Winding up a Company in Hong Kong
10 minute read
Winding up a company is not a pleasant process. Whether your company is based in Hong Kong or anywhere else in the world, this process needs to be handled thoroughly and carefully.
Winding-up (aka liquidation) is the process of dissolving a company during which it completely ceases to do business. Its main purpose is to sell off stock, pay off creditors, and distribute any remaining assets to partners or shareholders.
But how does closing down a company in Hong Kong differ from other parts of the world?
To learn more about winding up a company in Hong Kong, keep reading.
Common reasons for closing a company
Business owners wind up their companies due to a number of reasons, including:
- bad or no profitability
- failure to operate
- failure to pay its debts
- argument between shareholders
- non-compliance with statutory requirements (including mismanagement of company affairs)
- corporate restructuring
Voluntary winding up
Creditors or shareholders are the ones that can start the voluntary winding-up process of a company in Hong Kong.
This kind of winding up commences with a special resolution being passed for the company to be voluntarily wound up. This information also needs to be published in the Gazette within 14 days.
The winding-up process is set to start on the date on which the resolution is passed.
Once the process starts, the company has to stop all business operations except for the aspects regarding the beneficial winding up.
All responsibilities and powers of the board of directors have to cease. The liquidator can allow, under special circumstances, a director (or more than one executive) to still hold various powers.
Any transfer of shares is void if it’s not made to, or sanctioned by the liquidator. The status of the members cannot be altered.
Compulsory winding up
Compulsory winding up is actually court-ordered.
A Hong Kong court usually orders a compulsory winding up of a company because:
- The company is unable to pay a debt of HKD 10,000 or above.
- The court believes that it is fair and equitable that the company should be wound up.
- The company has resolved (by a special resolution) that the company be wound up by the court.
Companies, creditors, and even shareholders can file a winding-up petition against the company by appointing a solicitor.
The petition needs to be prepared in accordance with the Companies Winding Up Rules. It also needs to be advertised in the Gazette at least seven clear days before the hearing date and once at least in two Hong Kong daily newspapers (one Chinese and one English).
Once that is done, a sealed copy of the petition must be delivered to the registered office or principal place of business of the company. In addition, an affidavit verifying the petition has to be filed.
Once the winding-up petition is filed, the process commences. Any disposition of the property of the company, which includes any transfer of shares or alteration in the status of the shareholders of the company is void if the court doesn’t order otherwise.
The company or any creditor or shareholder can apply to the court to stay or restrain any pending action or proceeding against the company.
Additionally, if the petitioner thinks that the assets of the company are endangered, they may appeal to the court, after the filing of the petition for the appointment of a provisional liquidator, to safeguard the assets of the company prior to the hearing of the petition.
What are the different modes and processes of winding up?
Consequences of the Commencement of the Winding-up
As from the commencement of the winding-up, the company needs to stop carry on its business. Any transfer of shares after the commencement is void, unless it was made with the sanction from the liquidator.
A statement that the company is being wound up must appear on every invoice, orders, and business letter issued on behalf of the company. Upon the start of liquidation, the liquidators can dismiss the company’s members.
Fo a members’ voluntary winding-up, all the powers of the directors shall cease. For a creditors’ voluntary winding-up, all the powers of the directors will cease on the appointment of the liquidator.
What are the differences between deregistration, striking off and winding up?
All of them are ways of dissolving a company.
Winding up is the process of settling the accounts and liquidating the assets of a company for the purpose of making distribution of the net assets to members and dissolving the company. The procedures are laid down in Part V of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).
A defunct solvent company which meets the required conditions may be dissolved by applying for deregistration under section 750 of the Companies Ordinance. Deregistration is a relatively simple, inexpensive and quick procedure for dissolving defunct solvent companies.
As for striking off, the Registrar of Companies may strike the name of a company off the Companies Register under Division 1 of Part 15 of the Companies Ordinance where the Registrar has reasonable cause to believe that the company is not in operation or carrying on business. The company shall be dissolved when its name is struck off the Companies Register. Striking off is a statutory power conferred on the Registrar, a company cannot apply for striking off.
Hopefully, now you know much more about the most important processes regarding winding-up a company in Hong Kong. As you can see, it is time-consuming, far from simple, and involves a number of steps.
If you need further help or if you have any more questions, feel free to reach out to Sleek. Our team of experts will gladly help with different aspects of winding up.