A Hong Kong court on Monday ordered China Evergrande, the world's most heavily indebted real estate developer, to undergo liquidation, a move likely to send ripples through China's crumbling financial markets as policymakers scramble to contain a deepening crisis.

The order followed a failed effort to restructure the $300 billion that the property giant owed to banks and bondholders, which fueled fears about China's rising debt burden.

"It would be a situation where the court says enough is enough," Judge Linda Chan said Monday. She said it was appropriate for the court to order Evergrande to wind up its business given a "lack of progress on the part of the company putting forward a viable restructuring proposal" as well as Evergrande's insolvency.

China Evergrande Group is among dozens of Chinese developers that have collapsed since 2020 under official pressure to rein in surging debt the ruling Communist Party views as a threat to China's slowing economic growth.

But the crackdown on excess borrowing tipped the property industry into crisis, dragging on the economy and rattling financial systems in and outside China.

Chinese regulators have said the risks of global shockwaves from Evergrande's failure can be contained. The court documents seen Monday showed Evergrande owes about $25.4 billion to foreign creditors. Its total assets of about $240 billion are dwarfed by its total liabilities.

"It is indisputable that the company is grossly insolvent and is unable to pay its debts," the documents say.

About 90% of Evergrande's business is in mainland China. Its chairman, Hui Ka Yan, who is also known as Xu Jiayin, was detained by authorities for suspected "illegal crimes" in late September, further complicating the company's efforts to recover.

The decision sets the stage for what is expected to be a drawn-out and complicated process with potential political considerations, given the many authorities involved. Offshore investors will be focused on how Chinese authorities treat foreign creditors when a company fails.

It's unclear how the liquidation order will affect China's financial system or Evergrande's operations. It struggles to deliver housing that has been paid for but not yet handed over to families that put their life savings into such investments.

"It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande's daily operations even harder," said Gary Ng, senior economist at Natixis.

"As most of Evergrande's assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and the situation can be even worse for shareholders."

Evergrande's Hong Kong-traded shares plunged nearly 21% early Monday before they were suspended from trading. However, Hong Kong's benchmark Hang Seng index was up 0.9%, and some property developers saw gains in their share prices.

China's largest real estate developer, Country Garden, initially gained nearly 3% but was flat. Sunac China Holdings rose 2.4%.

The Shanghai Composite index dropped 0.9%, while Shenzhen's A-share index fell more than 2%.

The Hong Kong court gave Evergrande a reprieve in December to allow it time to "refine" a new debt restructuring plan.

But Chan, the judge, said Evergrande "has not demonstrated that there is any useful purpose for the court to adjourn the petition – there is no restructuring proposal, let alone a viable proposal which has the support of the requisite majorities of the creditors."

In remarks published online, she lambasted the company for putting out only "general ideas" about what it may or may not be able to put forward as a restructuring proposal. The interests of creditors would be better protected if Evergrande is wound up by the court, she said.

Fergus Saurin, a lawyer representing an ad hoc group of creditors, said Monday he was not surprised by the outcome.

"The company has failed to engage with us. There has been a history of last-minute engagement which has gone nowhere," he said.

Saurin said that his team worked in good faith during the negotiations. Evergrande "only has itself to blame for being wound up," he said.

Tiffany Wong, one of two liquidators appointed by the court from global services firm Alvarez & Marsal, said that their priority was to ensure that "as much of the business as possible (is) retained, restructured and remains operational."

"We will pursue a structured approach to preserve and return value to the creditors and other stakeholders," Wong said. That includes considering any viable restructuring proposals, she said.

Evergrande CEO Shawn Siu told Chinese news outlet 21Jingji that the company feels "utmost regret" at the liquidation order.

He emphasized that the order affects only the Hong Kong-listed China Evergrande unit and that the group's domestic and overseas units are independent legal entities. Siu said that Evergrande will strive to continue smooth operations and deliver properties to buyers.

Real estate drove China's economic boom, but developers borrowed heavily to turn cities into forests of apartment and office towers. That has helped to push total corporate, government, and household debt to the equivalent of more than 300% of annual economic output, which is unusually high for a middle-income country.

Evergrande first defaulted on its financial obligations in 2021, just over a year after Beijing clamped down on lending to developers to cool a property bubble.

As a former British colony, Hong Kong operates under a separate legal system, though increasingly influenced by communist-ruled China. In some cases, mainland courts have recognized bankruptcy rulings in Hong Kong, but analysts say Evergrande's is a test case.

Brock Silvers, managing director at Kaiyuan Capital, said the liquidation order was likely to have more of an immediate impact on foreign investors and their confidence in China's financial markets than on Evergrande's operations in mainland China.

"So onshore, Evergrande tomorrow will look a lot like Evergrande yesterday; there won't be a lot of noticeable difference," he said.

Regulators need to restructure Evergrande and other struggling property developers, but it will be a complex and difficult process, said David Goodman, director of the China Studies Center at the University of Sydney.

"If the government could see simple answers to these problems, it would have reached them two to three years ago," Goodman said.