc.co.uk/news/business-67562522

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