When a business finally come to an end, there are still formalities and statutory reporting requirement that need to be addressed under the laws. Closing down business involve considerable administrative tasks that require thorough planning in order to get them right.
Subject to specified exceptions, a Hong Kong company that never commenced business or has ceased operation could pass a special resolution (specimen) and declare dormancy pursuant to Section 5 of the Companies Ordinance (Cap 622). Dormant companies are exempted from Annual Return and Profit Tax Return filing. No audited financial statements are either required.
Dormant companies can be re-activated by filing another special resolution (specimen) before they enter into accounting transactions.
Closing down a Hong Kong company can be done by way of Application for Deregistration or Winding Up. Although both options will end up in a company's dissolution, the conditions they need to meet, the duration and processes they need to follow are significantly different.
Application for Deregistration
A solvent company is one that can pay off its debts. Subject to specified exceptions, a defunct solvent private Hong Kong company or company limited by guarantee can apply for deregistration pursuant to Section 750 of the Companies Ordinance (Cap 622).
This is generally considered in the market as a rather simple, less expensive and fast method to dissolve companies. However, this method of disposal may not be applicable to or preferred in all situations.
Winding-Up (or Liquidation) requires an appointment of liquidator who will take control over all assets and management of the liquidating company, realize the assets, repay debts and distribute any surplus assets to members (shareholders).
A solvent Hong Kong company can be disposed of by way of Members’ (Shareholders') voluntary liquidation ("MVL").
For insolvent companies, their creditors could opt for creditors' voluntary liquidation or petition to the court for a compulsory winding up . Liquidator in an insolvent liquidation will review past conduct of the company, its directors and officers and furnish a report to the Official Receiver's Office in prescribed form. The scope of investigation work in a liquidation can be wide.
There is a general perception in the market that deregistration is a simpler, quicker and less expensive option. But in practice, the best method can be different for each situation, as there are advantages and drawbacks for each option.
Deregistration cannot help return of paid-up share capital to members and the company is still obliged to comply with all relevant statutory requirements unless it has been formally deregistered.
Deregistration causes great concern due to having a long tail of 20 years within which an aggrieved person can apply to the court to reinstate the company.
Although MVL is comparatively more costly, it is a clear-cut disposal method and is usually more preferred when the company has trading history.
Please read our article for a more comprehensive comparision.
Only solvent company can apply for MVL. A meeting of directors must be convened to issue a Certificate of Solvency. Then the directors must convene an extraordinary general meeting (EGM) of the shareholders to i) pass a special resolution for winding up the company and ii) to appoint a Liquidator.
In that EGM, not less than 75% of shareholders/members must approve the winding-up resolution.
This is a process initiated by the Registrar of Companies and under existing legislation, no company can apply for striking off.
The Registrar may exercise her statutory power to strike off a company when she has reasonable cause to believe that the company is not in operation or carrying on business.
A company dissolved by striking off may apply for restoration by court order or by administrative restoration. Once the application is approved, the company is to be regarded as having continued in existence as if it had not been dissolved.
It is not uncommon to see that companies were struck off by the Registrar due to their failure to file Annual returns despite reminders. Business owners may not be alerted of the struck-off until they received notification from the Companies Registry or conducted a company search. These companies may still have trading operations and/or hold assets (such as properties and bank balances). Please note that any assets left behind upon dissolution will become bona vacantia and form the general revenue of HKSAR Government.
Engagement of a quality and reliable company secretary can help avoiding the above non-compliance situation.
Where we can assist you
Liquidation is governed by specified laws and is a lengthy process that takes months to complete. It goes without saying that it should be handled by subject matter experts in that discipline.
Our Frances Chan has been in the liquidation profession for over 32 years (9 years thereof were in the insolvency field). She is well qualified and experienced to handle solvent liquidation cases of different varieties and complexities.
Depending on your needs, we can assist with closure of companies incorporated in Hong Kong and in certain offshore jurisdictions (such as British Virgin Islands and Cayman Islands) and provide the following services:
- Advice on the most appropriate method to close down companies, branches, representative offices, joint ventures or partnership businesses
- Provide named liquidator or support to members’ voluntary liquidation
- Apply for deregistration of a Hong Kong company
- Declare a Hong Kong company dormant pursuant to the Companies Ordinance (Cap 622) instead of disposal of it
- Restore dissolved companies and remedy non-compliance situation
Please feel free to contact us should you be interested in any of our above services.