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Chinese court guidance aims to smooth developer bankruptcies, reassure creditors

Framework from Supreme People’s Court aims to end judicial inconsistencies across regions, aid flow of capital for construction continuation

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A view of unfinished residential buildings developed by China Evergrande Group in Shijiazhuang, in northern China’s Hebei province, on February 1, 2024. Photo: Reuters
Zhu Wenqianin BeijingandPeggy Ye

China’s Supreme People’s Court has issued the country’s first systematic judicial guidance governing bankruptcy proceedings for property developers, in an effort to end inconsistencies that have slowed disposals and deterred capital in recent years.

The framework called for timely reorganisations of viable developers and prompt liquidations of those lacking sustainable value, according to a statement by the Supreme People’s Court on Monday. It also said asset-management companies and institutional investors should receive higher priority for continuation-of-construction repayment when taking part in stalled project continuations and reorganisations, according to the statement and an analyst.

“This will significantly boost creditor security and help draw more social capital to actively participate in home delivery guarantees and the revitalisation of existing projects,” said Yan Yuejin, vice-president of the E‑house China Research and Development Institute, a Shanghai-based property consultancy.

Now five years into the China Evergrande crisis, the country’s property downturn has spurred regulators to roll out a series of measures to help stabilise the market and streamline bankruptcy proceedings.
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