A mainland Chinese court accepted a liquidation application filed against a China Evergrande Group unit earlier this month, triggering a formal legal process that ratchets up the pressure on the defaulted developer to either restructure or face liquidation in its main base of operations under a worst-case scenario.

The Intermediate People’s Court of Guangzhou City, where Evergrande is based, had accepted the application filed against Guangzhou Kailong Real Estate as of Aug 9, according to a Hong Kong stock exchange filing late on Monday. Kailong, fully owned by Evergrande, has a stake of around 60% in Hengda Real Estate, the developer’s main property operation onshore, according to a separate exchange filing.

The court will convene the first creditors meeting at 9.30am on Nov 14, the first filing read.

Evergrande is in the process of being liquidated in Hong Kong, where it’s listed, and the latest court development opens up the possibility that a similar fate awaits the developer in mainland China. Earlier this month, Evergrande’s liquidators made public that they are seeking to recover US$6 billion  in dividends and remuneration from defendants including the group’s founder Hui Ka Yan and his ex-wife Ding Yumei. 

In China, if a local court accepts a bankruptcy application, a formal process is commenced that leads to either restructuring or liquidation, or a settlement between creditors and the company. Under a liquidation scenario, Kailong’s stake in Hengda will likely be auctioned, leading to a change of holders and affecting the property business. 

If Kailong does enter a liquidation process, and if needed, Hengda will “coordinate with the court” on related work, Hengda said earlier this month. 

While most of Evergrande’s assets are in the mainland, liquidators in Hong Kong have largely been focusing on offshore assets as they face challenges accessing Evergrande’s onshore assets.

In the mainland, creditors of Kailong have been told to submit their claims to its bankruptcy administrator before Nov 7, the exchange filing read.

Trading of Evergrande shares remains suspended. 

  - Bloomberg