In many jurisdictions if you no longer require a Company all you need to do in order to kill it off is stop paying the annual renewal fees and eventually it will be struck off the Register.
Closing down a company in Hong Kong however involves a certain number of formal steps and the overall process can take some months to complete. Depending on how the company is being closed, this process can also be expensive; hence the decision whether to cosle down and how to close down should be made after careful thought and consideration.
This article serves as a guide on the options available to close down a company in Hong Kong.
The most common reasons for closing a company are:
- Failure of the company to carry on business
- Company is no longer profitable
- Inability to pay its debts
- Falling out between shareholders
- Non-compliance with statutory requirements, including mis-management of company affairs
- Corporate restructuring of the group to which the company belongs
The process of closing down a company is referred to as “liquidation” in common terms. Companies can be liquidated either by “De-registration” or “Winding Up“. Although both the procedures will result in the dissolution of a company, the processes they entail are significantly different.
Deregistration is a relatively simple, inexpensive and quick procedure for dissolving defunct private companies who meet certain specific requirements. Winding up is the process of appointing a liquidator who will settle the accounts, pay off the company’s debts (if any), liquidate the assets of a company and distribute the surplus assets (if any) to members, ensuring that the company is completely dissolved.
Detailed below are the procedures involved in deregistration and winding up of a Hong Kong company.
De-registration of a HK Company
Requirements
The company must be a solvent private company incorporated under the Hong Kong Companies Ordinance, other than those companies specified in section 291AA(16) or registered under Part XI of the Companies Ordinance, and must meet the following requirements:
- All the members of the company agree to the deregistration
- The company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than 3 months immediately before the application
- The company has no outstanding liabilities
- It has obtained a written notice of no objection from the Commissioner of Inland Revenue
Procedure
An applicant must submit to the Companies Registry:
- A duly completed form NDR1
- A Notice of No Objection from the Commissioner of Inland Revenue (original copy)
- Any further information/documents that the Companies Registry may request in connection with the application
- If the Companies Registry finds all documentation to be in order it will proceed to issue a Letter of Approval for the deregistration application within five working days.
- The Registrar will then publish a notice of the proposed deregistration in the Gazette. If the Registrar receives no objection, within 3 months of publishing the notice, it will proceed with the deregistration process by publishing a final notice in the Gazette declaring the company to be deregistered and the applicant or nominated person will be duly notified of the same.
- Upon the publication of the final notice the company will be dissolved.
- The whole process will be completed within 5 months.
- Upon dissolution of the company, all the company s property (including credit balances in the company s bank account) shall be deemed to be bona vacantia and shall vest in the Government of the Hong Kong Special Administrative Region. You are strongly advised to seek legal or professional advice to ensure the proper disposal of the company s property before making an application for deregistration of the company.
- You must notify the Business Registration Office of the Inland Revenue Department, in writing within 1 month of the date of cessation of business, to apply for a cancellation of Business Registration.
- Until the company is deregistered, the company is still required to adhere to compliances, including the filing of annual returns and notification of situation of registered office.
Winding up a HK Company
There are two paths to winding up a company in Hong Kong – voluntary winding up or compulsory winding up.
Voluntary winding up
Voluntary winding up of a Hong Kong company can be initiated either by members (shareholders) or creditors.
The voluntary winding up of a company begins by a special resolution being passed for the company to be voluntarily wound up and publishing this information in the Gazette within 14 days. The winding up is said to begin on the date on which the resolution is passed.
Members’ Voluntary Winding Up
A members’ voluntary winding up of a company can be carried out if the directors believe that the company will be able to pay its debts, in full, within 12 months after the commencement of the winding up.
To initiate such a winding up, a directors’ meeting must first be convened where a majority of the directors must make a statutory Declaration of Solvency. The Declaration of Solvency must also contain the statement of assets and liabilities, based on the most recent financial statements of the company. The Declaration must be delivered to the Companies Registry within seven days after the date on which it was made.
The directors should proceed to appoint a provisional liquidator, who is generally a solicitor or professional accountant and must give his consent to act as the provisional liquidator in writing. The notice of the appointment of the provisional liquidator and notice of the commencement of the winding up by virtue of delivery of the Declaration to the Companies Registry must be published in the Gazette within 14 days of the appointment of the provisional liquidator. The provisional liquidator must also notify the Companies Registry of his appointment within 14 days after the date of his appointment.
