Closing a business in Hong Kong involves a structured process called winding up. Here’s a straightforward guide to understanding the steps, legal implications, and consequences.
What Types of Businesses Can Be Wound Up?
Only limited companies can undergo winding-up. This process, similar to liquidation, involves selling the company's assets to repay its debts, leading to the company's closure.
A limited company in Hong Kong is registered under the Companies Ordinance (Cap. 622) and is a separate legal entity capable of taking legal actions and being sued.
Key Points to Consider
Shareholders' Liabilities: Shareholders are only liable up to the value of their shares or an agreed contribution.
Unlimited Companies: These operate more like sole proprietorships or partnerships where owners are fully liable for the business’s debts.
Directors’ Duties
When a provisional liquidator is appointed or a winding-up order is issued, directors’ powers cease. However, they must still fulfill certain responsibilities, like keeping accurate financial records and preparing a statement of financial affairs. Failure to do so can lead to legal actions, including prosecutions and disqualification.
Winding-Up Modes
Voluntary Winding-Up:
This can be initiated by the company itself and includes:
Members' Voluntary Winding-Up: The company calls a general meeting and passes a special resolution. If needed, an application to the Court may follow.
Creditors' Voluntary Winding-Up: A creditors' meeting is convened, and a liquidator may be nominated.
Steps for Voluntary Winding-Up:
Shareholders' Approval: A special resolution is passed.
Public Notice: Publish the resolution in the Government Gazette within 14 days.
Creditors' Meeting: Announce the meeting in the Government Gazette and newspapers.
Financial Statement: Directors provide a detailed financial status report.
Appoint a Liquidator: The liquidator manages the winding-up process.
Final Meeting: Once affairs are settled, a final meeting is held to report on the process.
Compulsory Winding-Up
This is ordered by the High Court and can occur if:
The company owes HK$10,000 (US$1,200) or more.
The Court deems it just and equitable.
A special resolution is passed by the company.
A creditor, shareholder, or the company can file a winding-up petition. Legal aid may be available for eligible applicants.
Steps for Compulsory Winding-Up:
File Petition: A winding-up petition is filed with the Court.
Court Proceedings: The Court reviews the case.
Provisional Liquidator: The Official Receiver or a designated liquidator takes over the company’s affairs.
Effects of Winding-Up
Voluntary Winding-Up: The company stops all operations except those necessary for winding-up. The company’s legal status continues until dissolved. Any transfer of shares or changes in member status after the winding-up starts are void.
Compulsory Winding-Up: No legal action against the company can proceed without Court approval. The liquidator assumes control of the company’s assets and operations.
Company Deregistration
A private company or company limited by guarantee can apply for deregistration if:
All shareholders agree.
The company hasn’t operated for the past three months.
It has no liabilities, ongoing legal proceedings, or immovable property in Hong Kong.
Steps for Deregistration:
No Objection Notice: Obtain this from the Inland Revenue Department.
Apply for Deregistration: Submit the notice and pay the fee to the Companies Registry.
Publication: The deregistration is published online. If no objections are raised within three months, the company is deregistered.
Duration of Liquidation
The liquidation process can take 6 to 9 months, sometimes extending up to a year.
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