When a business in Hong Kong reaches its end, the path to formal closure is a legal process known as liquidation. This involves winding up the company’s affairs, settling all outstanding debts, and ultimately dissolving it with the Companies Registry.
The specific procedure you must follow depends on your company's unique circumstances, such as its financial health, leading to two main paths: a voluntary process you control, or a compulsory one mandated by the court.
In this guide, we’ll outline the types of liquidation, the steps you’ll need to follow, and the legal implications for all stakeholders.
Types of Company Liquidation in Hong Kong
In Hong Kong, limited companies typically liquidate in one of two ways, depending on their financial health and operational situation:
- Voluntary Liquidation: This is when the company's shareholders decide to wind up the business on their own terms. If the company is solvent, shareholders initiate members' voluntary liquidation (MVL). If the company is insolvent and can’t pay its debts, creditors initiate creditors' voluntary liquidation.
- Compulsory Liquidation: This court-mandated process usually happens when a creditor petitions the court to close the company due to unpaid debts. If the court agrees, it appoints a liquidator to take control of the process.
Steps to Liquidate Your Company
Once the decision to liquidate is made, the company must follow a series of specific legal steps outlined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).
Below, we outline the key actions required in each case.
Voluntary Liquidation by the Company
A company can only opt for voluntary liquidation if it is solvent. The process is initiated by and controlled by the company's shareholders.
- Make a Statutory Declaration of Solvency: The company's directors must make a formal declaration stating that the company can pay its debts in full within 12 months. This declaration must be filed with the Companies Registry within 5 weeks of the special resolution.
- Pass a Special Resolution: Shareholders must vote to wind up the company voluntarily. A 75% majority vote is required to pass the resolution.
- Appoint a Liquidator: Shareholders appoint a licensed insolvency practitioner as the liquidator. The Statutory Declaration and Special Resolution must be filed with the Companies Registry within 15 days of the resolution.
- Liquidator's Role & Final Meeting: The liquidator takes control, sells assets, settles debts, and distributes any surplus to shareholders. After completion, the liquidator holds a final meeting, submits the final account to the Companies Registry, and the company is dissolved within three months.
Voluntary Liquidation by the Creditors
Creditors’ voluntary liquidation is for insolvent companies. While shareholders start the process, creditors play a key role in appointing the liquidator.
- Pass a Special Resolution: Directors, believing the company is insolvent, call a meeting of shareholders. Shareholders pass a special resolution stating that the company cannot continue due to its debts and must be liquidated.
- Convene a Meeting of Creditors: The company must call a creditors’ meeting no later than the day after the shareholder meeting. At least 7 days’ notice must be given. Directors present a full Statement of Affairs at this meeting.
- Appointment of the Liquidator: At the creditors’ meeting, creditors can nominate their own liquidator. If they do, their choice overrides the shareholders’ decision. Creditors may also form a liquidation committee.
- Liquidator's Role & Final Meeting: The liquidator sells the company’s assets and distributes the proceeds to creditors based on legal priorities. After completing the process, the liquidator holds a final meeting with both creditors and shareholders, submits the final account to the Companies Registry, and the company is dissolved within three months.
Compulsory Liquidation by the Court
Compulsory liquidation is a court-driven process, typically initiated by a creditor, which forces an insolvent company into liquidation.
- Filing a Winding-Up Petition: A creditor (owed HKD 10,000 or more) can file a petition with the Court of First Instance. This usually happens after the company fails to meet a statutory demand within 21 days, which creates a presumption of insolvency.
- Court Hearing and Winding-Up Order: The court reviews the petition. If it confirms the company is insolvent and the debt is due, it issues a Winding-Up Order.
- Appointment of the Official Receiver: Upon the Winding-Up Order, the Official Receiver (a government officer) is automatically appointed as the provisional liquidator.
- First Meeting of Creditors: The Official Receiver must hold the first meeting of creditors within 3 months of the Winding-Up Order. At this meeting, creditors can nominate a new liquidator or form a liquidation committee.
- Liquidator's Role & Final Meeting: The liquidator sells the company’s assets and distributes the proceeds to creditors. After completing the liquidation, the liquidator holds a final meeting, submits a final account, and the company is dissolved.
Immediate Legal Effects of Company Liquidation
Once a liquidation decision is made or a court order is granted, the legal winding-up process begins. A strict legal framework governs all actions, with specific implications for directors, shareholders, and company operations depending on the liquidation path.
Voluntary Liquidation
- The company must immediately stop all business activities, except those necessary to help with liquidation (e.g., completing a contract to increase the company’s value).
- Upon the appointment of the liquidator, the powers of the directors are terminated. They cannot act on the company's behalf. Their primary duty shifts to cooperating fully with the liquidator.
- Directors must submit a Statement of Affairs (a detailed financial statement) and hand over company records, books, and assets to the liquidator.
- Any share transfer after liquidation starts is void unless approved by the liquidator.
- All employee contracts end automatically when the liquidator is appointed.
- While rare in voluntary liquidation, the liquidator can investigate the company’s affairs and report any misconduct (e.g., wrongful trading) to the authorities.
Compulsory Liquidation
- Liquidation officially begins when the petition is filed, under the relation-back doctrine, not when the Winding-Up Order is issued.
- Any sale of company property or transfer of shares after the petition is filed is void, unless the court validates the actions.
- Directors must submit a Statement of Affairs and deliver all company assets and records to the liquidator. Failure to comply is a criminal offence.
- Once the Winding-Up Order is made, the directors' powers are immediately suspended. The Official Receiver takes full control.
- No legal actions or proceedings can be continued or commenced against the company without the court's permission after the Winding-Up Order is issued. This prevents a chaotic "race to the courthouse" by creditors.
Alternative Option: Deregistration
Some solvent companies that are no longer operating and have no outstanding debts can close without going through liquidation. Deregistration, also called striking off, is a formal way to remove the company from the Companies Registry and officially dissolve it.
To proceed with deregistration, the company have to do the following:
- Hold a general meeting and obtain unanimous approval from all shareholders.
- Request a Notice of No Objection from the Inland Revenue Department (Form IR1263).
- Submit Form NDR1 to the Companies Registry within three months of receiving the IRD notice.
- Wait for the Companies Registry to publish a notice of the proposed deregistration in the Government Gazette and allow three months for objections.
- After the objection period, the Registrar publishes the official deregistration notice, completing the process.
Deregistration is simpler and faster than liquidation because it does not require a liquidator or detailed reporting of assets and debts. Once completed, the company is dissolved, and any remaining assets become property of the Hong Kong government.
Conclusion
Closing a company in Hong Kong is a legally defined process, but it doesn’t have to be overwhelming.
Whether you choose liquidation, understanding your options is the first step to staying compliant. The law provides the framework, but navigating the process effectively usually requires expert guidance. Hiring a qualified insolvency practitioner or solicitor helps protect your personal interests and ensures an orderly company closure.
FAQs
How do I liquidate a company in Hong Kong?
You can liquidate via a shareholder-initiated voluntary winding-up (for solvent or insolvent companies) or a court-ordered compulsory winding-up, which is typically forced by a creditor after the company fails to pay a due debt.