Given the complexities entailed, dissolving a company in Hong Kong by winding up should be thoroughly aware before the application. Below article casts light on winding up of Hong Kong companies and its different options!
1. An overview of winding up a company in Hong Kong
1.1. What does “winding up” mean?
A company in Hong Kong can come up with closing down its business by two popular options, namely De-registration and Winding up.
Despite the fact that both can lead your Hong Kong company to the dissolution, their procedure and feature bear some striking differences that should carefully be considered to ensure the suitability with your company’s circumstances.
Deregistration is widely-chosen by many companies in Hong Kong since it allows a streamline and cost-effective process for the company dissolution in Hong Kong. By contrast, winding up is the legal process by which all the assets of a Hong Kong company are sold off and converted to cash to reimburse debts.
Winding up a company in Hong Kong is quite complicated with many steps involved, hence possibly taking your time to bring the company to an end. Two common methods for winding up a Hong Kong company include Voluntary winding up and Compulsory winding up.
1.2. Who can be wound up?
Please note that only a limited company is granted winding up in Hong Kong.
A limited company is a separate legal entity that is established and registered under Hong Kong Companies Ordinance. Remarkably, shareholders’ liabilities in an LTD are only limited to their share values to the company (limited by shares), or to the amount of their share contribution to the company’s assets in event of winding up the company (limited by guarantee).
Further details on Hong Kong limited company and how it differs from a partnership and unlimited company can be found in our related blog: Hong Kong Business Entity Types
2. Types of winding up a company in Hong Kong
2.1. Voluntary winding up
Voluntary winding up in Hong Kong can be done by creditors or shareholders of the company.
The given table shows a standardized procedure of each type that you should know:
|Shareholders’ voluntary winding up||Creditors’ voluntary winding up|
Company is solvent
|Company is insolvent|
|Making a Declaration of Solvency||Preparing Statement of Affairs and list of creditors|
|Adopting a special resolution for the winding up||Passing a special resolution for the winding-up|
Submitting the Declaration to CR (within 7 days)
|Calling a meeting of creditors for liquidator appointment, inspection committee|
Appointing a liquidator
|Notifying CR of the winding up and liquidator appointment (within 14 days after the appointment and passing the resolution)|
Publishing in the Government Gazette the winding-up resolution and liquidator appointment (within 14 days after the appointment and passing the resolution)
Realizing and distributing the company’s assets to shareholders/creditors
Arranging a final meeting to present accounts for winding up & adopt a special resolution of disposing books and records
|Release of duties for the liquidator|
|Dissolving the company|
Shareholders’ voluntary winding up
A limited company in Hong Kong may consider the shareholders’ voluntary winding up if its directors think that the company is solvent – in other words, it has the ability of fully paying the debts during 12 months from its winding-up commencement.
The role of the liquidator is to be concerned with the company affairs and file notifications regulated by the Companies Ordinance. Importantly, the liquidator takes responsibility for holding annual general meetings to keep relevant members updated for the process.
Note: The winding-up process will commence from the date of the special resolution passed.
Creditors’ voluntary winding up
In the event that the company is unable to make a Declaration of Solvency, the company can choose to close down with creditors’ voluntary winding up.
The winding-up procedure is quite similar to that of shareholders. Note, however, that after the passing of the winding-up resolution, the company needs to hold the creditors’ meeting. During the meeting, the creditors will nominate a liquidator as well as an inspection committee whose role is to supervise the power performance of the liquidator.
To proceed with the creditors’ voluntary winding up, directors are required to present a full statement of the company affairs, together with a list of creditors and the estimated amount to their claims before the above meeting.
2.2. Compulsory winding up by Court
Below chart illustrates Hong Kong winding-up procedure in the most easy-to-follow manner:
Pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap.32, a Hong Kong limited company winding up by the Court can take place under some following circumstances:
- The company cannot pay the debt of $10,000 or more;
- The company should be wound up, as determined by the Court;
- The company has resolved by a special resolution of the members that the company be wound up compulsorily;
- The company has no members;
- The company has not conducted its business during one year from its establishment, or suspended its business for a whole year.
A creditor, a shareholder or the company to whom the Hong Kong limited company is indebted can deliver a winding-up petition against the company, as regulated in Section 177 and 178 of Companies Ordinance Cap 32.
The winding-up petition must be prepared in accordance with the Companies Winding Up Rules (Cap 32H), key requirements of which are:
- Paying a deposit of $11,250 to the Official Receiver;
- Paying a court fee of $1,045 to the Registry of the High Court to file the petition;
- Publishing the petition once in the Gazette and once in one English and one Chinese daily newspapers of Hong Kong in 7 clear days;
- Sending a sealed copy of the petition to the registered office or the place of business of the company;
- Submitting an affidavit for the verification purpose during 4 days after the filing of the petition with the court.
The appointed provisional liquidator is liable for interviewing the company’s directors and instructing them on preparing the statement of affairs. The liquidator also takes control of the realization and disposal of the entity’s assets and proceed with investigations.
If there are no more realizable assets as well as further investigations that should be conducted, the liquidator can make an application for release to the court.
In case the private practitioner acts as the liquidator, then the company can be completely brought to an end on the date of the order issued from the court. In another circumstance which is the Official Receiver plays the role of the liquidator, a certificate in the specified form must be delivered to the Registrar, and the company will be dissolved two years later.
Typically, there is no property transfer allowed after the presentation of a winding up petition has been made. The company account would also be made frozen by banks.
Note: At the time of the winding-up petition is filed in the court, the compulsory winding up will be deemed to commence.
The complexity of the winding-up procedure is quite obvious. It is advised that you should engage professional experts before opting for these processes!
3. Effects of winding up process
3.1. Effects of voluntary winding up
After the voluntary winding up is put on commencement:
- The company shall terminate to carry on its business except for those activities that may be required to benefit the winding-up process;
- The legality and powers of the company will keep on until the company is completely dissolved;
- Any change of the company’s members or transfer of shares, excluding the transfer approved by the liquidator, after the voluntary winding up shall be unaccepted.
3.2. Effects of compulsory winding up
In case of the compulsory winding up, from the commencement of this procedure:
- The company/creditor/shareholder can apply to the court for staying or restraining any pending action or proceeding against the company;
- Any change of the company’s members or transfer of shares, excluding the transfer approved by the court, shall be unaccepted;
To sum up, there are two common ways for a company winding up in Hong Kong: Voluntary and Compulsory winding up. Compared to other methods, winding up of Hong Kong companies is considered to be more complicated with respect to the statutory requirements and number of steps of each type.
If your limited company in Hong Kong is seeking winding up options to close down, it is recommended that you should engage a trusted corporate service firm/professional expert in the area to guide your winding-up process smoothly!
You may also consider for Hong Kong Company Deregistration Guide for a better time-saving and simple option of company dissolution.