When Eddie Middleton and Tiffany Wong worked on the liquidation of Lehman Brothers’ vast Asian operations, it must have seemed like the largest and most complicated task they would ever take on.
Fifteen years later, China Evergrande, the world’s most indebted property developer, has collapsed — and they are handling the wreckage.
The pair, from US firm Alvarez & Marsal, have already started making preparations for a possible lawsuit against PwC, Evergrande’s former auditor, after a judge appointed them as liquidators of Evergrande’s Hong Kong-listed holding company. Still they face a completely different challenge to the one they had when sharing out the spoils of the Wall Street bank.
On the Lehman case, they moved fast to sell its assets, bringing in cash to give to creditors. But most of Evergrande’s assets are in mainland China. Laying claim to them would be fraught with legal and political complexity, and the chances of significant recoveries for offshore creditors from the mainland look slim.
It is a crucial case for A&M, the US consultancy founded in the early 1980s whose calling card in the world of corporate restructuring is that it liquidated Lehman’s US business.
At the time, Middleton and Wong worked at KPMG and were in charge of liquidating the Wall Street bank’s Asian operations, a task that required them to wrangle with counterparts at A&M and PwC, which oversaw Lehman’s European business.
A&M hired the pair in the past five years as part of a push to significantly build up its China restructuring and insolvency business. Having had little presence in the market a decade ago, it has now beaten Big Four rivals to win the Evergrande task.
Success would mean that, when it comes to winning restructuring business from Hong Kong, “A&M will be totally unassailable for years,” a former colleague of the pair said.
Middleton and Wong have worked together for more than two decades, starting at KPMG in 2002 when Middleton ran a team Wong worked on. Middleton, who grew up in the UK city of Leicester and in the late 1990s tried to set up a nightclub, has become one of the best-known names in Hong Kong’s restructuring world.
Wong is “kind of the heir apparent of the new generation that’s cutting through”, said a restructuring specialist who has worked with the pair. “She works very hard, she’s tenacious, and her expertise is China.” Wong and Middleton declined to be interviewed.
Recovering funds for the global investors holding more than $20bn in Evergrande’s offshore bonds, as well as other creditors, could hardly be further from the experience of repaying those exposed to Lehman’s collapse.
Lehman’s scattered entities around the world had well-documented assets — including property and financial instruments such as derivative positions — that could be sold to return cash to creditors.
Middleton handled Lehman’s liquidation with “speed and aggression”, the former colleague said, including agreeing to sell its Asia-Pacific franchise to Nomura within days of the bank’s collapse. As a liquidator, “you can sit in something for ages and generate fees, but he’s not that kind of guy.”
Middleton and Wong can try to persuade Evergrande’s mainland entities to strike a deal with offshore creditors. But if they want the liquidation order to be recognised on the mainland, they would need to win a ruling from a court there. While a 2021 arrangement allows Hong Kong liquidators to apply for approval to pilot courts in Shanghai, Shenzhen and Xiamen, there are few examples yet of successful applications.
Even if the pair won such a mainland ruling, there may be no money left to repay the creditors they represent, which are junior in standing to those onshore, where most of Evergrande’s $300bn in liabilities are owed.
“It’s difficult to identify a person who can give the liquidators information on what’s happening with the entire structure ,” said a lawyer specialising in restructuring in Hong Kong. ”And there’s a question mark as to how far, even if everything went smoothly, there would be any value left for [them].”
Instead, the pair may focus on whatever assets they can lay claim to in Hong Kong, and less-complicated targets such as the professional firms that helped enable Evergrande’s rise, a group that is increasingly being targeted by the liquidators of collapsed companies.
Their usual way of working is that “when there are Chinese investors and Chinese situations, Tiffany tends to lead,” the lawyer said. “If there are international investors, Eddie seems to lead those relationships.”
Liquidators have an incentive to maximise the value that can be wrung out of a collapsed company, because they are typically paid from the proceeds of the estate, and risk making a loss if little or no cash is recovered.
Still, they will have to tread carefully. The idea that they can “go into China and start grabbing assets” is “complete bullshit”, said a restructuring specialist in Hong Kong who has worked with the pair, doubting the likelihood of the liquidation order being applied in the mainland. “It’s not going to happen.”
Additional reporting by Thomas Hale in Shanghai
