(Bloomberg) -- China Evergrande Group’s chief agitator calling for its liquidation is suddenly backpedaling, but the line of creditors who may take up the torch doesn’t end there. 

In Hong Kong’s insolvency system, liquidation lawsuits often start with a creditor’s petition. Top Shine Global Limited of Intershore Consult (Samoa) Ltd., one of Evergrande’s creditors, took up the petitioner’s role, only to surprisingly demur at what was assumed to be a final liquidation hearing Monday. 

The resulting court adjournment bought Evergrande, the world’s most indebted property developer, more time to hammer out debt restructuring terms. But the 18-month old fight over its possible liquidation will likely drag on. An ad hoc group of creditors will “likely” step in as the petitioner if Top Shine were to walk away, Neil McDonald, the group’s lawyer, told reporters at the court on Monday.    

The courtroom drama underscored Evergrande’s determination to avoid liquidation, even as it carries $327 billion of liabilities, and find a way to keep building homes. Creditors’ signal to keep the liquidation proceedings ongoing may be blustery rhetoric, but it equally shows their eagerness to extract as much as possible. 

Surprised Judge

In past liquidation hearings, Top Shine’s lawyer typically opened the proceedings with a forceful argument on why Evergrande needs to be liquidated and have its assets distributed to creditors. 

Monday’s opening took on a different note, when Top Shine’s lawyer told Judge Linda Chan that he would not argue against Evergrande’s application to adjourn the hearing again. “I was instructed to not take any further step,” the lawyer said. 

Chan asked the parties what has happened to cause the petitioner’s sudden reluctance. “There must have been negotiations going on,” an Evergrande lawyer told the judge, without elaborating.

Chan delayed the hearing again to Jan. 29. But she urged Top Shine’s lawyer to give other creditors more time for the next hearing by notifying others in advance if it would again opt to not immediately call for a wind-up.   

That may not minimize the drama. “Likely, yes,” said McDonald, a partner at law firm Kirkland & Ellis LLP, when asked whether his client, an ad hoc creditor group, would step in to continue to push for a wind-up if Top Shine dropped the lawsuit. “If nothing changes, then yes, we will probably likely.”

The law firm that represents Top Shine in the winding-up lawsuit, K.B Chau & Co Solicitors, didn’t immediately respond to a written request for comment.

Back to Negotiation

Shenzhen-headquartered Evergrande has been trying to secure creditors’ approval for a restructuring plan. The adjournment buys them more time to narrow their differences.  

Offshore creditors are demanding controlling stakes in the equity of Evergrande as well as its two Hong Kong subsidiaries — Evergrande Property Services Group and China Evergrande New Energy Vehicle Group — as part of the debt discussions, Bloomberg News reported last week. 

Evergrande had earlier proposed offering 17.8% of the parent and 30% of each of the subsidiaries.  

An anticlimactic ending Monday also hints at the possibility of bondholders’ being resigned to allowing Evergrande to continue operating. Even if it’s ordered to liquidate, enforcing the order in China would be administratively difficult. Pulling the suit also would save the parties legal fees. 

For Transparency  

Evergrande will be expected to come back to the next hearing with more restructuring details. 

Repeating her past observation, Chan said Evergrande’s proposal remained a “general idea” and lacks crucial details that would allow creditors to decide if they want to support the plan. 

For the sake of better “transparency,” Evergrande should also consider publicly revealing information about equity proposals in the restructuring plan, Chan said. 

The company also needed to get more support from a large but secretive group of creditors called “Class C” and confirm with legal resources that its latest proposal is realistic. 

Evergrande’s lawyer said the company will work to refine the restructuring proposal by adding more details and solicit support from creditors. “We’ll try our best,” the lawyer said. 

“Otherwise, you keep coming back,” Chan said.

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