The court documents, China Aoyuan Group Ltd., a real estate developer, filed for Chapter 15 bankruptcy protection in New York on Wednesday.
Following its decision last year to skip debt payment, the Guangzhou-based developer—which as of the end of 2022 had approximately $6 billion in total offshore interest-bearing liabilities—is currently undergoing restructuring in Hong Kong, the Cayman Islands, and the British Virgin Islands. A company filing with the court states that its consultants have urged the board to “seek recognition of the Hong Kong proceedings and related relief from the US Bankruptcy Court for the Southern District of New York.” It stated that “there is litigation risk that dissenting holders of the existing public notes may file actions to enforce their claims in the US courts even after the Hong Kong schemes are sanctioned by the Hong Kong court” if the US courts did not recognise the Hong Kong schemes.
Aoyuan is the latest in a small but growing group of Chinese developers and other non-US debtors to utilise the Chapter 15 bankruptcy system to manage cross-border assets or deal with offshore creditors more effectively. Since its dollar debts are controlled by New York law, China Evergrande Group, whose 2021 default intensified the nation’s property debt crisis, described the action as “normal procedure.” According to an October insight note from law firm Sidley Austin LLP, a Chapter 15 recognition procedure is a legal process for the US court to publicly recognise the efficacy of the reorganisation in other jurisdictions.
In order to explain the distinctions with the more well-known Chapter 11 filings, the note stated that companies do not always need major US assets in order to seek such recognition and that frequently the only obligations of Chapter 15 debtors are US-law governed bonds. Bloomberg-compiled data indicates that Aoyuan’s dollar bonds, which are trading below 2 cents, signify investors’ low hopes for a rebound. These bonds are subject to New York law. The business unveiled a restructuring plan in July that included several new debt instruments, new equity shares, zero-coupon required convertible bonds, perpetual securities, and notes with payment-in-kind interests as well as other measures to satisfy creditors’ expectations.
Aoyuan announced last month that it had received enough backing from creditors to get its restructuring plans approved. It said it would ask the courts in Hong Kong, Cayman, and the British Virgin Islands to approve the plan in December and January. Aoyuan, which in the first half of this year was ranked 110th among Chinese developers by sales, explained that it had chosen not to pay the loans because it needed “to preserve its limited cash resources and maintain fairness among all of its creditors pending a holistic debt restructuring.”
