Source: Broker China Author: Yang Shan

According to several foreign media reports, court documents show that Evergrande Group applied for bankruptcy protection in the US Manhattan bankruptcy court on August 17. The news quickly became popular after being reprinted by domestic media.

Industry analysts believe that under Chapter 15 of the US Bankruptcy Code, the statute provides an opportunity for borrowers to submit claims and settle all debts at the same time. Bankruptcy protection may not mean that a company cannot operate in the future, nor is it bankruptcy and liquidation; it is just a means of continuing to operate.

However, Evergrande did not announce the above incident on the Hong Kong Stock Exchange. A Chinese reporter from the brokerage firm interviewed relevant parties at Evergrande about this, but the other party has yet to respond.

Evergrande filed for bankruptcy protection in the US

According to several foreign media reports, court documents show that Evergrande Group applied for bankruptcy protection in the US Manhattan bankruptcy court on August 17. The report said that when Chapter 15 of the Bankruptcy Law allows companies to make restructuring arrangements in other regions, US assets can also be protected.

According to the 2021 report and 2022 report released by China Evergrande on July 17, it achieved revenue of 23.1 billion yuan (RMB, same below) in 2022, net loss of 125.8 billion yuan in 2022, and after adding net loss of 686.2 billion yuan in 2021, total loss in the past two years reached 812 billion yuan. As of the end of 2022, total debt reached 2.44 trillion yuan.

The news that Evergrande, which has debts of over 2 trillion dollars, filed for bankruptcy protection in the US court quickly went viral and became popular in the news.

According to reports, according to Chapter 15 of the US Bankruptcy Law, the statute provides an opportunity for borrowers to submit claims and settle all debts at the same time. Foreign bankruptcy may not apply to US debt, but by filing for bankruptcy under the provisions of this chapter, one debtor can simultaneously declare bankruptcy in multiple places, which gives individuals or companies the opportunity to obtain immediate relief in every place where the debt is owed. Bankruptcy protection does not mean that a company cannot operate in the future, nor is it bankruptcy and liquidation; it is just a means of continuing to operate.

It is worth mentioning that Lucky Coffee, which has now come back to life, also filed for bankruptcy protection under Section 15 of the US Bankruptcy Law in New York in February 2021.

Lucky Coffee said in a court document that it is in negotiations with its stakeholders on the restructuring of the company's financial debt. All of the company's stores in China are still operating and providing services to customers. It is expected that filing for bankruptcy protection will not have a significant impact on the company's daily operations.

At the time, Lucky Coffee also explained on its official Weibo that filing for bankruptcy protection was an important step in the restructuring plan. Lucky Coffee mentioned that Lucky Coffee's filing for bankruptcy protection in the US is actually good news, further advancing Lucky's path to rebirth.

Executives received tens of millions in annual salary just after responding to the thunderstorm

Recently, Evergrande has continued to be in the spotlight of public opinion.

On August 16, China Evergrande released its 2021 and 2022 ESG (Environmental, Social and Governance) reports on the Hong Kong Stock Exchange.

It is worth noting that the report disclosed the remuneration of China Evergrande's executives. According to the report, as of December 31 of last year, the total remuneration for Evergrande Group directors and top executives was 79.952 million yuan. Among them, Evergrande's board chairman Xu Jiayin's salary was 126,000 yuan, and 252,000 yuan in 2021. Xia Haijun, the former president of Evergrande, who has left office, received RMB 21.231 million in 2022.

After Evergrande's thunderstorm, similar to Xia Haijun and others who still received more than 10 million yearly salaries, sparked controversy in the outside world.

On August 17, in response to this, Evergrande's Chinese correspondent claimed that the relevant report had been misinterpreted. According to Hong Kong's financial accounting rules, even if an option cannot be redeemed, the salary must be apportioned and included in the salary according to the assessed value at the time the option was issued. Therefore, it appears that the annual salary is very high. In fact, this is not the real income of an executive.

Take Xia Haijun, the former president of Evergrande Group, as an example. The annual report shows that her salary in 2022 was 21.23 million yuan, including salary of 70,000 yuan, director's salary of 134,000 yuan, and options income of 2.08 million yuan, while the options income of 2.08 million yuan was uncashable.

Furthermore, China Evergrande announced on the Hong Kong Stock Exchange on the evening of the 16th that in order to give creditors under the Evergrande agreement arrangement time to consider the proposed subscription and its impact on creditors under the Evergrande agreement arrangement, the company decided to postpone and reconvene the Evergrande agreement arrangement meeting.

