Winding-up and Liquidation in Hong Kong

Fast & Hassle-Free Company Liquidation Services in Hong Kong

Winding-up, commonly referred to as liquidation, is the formal legal process of closing down a company in Hong Kong. It involves the orderly realisation of the company’s assets, settlement of its outstanding debts, and the distribution of any surplus (if available) to shareholders. Once completed, the company is dissolved and ceases to exist as a legal entity.

The process is primarily governed by two pieces of legislation:

• Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)
  
• Companies (Winding-up) Rules (Cap. 32H)

Types of Winding-Up of a Company in Hong Kong

There are two main categories of winding-up, each with subtypes depending on the company’s financial situation:

1. Voluntary Winding-Up

Initiated by the company itself, voluntary winding up may be commenced either by the shareholders (members) or by creditors.

• Members’ Voluntary Winding-Up (MVL):
  

• • • Applicable when the company is solvent and able to settle all its liabilities within 12 months.
    • Initiated through a special resolution by shareholders.
    • Directors must file a statutory declaration of solvency.
      

• Creditors’ Voluntary Winding-Up (CVL):
  

• • Applies when the company is insolvent and cannot meet its debt obligations.
  • The process is usually started in response to financial distress or creditor pressure.
  • Creditors play a key role, including in the appointment of the liquidator.
    

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

This type of winding-up is initiated through a petition to the court, most commonly on the grounds of insolvency (when the company is unable to pay debts of at least HK$10,000).

Petitions may be filed by:

• Creditors
• Shareholders
• The company itself
• The Company Registrar
• The Official Receiver
  

If granted, the court issues a winding-up order, and the company’s affairs are placed under the control of a provisional liquidator or the Official Receiver.

 

Voluntary Liquidation in Hong Kong

Voluntary liquidation is a process initiated by the company itself when the shareholders decide to bring the business to an orderly close. This option is generally chosen when the company is solvent and able to pay off all of its liabilities within a defined period. The following conditions must typically be met:

• Complete and Accurate Accounting Records:
  The company’s books must be up-to-date to ensure a proper assessment of assets, liabilities, and solvency.

• Unanimous shareholder approval:
  All shareholders must pass a special resolution to wind up the company voluntarily.

• Company solvency:
  The directors must declare that the company is solvent and capable of settling all its debts in full, usually within 12 months of the commencement of liquidation.

• Appointment of a liquidator:
  A licensed liquidator (usually a solicitor or a certified public accountant) is appointed to take over management control, realise assets, settle debts, and distribute any remaining surplus to shareholders.

This type of liquidation is often seen as a clean and cooperative exit strategy for companies that have completed their purpose or are no longer needed, while ensuring all legal and financial obligations are fully met.

 

Court-Ordered Liquidation (Compulsory Winding-Up)

Court-ordered liquidation, also referred to as compulsory winding-up, occurs when a petition is filed with the court, typically because the company is unable to pay its debts. According to Hong Kong law, a company is considered insolvent if it owes HK$10,000 or more and fails to satisfy the debt within the prescribed period after receiving a statutory demand.

Petitions can be presented by:

• The company itself
  
• The Company Registrar
  
• The Official Receiver
  
• Creditors
  
• Shareholders

Once the court issues a winding-up order, the liquidation process officially begins. Key steps include:

• The appointment of a provisional liquidator or the Official Receiver to take immediate control of the company’s assets and affairs.
  
• Multiple creditors’ and shareholders’ meetings are held to review the company’s position, appoint the liquidator, and discuss matters relating to debt settlement.
  
• The liquidator investigates the company’s affairs, realises assets, and distributes proceeds to creditors in accordance with statutory priority.
  

Court-ordered liquidation is generally more complex and time-consuming compared to voluntary liquidation, as it involves direct judicial oversight and greater creditor involvement.

 

Deregistration of a Hong Kong Company

Deregistration is a simpler, less costly alternative to liquidation for companies that are inactive and solvent. Under Section 291 of the Companies Ordinance (Cap. 32), a private company may apply for deregistration provided that all of the following conditions are met:

• Unanimous shareholder consent:
  All members must agree to deregistration.

• No business operations:
  The company has either never commenced business or has ceased all business activities for at least three consecutive months before the application.

• No outstanding liabilities:
  The company has settled all debts and obligations.

• No ongoing legal proceedings:
  The company is not involved in any litigation, either as plaintiff or defendant.

• No immovable property in Hong Kong:
  The company must not hold real estate or property interests in Hong Kong.

• Notice of No Objection from the Commissioner of Inland Revenue (CIR):
  A written clearance must be obtained from the Inland Revenue Department confirming there are no outstanding tax liabilities.

Once these requirements are satisfied, an application for deregistration can be filed with the Companies Registry.

Important: Even after deregistration, any interested party may apply to the court for reinstatement of the company within 20 years from the effective deregistration date if they have valid grounds (e.g., unsettled claims or overlooked obligations).

 

What are the Key Steps in the Winding-Up Process?

While the exact procedure depends on the type of winding-up, the process generally follows these stages:

• Appointment of a Liquidator
  

  • A licensed professional (such as a solicitor or certified public accountant) is appointed to oversee the liquidation.
  • The liquidator assumes control of the company’s affairs, while directors’ powers are suspended.
    

• Realisation of Assets
  

  • The liquidator identifies and sells company assets to generate cash.
  • This includes tangible assets (property, equipment, inventory) and intangible assets (intellectual property, receivables).
    

• Settlement of Debts
  Proceeds from the asset realisation are distributed according to a strict statutory order:

   

  1. Secured creditors
  2. Costs and expenses of liquidation
  3. Preferential payments (e.g., outstanding employee wages)
  4. Floating charge holders
  5. Unsecured creditors
     

• Investigation of Company Affairs
  

  • The liquidator may conduct inquiries into the company’s financial dealings and management conduct.
  • Action may be taken against directors for fraudulent trading, misfeasance, or breach of fiduciary duties.
    
• Dissolution of the Company
  

1. • After settling debts and completing investigations, the liquidator files the final accounts with the Registrar of Companies.
   • The company is then dissolved and struck off the register.

Do I Really Need Professional Services?

The answer is YES! Infractions and errors can happen out of ignorance and the consequences are severe. It could impact your future entry and exit in Hong Kong and possibly lead to arrest. That’s why you need 3E Accounting. Our familiarity with the entire complexities of the liquidation and deregistration process is an asset. Our knowledge and experience ensure no errors get made.

 

Common Reasons for Winding-Up of a Company in Hong Kong

Winding-Up and Liquidation in Hong Kong can happen for several reasons. The most common of which are:

• The company can’t carry on business
• The company is not profitable anymore
• A company can’t pay its debts
• The company has fallouts between shareholders
• The company isn’t complying with the statutory requirements
• The company undergoes corporate restructuring

 

Do I Really Need Professional Services?

The answer is YES! Infractions and errors can happen out of ignorance, and the consequences are severe. It could impact your future entry and exit in Hong Kong and possibly lead to arrest. That’s why you need 3E Accounting. Our familiarity with the entire complexities of the liquidation and deregistration process is an asset. Our knowledge and experience ensure no errors get are made.

 

Need Help?

Let 3E Accounting handle your liquidation in Hong Kong affairs. Our expert, insightful, and professional team will handle each aspect with due diligence. Liquidate with peace of mind knowing that you’re in good hands. For more information about our services, contact our Hong Kong team today.

 

Frequently Asked Questions