China: Challenges and opportunities in restructuring/insolvency

Practitioners reported no end in sight for the fallout from the Chinese property market. Whether in tabling restructuring plans overseas or by seeking liquidation, creditors have been seen to meet with much difficulty. One source said: “The market remains dominated by Chinese real estate developers. Despite that, only a handful have fully restructured and dealt with all of their offshore debt.”

One lawyer told us: “There was a strong sense that this was a correction when Evergrande happened. People expected to see the light of the end of the tunnel. Three and a half years later, that light hasn’t appeared.” While the pace of new insolvencies has been slowing, it does not appear that the Chinese real estate developer market is bottoming out.Indeed, with Evergrande itself only delisting from the HKSE in August 2025, and others like China South City facing liquidation orders from Hong Kong courts, the dominoes in the Chinese real estate market are clearly still falling.

There is reason to believe that the slow rate of resolution is policy driven. One practitioner suggested: “China real estate work is always policy driven by the PRC government. It may not be moving as quickly as parties wish.”

Regarding a mutual recognition scheme for R&I that had been agreed between the Supreme People’s Court and the HKSAR government in May 2021, a source observed: “Implementing the mutual-recognition agreement is not a priority of the Chinese government. This is very much intentional. They don’t want to enforce cross-border until things have settled down.”

One source concluded: “Lots of restructuring deals involve extending debt; lots of it is buying time while the Chinese government and onshore assets try to solve the issue at the asset level. The fundamental problem is still the oversupply in China.”

Lawyers were optimistic about the future of regional R&I work, particularly on account of continued cross-border opportunities from distress in the Chinese real estate sector.

Beyond the mutual recognition scheme, cross-border and parallel restructuring schemes such as those filed in England and the Cayman Islands have been popular because, as one source noted: “There are more creative tools than in PRC bankruptcy law.” Another source added: “Cross-border enforcement remains difficult and challenging. Commonwealth jurisdictions are slightly better because of common law.”

International firms may have an edge since so much of the work is cross-border, and as one source put it: “These cross-border complexities are situations international firms excel at.”

At the same time, perennial difficulties with restructuring plans and enforcement have been taking their toll among creditors. “There is a lot of fatigue. For more recent defaults, there is a reluctance for creditors to do anything — to throw good money after bad,” one source reported. It bears remembering that out of the USD45 billion claimed by Evergrande’s creditors, just USD255 million is known to have been recovered.

One source observed: “China real estate restructuring might take 7-10 years as it spreads to other areas. We are scratching the surface at the moment.”

On the whole, there was overall confidence in the strategic position of international firms. One lawyer said: “For China-related real estate, Hong Kong is the place to be. Most companies are listed on the HKSE. Judges understand the schemes of arrangement being played. While the tools for restructuring are not perfect, parties are well used to it. Chaperoning a scheme through the Hong Kong courts is still the most effective and cost effective solution.”

Beyond continued activity from the mainland Chinese property bubble, sources have been predicting an incoming wave of local R&I work in Hong Kong. One source suggested: “The Hong Kong side will see proper distress. We are seeing this with New World, for the first time since the late 90s.”

Some regard this as a knock-on effect of the Chinese real estate bubble. One source explained: “There has been spillover to Hong Kong, for example with New World Development. The perception is that the Hong Kong market is tainted by similar problems. Hong Kong banks will have to reappraise their relationships with real estate to resolve some of these situations.”

A different source cited the liquidation of a prominent Hong Kong construction contractor: “Paul Y, for many years biggest contractor in Hong Kong, had to go into liquidation. New World Development was informally restructured. Mainland Chinese issues have been impacting in Hong Kong in a direct area.”

Whatever its cause, the wave of distress is unlikely to be confined to real estate. The city was among Asia’s fastest-growing in the number of business insolvencies, with public figures for insolvency petitions reaching a nine-year high in 2024. Speaking along similar lines, one practitioner told us: “Creditor work has been on the radar in Hong Kong for the last 18 months. This is an emerging trend for Hong Kong sectors, not just real estate and associated companies, which will probably move from the outer rims to active practice.”

In sum, the China international R&I market stands to continue to benefit from challenging cross-jurisdictional real estate work, and while mega-restructuring deals involving Chinese developers will still likely be more profitable, greater dynamism from growing distress in the Hong Kong market may also be expected in 2026.

Restructuring/Insolvency (International Firms) includes rankings of the best R&I lawyers in China.