DEALS
Zhong Lun Helps Accomplish Restructuring of Guangzhou Huakang as its Administrator
Zhong Lun Helps Accomplish Restructuring of Guangzhou Huakang as its Administrator
On August 24, 2021, the Guangzhou Intermediate People’s Court (“Court") ruled that restructuring of Guangzhou Huakang Dikong Development Co., Ltd. (“Huakang") was completed successfully. This put a long-awaited end to the on-hold “Underground Shopping Mall on Kangwang Road", a project that had been left unfinished for 20 years. With the three-year restructuring, the project had been brought back to life. This case represents the Court’s first judgement and enforcement of a legal action involving restructuring of a long-time unfinished property, which provides significant guidance to subsequent cases. In May 2020, the case was published on people.com.cn and Guangzhou Daily as a typical case of Guangzhou’s bankruptcy courts and has remained one of the example cases that the Court uses to respond to the World Bank’s survey under its Improving Business Environment for Prosperity (IBEP) program.
The Guangzhou Kangwang Shopping Mall was one of the major large-scale shopping centers in the heritage district of the city. Some shops in the mall were sold to hundreds of small owners, while others were mortgaged to banks. The unfinished project has for many years rendered its operation a nightmare. When Huakang became insolvent due to its inability to run smoothly or earn income, its creditors brought it to court for bankruptcy. The key point of this case is that although the amounts of claims are small, there are a large number of small owner-creditors. Other problems include the creditors’ inability to get their ownership certificates and the long-delayed delivery of the property. If the project had been liquidated and auctioned, the insignificant proceeds from the auction would be unable to secure ownership perfection; or if Huakang had been liquidated and deregistered, there would be no legal entity qualified under law to handle issues such as applying for property certificates for and delivering property to the small owners, leaving them incapable of claiming their rights. If that happened, it could give rise to numerous complaints and petitions and lead to social instability.
As the bankruptcy administrator of Huakang, Zhong Lun made a comprehensive inventory of and recovered the assets of the company, solving the long-standing problems of management difficulties of the unfinished shopping mall. At the same time, the firm also got in touch with many small owner-creditors to help them complete their claim filings, pay their purchase price balances and obtain their property certificates. Furthermore, the firm actively sought restructuring investors and formulated an effective and efficient restructuring plan that got a nod from the creditors and the court.
Despite various difficulties facing Zhong Lun’s administrator team during the restructuring process, such as disputes over rent among parties involved sparked off by operational stagnation during the COVID-19 pandemic, the team mediated in the disputes on site and coordinated with the local sub-district office to make sure that the restructuring could proceed smoothly. Thanks to the team’s efforts, all the restructuring considerations were paid on schedule and duly allocated, and the proceedings were successfully concluded. This case was handled by Zhong Lun partner Yang Zou and associate Huiying Zheng, among others.
