Are you thinking of closing your company in Hong Kong? Hold on for a moment! It is a lengthy and costly undertaking. So, you better think again about the entire process.
If you have already made up the mind, we are really sad to see you go. But, we appreciate that businesses change, internal policies transform, and time move on must be respected. Therefore, we bring you a complete guide of liquidating a limited liability company in Hong Kong.
Reasons for deregistration, alternatives, and other facts you need to know
Reasons for deregistering a company
Many people often ask; why would a company go into liquidation and exit Hong Kong market? Here are several reasons why incorporation would go into liquidation.
- Inability to carry its own businesses in Hong Kong
- Progressive losses due to intense competition
- Insolvency (difficulty in meeting its debts in Hong Kong)
- Fall out between shareholders bringing the company to a stand still
- Failing to meet the required legal requirements. This could include mismanagement of the company
- When the mother company restructures, and the Hong Kong Company does not fit in the new outfit.
The process of closing a company (liquidation) can be completed in two main ways deregistration or winding up. Deregistration is a simplistic, direct, and an inexpensive process of closing a defunct company that is finding it difficult to operate. However winding up involves picking a liquidator who audits the company accounts, pays all debts, sells the assets, and distributes the remaining money to shareholders. The Liquidator ensures that the company closes completely.
Well, let’s put it this way; the process of liquidating a company is complex, and you should not try handling it on your own. Make sure to get an expert to assist you. We are here to help you dissolve the company in the best way possible. Contact us for help.
Alternatives to company deregistration
Because of the logistical issues involved as well as costs, you might be wondering whether there is an alternative. As opposed to closing down, you can opt to get into standby mode/ put the company on ice for about 12 months or more until all the current issues are resolved, and you are ready to proceed. This means that you will have the company name, maintain ownership of the assets, agreements, and contracts. Once you are ready to get back into operations, the company can be reactivated again.
Putting the company into the standby mode is simpler, cheaper, and faster because you will not be deregistering it.
Special facts you need to know
- The bank account and credit cards: Once you decide to deregister a company, the first thing should be closing the bank account and credit cards. Anything bearing the name of the company has to be closed before deregistration process can kick off.
- Draw all the cash from the credit card: Because most companies operate with credit cards that have time security, it takes about 60 days to get the cash. Therefore, you need to start the closure of the card about 3-4 months before deregistration begins.
- The company name: After the company is deregistered, the name is struck off the register of companies. This means that another person with the same name can register a new company and operate in Hong Kong. If your company was a top brand, you might want to put it on ice to safeguard the company’s name.
- Before the company is fully deregistered, it is required to meet all statutory requirements including the filing of annual returns.
Liquidating a limited liability company
The main requirements
For the deregistration process to begin, a company is required to be solvent according to the Companies Ordinance. According to Section 291AA (16) of the company Ordinance, the company has to meet these requirements:
- The decision to deregister the company must be agreed by all members of the company
- The company must have stopped its operations for more than three months before applying for deregistration. This means that no transactions should have taken place within the immediate three or four months.
- The company should have no outstanding liabilities
- To kick start the deregistration process; you have to get a notice of no objection from the Inland Revenue Department.
The process of deregistering a company involves the following;
- Providing a duly filled form NDRI, notice of no objection from the Inland Revenue Department, and additional information that the company registry might require.
- A letter of approval will be issued by the Company Registry if the documentation is okay,
- Then, the Company Registry will put a Gazette notice so that any person with objection can come forward. If there is no objection, the process of deregistration will start through another gazette notice. At this point, the applicant is duly notified.
- Once the final Gazette is published, the company will stand dissolved. This process takes about 5 months to complete (when there are no objections).
- After the company has been dissolved, all its properties including the credit balances are considered bonna vacantia and vested to the Hong Kong Administration. It is very important to ensure that all the properties are disposed appropriately before applying for deregistration. This is one place you need help to avoid losing assets of the company. Do not hesitate to contact us for assistance.
- You have to notify the Inland Revenue Department’s Business Registration Office within 1 month of cessation. This is important to have the business registration canceled.
Winding up a limited liability company in Hong Kong
Unlike the deregistration process, winding up is more complicated and has to be done by a liquidator. In Hong Kong, this process takes two forms; voluntary or compulsory winding up.
The voluntary winding up
This process can be initiated by either a shareholder/s or any of the company’s creditors. The process commences upon passing a special resolution indicating that the company wound up and the info published in a gazette in the subsequent 14 days. Note that the winding up starts the moment the resolution is passed.
