Months after China Evergrande ran out of cash and defaulted in 2021, investors around the world snapped up the property developer’s discounted notes, betting that the Chinese government would eventually step in to bail it out.

On Monday it became clear how wrong that bet was. After two years in limbo and with more than $300 billion in debt, a Hong Kong judge ordered Evergrande into liquidation, a move that will trigger a race of lawyers to try to find and seize anything belonging to Evergrande that can be sold. .

In a small courtroom on the 12th floor of Hong Kong’s High Court building, Evergrande lawyers pushed for a last-minute deal. They argued that a liquidation would hurt Evergrande’s business and would not help creditors recover their money. They wanted more time to try to reach an agreement with Evergrande’s creditors.

But after 40 minutes of debate, Linda Chan, the bankruptcy judge presiding over the case, made the decision to issue an order asking Evergrande to end its operations, citing the company’s inability to present a concrete proposal to the court. for a year and a half. years.

“I think it would be a situation where the court would say: enough is enough,” Ms Chan said.

The order means that Evergrande, which has been limping along for two years, unable to pay its debts or function normally but still in operation, will now likely face a prolonged period to dismantle a massive business with projects spanning hundreds of cities and unrelated businesses such as an electric vehicle company.

The order sent shockwaves through the company’s Hong Kong-listed shares, pushing the share price down more than 20 percent before trading was halted. The court decision is likely to have repercussions on China’s beleaguered real estate sector and financial markets, which are already unsettled by the Chinese economy.

There isn’t much left in Evergrande’s sprawling empire that still has value. And any asset that is valuable may be prohibited because ownership in China has become intertwined with politics.

Evergrande, as well as other developers, overbuilt and overpromised, taking money for apartments that had not been completed and leaving hundreds of thousands of homebuyers waiting for their units. Dozens of these companies have defaulted on their payments, leaving the government desperately trying to force them to finish the apartments, putting contractors and builders in a difficult situation because they have not been paid for years.

What happens next with Evergrande’s liquidation will test foreign investors’ long-held belief that China will treat them fairly. The result could help stimulate or further slow the flow of money into Chinese markets when global confidence in China is already faltering.

“People will be looking closely at whether creditor rights are respected,” said Dan Anderson, partner and restructuring specialist at law firm Freshfields Bruckhaus Deringer. “Whether they are respected will have long-term implications for investment in China.”

China needs investment from foreign investors now more than ever in its recent history.

Financial markets in mainland China and Hong Kong – a city that has for years been an entry point for foreign investment – have taken such a hit that officials are scrambling to find policy measures such as a stock market rescue fund to shore up the trust. On Sunday they took steps to stop short selling, a practice that allows investors to bet against a stock.

China’s property market shows few signs of returning to boom days, in part because Beijing wants to redirect economic growth away from construction and investment.

Rising diplomatic tensions between the United States and China, which have led to large outflows of foreign money from China, are not helping.

Investors are awaiting the resolution of the Evergrande case to see how China will handle disputes over its defaulting companies, of which there are dozens in the real estate sector alone.

Specifically, they will want to see whether the people now tasked with carrying out the liquidation will be recognized by a mainland court, something that historically has not happened.

Under a mutual agreement signed in 2021 between Hong Kong and Beijing, a mainland Chinese court would recognize the liquidator appointed by the Hong Kong court to allow creditors to take control of Evergrande’s assets in mainland China. But so far only one in five such requests before local Chinese courts have been granted.

Monday’s decision had already been delayed several times over nearly two years when creditors and other parties agreed to adjourn to give the company more time to reach an agreement with creditors on how much they could be paid.

As recently as last summer, it appeared that Evergrande’s management team and some of its offshore creditors who had lent the company money in US dollars in Hong Kong were getting closer to a deal. Talks stalled in September when several high-level executives were arrested and founder and president Hui Ka Yan was eventually detained by police.

Monday’s court decision was “a big bang,” Anderson said, which “will lead to a bit of a whimper as liquidators go after assets.”

Speaking to reporters outside the courtroom on Monday, a lawyer representing the main group of creditors said they were not surprised by Ms Chan’s ruling.

“We have been ready, willing and able throughout the process to reach an agreement with the company,” said Fergus Saurin, a partner at Kirkland & Ellis, who is advising creditors. “There has been a history of last-minute compromises, which have gone nowhere and, in the circumstances, the company has only itself to blame for being dissolved.”

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