The proposed subscription mentioned above refers to the Newton Group's proposed investment of HK$3.89 billion (equivalent to about US$500 million) to subscribe for new shares in Evergrande Motor, a subsidiary of Evergrande in China. Newton Group has previously stated that the proposed transaction is expected to be completed in the fourth quarter, but many conditions must be met, including but not limited to the entry into force of Evergrande Group's debt restructuring and confirmation of debt repayment plans by several of Evergrande Motor's creditors.

It is worth mentioning that Evergrande Real Estate Group Co., Ltd. (“Evergrande Real Estate” for short), a subsidiary of China Evergrande, suddenly announced that the company received a “Notice of Case Filing” issued by the China Securities Regulatory Commission on August 16. Since the company is suspected of illegal information disclosure, the CSRC decided to file a case against Evergrande Real Estate.

Xu Jiayin's divorce swears the screen

On August 16, according to China News Agency “Guoshi Express” quoting a video report from Phoenix Finance, the “Xu Jiayin's divorce” was spread on social media due to a series of announcements made by Evergrande on the evening of August 14. That night, in addition to disclosing that Evergrande Auto had received external investment, Evergrande's statement about Xu Jiayin's wife, Ding Yumei, attracted market attention. In the announcement, Ding Yumei was called a “third party independent of the Company and its related persons,” and was not previously generally listed as the spouse of Chairman of the Board of Directors Xu Jiayin.

The report questioned that this move might be a “technical divorce,” and that Ding Yumei could split with Xu Jiayin financially to avoid issues such as debt. So, is Xu Jiayin divorced? It is still not possible to confirm this. However, some legal sources believe that even in the event of a divorce, it may not be possible to isolate the issue of intra-marital debt.

At the end of 2021, Xu Jiayin and his wife Ding Yumei jointly sold 1.2 billion shares of China Evergrande. As co-actors, Xu Jiayin and Ding Yumei held shares in China Evergrande dropped from 76.69% to 67.87%.

According to public information, Ding Yumei was born in Dingjianglou Village, Suixi County, Anhui in January 1957. After graduating from college, she was assigned to work at the Wuyang Iron and Steel Company in Henan Province. She met and became a couple with Xu Jiayin, who was also assigned to this point, who is one year younger than her.

After her marriage, Ding Yumei took her sons south to Shenzhen to start a business with Xu Jiayin. In an interview, Xu Jiayin recalled that a family of four lived in a cramped rental house and couldn't bear to even turn on the electric fan in the summer.

Xu Jiayin described Ding Yumei to the outside world, saying, “She has an education and her own business, but she gave up everything to take care of me.” “I owe her so much. For so many years after our marriage, we had arguments but never really turned our faces back. Other than that, I wouldn't dare say that the company is number one, but our husband and wife's feelings, I'm not proud to say, have always been an example for Evergrande to follow.”

However, if the rumor is true, can debt be cut? According to Tencent News's “Perspective” report, an authoritative legal person said that under Chinese law, even with divorce, joint debts arising within the marriage still need to be repaid jointly, and divorce cannot achieve the goal of separating personal debts from the couple's joint debts.

Attorney Xiong Wuzheng, a partner at Shanghai Jintiancheng (Shenzhen) Law Firm, told a Chinese reporter at the brokerage firm that if Xu Jiayin did go through the divorce process, then legally speaking, the marriage relationship with Ms. Ding would be legally dissolved. If Xu Jiayin and Ms. Ding did not make a special agreement on the ownership of the couple's assets during the marriage relationship, then the assets held by Xu Jiayin, including Xu Jiayin's equity interests in the Evergrande system, should be the joint property of Xu Jiayin and Ms. Ding. However, in the current debt-ridden situation of Evergrande, I think it is extremely unlikely that Evergrande will have a complete divorce and property division. In particular, Xu Jiayin holds assets such as shares in Evergrande. If a pledge, mortgage, or has been frozen and sealed by the court on Evergrande's debts, it is certainly impossible to split it. Also, the debt of the Evergrande Department and Xu Jiayin's personal joint liability are some of the agreements or legal provisions of whether their spouse is jointly and severally liable, then according to the current judicial interpretation of the Civil Code Marriage Law, unless the creditor can prove that the debt is used for the husband and wife to live together, produce and operate together, or is based on the husband and wife's common intentions, it will not necessarily be recognized as a joint debt of the husband and wife.

According to data, according to financial data released by the three major Evergrande companies in July, the total debt of China's three listed companies, Evergrande Auto, and Evergrande Property, exceeded 2.6 trillion yuan, while total assets were only about 1.96 trillion yuan. There was serious insolvency.

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