Hong Kong Company Maintenance and Compliance Guide (13) - Closing Down a Company in Hong Kong

1. Introduction

Closing down a company in Hong Kong involves a certain number of formal steps and the overall process can take many months to complete.

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

Companies can be closed down either by "Deregistration" or "Winding Up". Although both the procedures will result in the dissolution of a company, the processes they entail are significantly different.

2. Deregistration of a Hong Kong Company

In accordance with the Companies Ordinance, a private company, or a director or member of such a company, may apply to the Registrar under s291AA for deregistration. However, such an application could only be made if:

(a) all the members of the company agree to the deregistration;
(b) the company has never commenced business or operation, or has ceased business for more than three months immediately prior to the deregistration application;
(c) the company has no outstanding liabilities.

The application must be accompanied by a written notice from the tax authority stating that the Commissioner of Inland Revenue has no objection to the company being deregistered. The tax authority will only issue such a Notice if the following conditions are met:
(a) the company has never commenced business, or has already ceased business;
(b) the company will not start / resume business in the future;
(c) the company has disposed of all trading stock, landed property and securities, if any;
(d) the company has no outstanding tax liabilities which include Profits Tax, Property Tax, Stamp Duty, Business Registration fee, fines and penalties in connection thereof and court fees;
(e) the company has no outstanding obligations under the Inland Revenue Ordinance. These include submission of return(s) which has(have) been issued by the Inland Revenue Department, liability to notify the Commissioner of Inland Revenue in writing that the company is chargeable to tax for any year of assessment in which a return has not been received;
(f) there are no unanswered enquiries from the Inland Revenue Department (IRD);
(g) there are no unsettled objections or appeals in respect of assessments already raised.

Even the company is dissolved as of the date of registration, the liability (if any) of the officers and members of the company continues and may be enforced as if the company has not been dissolved.

The following categories of companies are not eligible to apply for deregistration:

(a) an authorized institution as defined in the Banking Ordinance
(b) an insurer as defined in the Insurance Companies Ordinance
(c) a company licenced under the Securities and Futures Ordinance
(d) a company having a subsidiary that falls within any of the above categories, and
(e) a company that has fallen within any of the above categories at any time in the preceding five years

In applying to have the company deregistered, it is of important that all the liabilities of the company be settled and all assets disposed/processed. In particular, any balance in the bank account of the company should be transferred out.

Hong Kong company deregistration procedures and costs

3. Winding up a Hong Kong Company

There are two paths to winding up a company in Hong Kong - voluntary winding up or compulsory 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 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 off 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.

(2) Compulsory Winding Up (Court Ordered Winding Up)

Reasons for 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 HKD200,000, the provisional liquidator is appointed as the liquidator. If the property of the company is likely to exceed in value HKD200,000, 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

(a) Once a winding-up petition is filed in the court, the winding-up of the company shall be deemed to commence.
(b) 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.
(c)The company or any creditor or shareholder may apply to the court to stay or restrain any pending action or proceeding against the company.
(d) 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.