- The members’ voluntary company winding up: This voluntary winding up is done if the company directors believe that they will be able to clear all the debts in 12 months after closure.
- To initiate the process, the directors’ have to meet and make the statutory declaration of solvency. This declaration further includes the assets as well as liabilities depending on the most recent company’s financial statement. This declaration must be served to the Company Registry in 7 days.
- Then, the directors go ahead and appoint a provisional liquidator (a professional accountant). This appointment of the liquidator has to be communicated to the Companies Registry in 14 days. The liquidator has to notify the Companies Registry that he has been appointed to liquidate the company within 14 days.
- Within 28 days of submitting the Declaration of Solvency, the directors must call an Extraordinary General Meeting. This meeting is meant to pass a Special Resolution to close the company and approving the liquidator and his remuneration. A notice of this resolution has to be published in a gazette within 14 days. The resolution is meant to commence the voluntary winding up.
- If the liquidation process takes longer than one year, a general meeting must be called to inform the members of the process. A final account must be prepared and presented to the directors showing how the properties were disposed and the process of closure. The final results must be presented to the members at a general meeting called through a gazette notice.
- After the meeting, the liquidator will notify the Companies Registry in 7 days. Then, the company will stand dissolved in 3 months or at a date set by the court.
Creditors’ Voluntary Winding Up
If a company is unable to make a declaration of solvency, the alternative is creditor’s voluntary winding up. After making the resolution to wind up, another meeting with creditors is convened. This must be made in an advertisement in two main gazettes (English and Chinese).
In the meeting, the company has to present a clear picture of the company together with all creditors and their claims. Then, the creditors are required to appoint a liquidator. An additional inspection committee might be selected. After the selection of the liquidator, the process of liquidation is similar to that for Voluntary Winding Up.
Implications of voluntary winding up
- Once the company starts the process of winding up, it ceases all operations. This is meant to make the winding up easy and fast.
- The power of directors ceases, except when the liquidator requires they continue holding their positions.
- No transfer of shares can be done during the winding up process. Such transfers can only be valid when sanctioned by the liquidator. This means that the status of various members cannot change.
Compulsory Winding Up
The main reason that makes a company undergo compulsory closure is a court order. Such an order may be issued in the following situations.
- The company finds it difficult to clear debts of 10,000 HKD or more
- The court finds it necessary to have the company wound up
- The company resolves that the court is the best way to close
To initiate a compulsory winding up, shareholder, a creditor, or company itself can appoint a solicitor to file a petition for winding up. This petition has to be prepared in line with the rules for Companies Winding up. Before the hearing date, the petition must be advertised in a Hong Kong Gazette no less than 7 days. Besides, a copy of the petition must be delivered to the office of the principal business.
The winding of a company is considered to have started after the petition has been filed and the court hearing scheduled. If the court Okays a go-ahead to the winding up, the official receiver takes the position of the provisional liquidator. Then, the liquidator will take over all the operations of the company including assets and records to investigate the company affairs.
If the company’s value is less than 200,000 Hong Kong dollars, the provisional liquidator takes over as the liquidator. However, if the value is more than 200,000 Hong Kong Dollars, a meeting of contributors and creditors will be called by the provisional liquidator to appoint the final liquidator and an inspecting committee.
The liquidator will investigate all operational affairs, dispose company assets, and pay creditors. Once the affairs are cleared, the company is wound up and dissolved.
The implications of compulsory company winding up
- The moment a petition is filed in a Hong Kong Court, the winding up process is considered to have started.
- After the process of winding up starts, disposition of company property including shares transfer as well as altering the shareholders status is considered null and void.
- Though the case has already been filed in court, a creditor or even the company can apply in a court of law to stay or restrain the process until the case is heard and determined.
- If the assets of the company are considered to be in jeopardy, a petitioner may apply in a court of law to have a provisional liquidator prior to the hearing of the petition.
The required notifications in a compulsory wind up
After filing a petition to close down the business, you have to notify the Companies Registry, the Internal Revenue Department, and all other relevant licensing authorities.
Why you need help during company liquidation ?
The process of company liquidation is complex and requires the inherent understanding of Hong Kong Law and business operations. Besides, there are numerous risks, and the process can ererag for a long time when handled incorrectly. The longer the process of liquidation, the more expensive it will be to close wind up. This is the main reason why you need to seek professional help.
As experts in Hong Kong, we have helped other companies go through the same process fast and successfully. Because you have decided to wind up, the best decision is working with experts with ample experience. Contact us and we will be there for you through the entire process to the logical conclusion.