Closing a Hong Kong company involves many formal steps and the overall process can be expensive and take several months to complete, depending on how a company is closed. While there are many reasons for closing a business, such as a lack of profitability, a falling out between the shareholders, or failure to carry on business, one of the most common reasons is an inability to pay its debts. In this article, we look to explore what closing a Hong Kong company via voluntary wind up and compulsory (involuntary) wind up entails, and what factors you must be aware of when doing so.
In This Article You Will Learn:
1. What Does It Mean To Wind Up A Company?
Winding up a company bears similar meaning to the term liquidation, both terms refer to the process of closing down a company for the purpose of settling outstanding debts. During this process, a company will enter a legal process to liquidate their assets (sold off and converted to cash). In Hong Kong, only limited companies can be wound up.
Winding up a company should not be confused with deregistering a company. Although both procedures will result in the dissolution of a company, the processes and motives for each procedure differs.
Regardless, once a wind-up procedure begins, the company in question must cease their business operations. Any share transfers will also be considered void upon commencement of the wind-up procedures.
2. Voluntary Wind Up
Voluntary winding up of a Hong Kong company can often be initiated by the company’s shareholders. A voluntary wind up by shareholders can be carried out if it is of the opinion of the company director that by winding up, the company will be able to pay its outstanding debts in full, within 12 months after commencement of winding up.
In the event of a voluntarily wind up, the process is as follows:
1. Execution of a Certificate of Insolvency
2. The company passes a special resolution to put the company into members’ voluntary wind up
3. The company will submit the Certificate of Solvency with the Hong Kong Companies Registry
4. A liquidator will be appointed to oversee the company’s wind-up
5. A notification will be sent to the Companies Registry declaring the liquidators appointment
6. A notification will be sent to the Inland Revenue Department and Business Registration Office declaring the commencement of the wind-up
7. The company will publish in Gazette the resolution for winding-up the company and the appointment of the liquidator
8. The liquidator will assist in the realization and distribution of the company’s assets to the members
9. A final meeting will be held to approve the winding-up of the company’s accounts and to pass a special resolution for the disposal of the books and records and notification to the Companies Registry
10. Upon realisation and distribution of the company’s assets, the liquidator will be released from their duties
3. Compulsory Wind Up
Creditors may initiate a compulsory wind up, also commonly known as an involuntary wind up, if they are of the opinion that the company will not be able to settle its outstanding debts. In such a situation, a creditors’ meeting will be convened to discuss the logistics surrounding debt repayment.
A compulsory wind up can be ordered if:
- The company is unable to pay a debt of HKD 10,000 or above
- The court is of the opinion that it is just and equitable that the company should be wound up
- The company has by special resolution resolved that the company be wound up by the court
Except in the case of a Hong Kong company being wound up voluntarily, the process of winding up a company typically follows the same steps and procedures:
1. The company is issued a written demand for repayment of outstanding debt
2. A wind-up petition is presented to the Hong Kong Courts and the company. Upon presentation of this petition, the winding-up proceedings should be deemed to have commenced
3. A court hearing will be held in respect of the wind-up petition
4. In the event of a successful hearing for the creditor, the court will issue a winding-up order
5. Creditors will meet with relevant parties to facilitate the arrangement of the winding-up process
6. A liquidator will be appointment to oversee the company’s wind-up
7. The company’s assets will be realised and distributed to the creditors. The liquidator will be released from their duties upon successful the realisation and distribution of the assets
8. Dissolution of the company
Company Director Duties During a Compulsory Wind Up
Once a provisional liquidator has been appointed, or when the winding up order has been made, the standards powers of the company directors will cease. However, even though a company may be going through these proceedings, the company directors will still have certain responsibilities to uphold. A company director must:
- Deliver to the provisional liquidator or liquidator the company’s assets, books, papers and company seal;
- Attend the office of the provisional liquidator or liquidator for an interview to provide information regarding the company’s assets and dealings
- Submit a sworn statement of affairs of the company within 28 days from the date of the appointment of the provisional liquidator or the date of the winding-up order
- Attend meetings of creditors and contributories when notified by the provisional liquidator or liquidator
- Continue to cooperate with the provisional liquidator or liquidator until the winding-up process is completed
- Notify the provisional liquidator or liquidator of any change in address
In addition to their standard obligations as a company director, individuals who fail to adhere to the above obligations may be prosecuted and disqualified from acting as a company director for a set period of time.
The FastLane Group is a licensed Hong Kong company secretary. We have extensive experience assisting Hong Kong companies at all stages – from company incorporation to wind up. Please contact the FastLane Group for any enquiries you may have about how we can assist in your wind-up process.