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 dissolvement of a company during which it completely ceases to do business. Its main purpose is to sell off stock or property, pay off creditors, and distribute any remaining assets to partners or shareholders.
But how does closing down a company in Hong Kong through liquidation differ from other parts of the world?
To learn more about winding up a company in Hong Kong, keep on reading.
- Common reasons for closing a company
- Different modes and processes
- Consequences of winding up
- Differences between deregistration, striking off and winding up
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
- Arguments between shareholders
- Non-compliance with statutory requirements (including mismanagement of company affairs)
- Corporate restructuring
Voluntary winding up
Creditors are the only ones with the rights reserved to voluntary wind-up a company in Hong Kong.
This kind of winding up commences with a special case 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 commenced, the company has to stop all business operations except for the aspects regarding the beneficial winding up or liquidation.
All responsibilities, powers and rights of the board of directors are ordered to cease. The liquidator can allow, under special circumstances or opinions, a director (or more than one executive) to still hold various responsibilities.
Any transfer of shares is void if it’s not made to, or sanctioned, by the liquidator or official receiver. The status of the members and persons cannot be altered.
Compulsory winding up
Compulsory winding up is actually through a court-ordered statement.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 to its creditors.
- 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.
Creditors may apply for a winding-up petition against the company by appointing a solicitor person.
The winding-up petition needs to be prepared in accordance with the Companies Winding Up Rules. The notice 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 application 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 does not 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 order, after the filing of the petition for the appointment of a provisional liquidator, to safeguard them prior to the hearing of the petition.
In Hong Kong, three types of provisional liquidators exist:
- Traditional provisional liquidators appointed under government law.
- Provisional liquidators appointed pursuant to a members’ voluntary liquidation.
- “Panel T” appointments whereby the Official Receiver is appointed as provisional liquidator.
What are the different modes and processes of winding up?
Consequences of the Commencement of the Winding Up
From the commencement of the winding-up, the company needs to stop carrying any business affairs. Any transaction of shares thereafter 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 letter issued on behalf of the company. Upon the start of liquidation, the liquidators can dismiss the company’s members.
For a members’ voluntary winding-up, all the powers of the directors of the company 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 or property of a company for the purpose of making net distributions 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. 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 the winding-up (or liquidation) of a company in accordance with Hong Kong’s government law.
As you can see, the winding-up of a company in Hong Kong is time-consuming, far from simple, and involves various 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.