China’s Supreme People’s Court has introduced the country’s first comprehensive judicial guidance aimed at standardizing bankruptcy procedures for property developers, seeking to resolve regional inconsistencies that have hindered asset disposals and discouraged investment in stalled projects.
Unveiled on Monday, the framework emphasizes accelerating the reorganization of viable developers while ensuring the swift liquidation of those deemed unsustainable. It intends to enhance creditor protections and stimulate social capital participation in restarting delayed construction initiatives.
The guidance prioritizes asset-management firms and institutional investors in repayment arrangements related to the continuation of halted projects. “This will significantly boost creditor security and help draw more social capital to actively participate in home delivery guarantees and the revitalization of existing projects,” stated Yan Yuejin, vice-president of the E-house China Research and Development Institute.
Coming amid China’s ongoing property market downturn and nearly five years into the Evergrande crisis, the new directive addresses complications arising from large developer failures. Notably, courts recently accepted a liquidation petition against Evergrande’s main domestic unit, Hengda Real Estate, shortly after the company’s founder Hui Ka-yan received a life sentence.
The guidelines specify that when a developer’s bankruptcy results in the termination of residential sales contracts due to project incompletion, homebuyers should receive priority repayment for their purchase amounts and any outstanding mortgage loans. To facilitate the rehabilitation of stalled projects, courts may approve presale construction plans before convening creditors’ meetings.
New financing supporting resumed construction will generally be classified as common-benefit debts, ensuring they take precedence in solvency processes. In contrast, projects deemed unsalvageable should be sold intact to maximize asset value.
The court acknowledged that prior inconsistencies in judicial interpretation across regions have delayed bankruptcy resolutions, given the complexity of cases involving large debts and multiple stakeholders. To address this, a national symposium held in Beijing last December brought together officials across government departments to align on core issues shaping the new framework.
The guidelines also call for enhanced coordination between courts and governmental agencies, with authorities responsible for risk control and administrative coordination while courts oversee judicial proceedings. Relevant regulators, including financial watchdogs, natural resources and housing agencies, market regulators, and tax authorities, are expected to collaborate on addressing challenges in investment, financing, asset management, tax relief, and credit restoration within bankruptcy cases.