A Hong Kong court ordered the developer to stop after finding that the company lacked a viable restructuring plan.
China's troubled real estate giant Evergrande Group has been ordered to liquidate, in a fresh blow to confidence in the world's second-largest economy.
A Hong Kong court issued the ruling on Monday after failing to convince a judge that it had a working plan to restructure its $300 billion debt.
„This would be a situation where the court would say enough is enough,” said Justice Linda Chan.
„I consider it appropriate for the court to grant a winding-up order against the company, and so I order.”
The ruling followed an 18-month legal battle after lender Top Shine filed a petition in 2022 seeking to recoup the developer's losses.
Evergrande, the world's most indebted developer, was granted a short extension in December after arguing it needed time to refine its restructuring plan.
Chan said the court in December „made it very clear that it expects to see a fully formulated and viable proposal.”
Evergrande's lawyer José-Antonio Maurellet defended the revised plan and denied the developer acted in bad faith.
Evergrande's default on repaying international investors by 2021 sent shockwaves through China's property sector after Beijing began cracking down on excessive debt for real estate, which accounts for an estimated 15-30 percent of the economy.
According to credit rating agency Standard & Poor's (S&P), more than 50 Chinese real estate developers defaulted or defaulted on payments in the past three years.
Shares of Hong Kong-listed Evergrande plunged more than 20 percent following Monday's ruling, before the city's stock exchange halted stock trading.
The move is the latest in a series of warning signs for China's $18 trillion economy, whose post-Covid recovery faces challenges from a crackdown on private industry to a shrinking population and the outflow of foreign capital.
China's official gross domestic product (GDP) growth of 5.2 percent last year was the worst performance in decades, excluding the COVID-19 pandemic.
After Monday's ruling in Hong Kong, the fate of Evergrande's asset portfolio remains uncertain.
Although China has signed an agreement with Hong Kong to recognize bankruptcy and restructuring proceedings in the Chinese cities of Shenzhen, Shanghai and Xiamen, it is unclear whether mainland courts will allow liquidators to seize the country's developer's assets.
Hong Kong's common law system, which was adopted during the British colonial period, differs from China's Communist Party-controlled courts.
Mainland Chinese courts have so far recognized only one liquidation order issued in Hong Kong. In 2022, a Shenzhen court ordered liquidators for paper maker Samson Paper.