Within 28 days of delivering the Declaration of Solvency to the Companies Registry, the directors must convene an Extraordinary General Meeting (EGM). The purpose of the EGM is for passing a Special Resolution to wind up the company, and an Ordinary Resolution appointing the liquidators (and approving their remuneration). The company should, within 14 days of passing the special resolution for voluntary winding up, give notice of the resolution by advertising in the Gazette. The voluntary winding up is deemed to have commenced with the passing of the special resolution at the EGM. The liquidator, or provisional liquidator will proceed to wind up the affairs of the company and file the necessary notifications required under the Companies Ordinance.
When the liquidation process takes more than a year, the liquidator must hold a general meeting every year to keep the members informed of the winding up process. Once the company’s affairs are fully wound up, the liquidator must prepare a final account of the winding up, showing how the property of the company has been disposed of and how the winding up has been conducted. The account must be presented at a final general meeting. The meeting has to be called by advertising in the Gazette, one month prior to the scheduled date. A copy of the account, along with a return stating that the meeting was held, must be sent to the Companies Registry within one week after the meeting. The company will be dissolved three months after the Registry receives the documents or at a later date as set by a court order in Hong Kong.
Creditors’ Voluntary Winding Up
If the company cannot make a Declaration of Solvency, a creditors’ voluntary winding up will have to be executed. Soon after the meeting at which the resolution for a voluntary winding up is made, a creditors’ meeting should be convened. The company must advertise notice of this meeting in the Gazette and two Hong Kong newspapers (one English language paper and one Chinese). The directors must present a complete picture of the company’s affairs, along with a list of creditors of the company and the estimated amount of their claims. The creditors will then proceed to appoint a liquidator and may also appoint a committee of inspection whose role is to act in concert with the liquidator. The liquidation process is similar to that of a members’ voluntary winding up, as mentioned above.
Effects of Voluntary Winding Up
- With effect from the commencement of the winding up, the company must cease to carry on its business except insofar as it is required for the beneficial winding up.
- The directors’ powers will cease, except under circumstances where the liquidator has resolved that the directors should continue to have such powers.
- Any transfer of shares is void unless made to, or sanctioned by the liquidator, and the status of the members cannot be altered.
Compulsory Winding Up
The most common circumstances under which a Hong Kong Court can order a compulsory winding up of a company in Hong Kong are:
- 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
A creditor, a shareholder or the company itself can file a winding-up petition against the company, by appointing a solicitor. The petition must be prepared in accordance with the Companies Winding Up Rules. The petition must 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). A sealed copy of the petition must be delivered to the registered office or principal place of business of the company and an affidavit verifying the petition must be filed.
Once a winding-up petition is filed in the court, the winding-up of the company shall be deemed to commence and a court hearing will take place. At the hearing, the court will make a winding up order (if it deems fit) and the Official Receiver becomes the provisional liquidator (unless a provisional liquidator has already been appointed prior to the making of the winding-up order), until a liquidator is appointed. The provisional liquidator will take over control of the company including its assets and accounting records and will proceed to investigate the company’s affairs.
If the property of the company is not likely to exceed in value HKD 200,000, the provisional liquidator is appointed as the liquidator. If the property of the company is likely to exceed in value HKD 200,000, the provisional liquidator will hold meetings of creditors and contributories for the purpose of appointing a liquidator and a committee of inspection. The liquidator continues to investigate the company’s affairs, realises and disposes off the company’s assets and pays dividend to the creditors (if possible). Once the company’s affairs are completely wound up, it will be dissolved.
Effects of Compulsory Winding Up
- Once a winding-up petition is filed in the court, the winding-up of the company shall be deemed to commence.
- Once the winding up commences any disposition of the property of the company, including any transfer of shares or alteration in the status of the shareholders of the company, unless the court orders otherwise, is void.
- The company or any creditor or shareholder may apply to the court to stay or restrain any pending action or proceeding against the company.
- If the petitioner believes that the assets of the company are in jeopardy, he may apply to the court, after the filing of the winding-up petition, for the appointment of a provisional liquidator to safeguard the assets of the company prior to the hearing of the petition.
Notification Requirements
A company must notify the following bodies as part of closing down its business:
- Companies Registry
- Inland Revenue Department
- Relevant Licensing Authorities
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