The liquidation of a company in Hong Kong affects the interests of shareholders, directors, employees, and third parties that have dealt with the company. Closing the company properly in Hong Kong helps protect these parties’ interests as far as possible and minimises the risk of negative consequences for them.
Importance of Closing a Company in Hong Kong
Although setting up a company in Hong Kong can offer significant benefits for international business, keeping it active is not always the right choice. In such cases, it is important to close the Hong Kong company properly, in line with the requirements and procedures that apply to the chosen closure route.
If you simply stop operating in Hong Kong without completing the necessary formalities, you may face negative consequences, including:
- ongoing annual fees to keep the company in good standing, secretary fees, and other mandatory payments;
- as Hong Kong companies must file statutory and tax returns, penalties may be imposed for late filing of annual returns and tax returns;
- the controlling persons of a company that has not been properly closed may continue to be treated as controlling persons, with obligations under the laws that apply to them;
- if the company has a corporate bank account with a Hong Kong or another overseas bank, the account may be blocked if you cannot provide updated documents for bank compliance.
In short, leaving a company inactive without properly closing it can create additional risks and liability for its directors and shareholders. For this reason, it is usually best to choose the most suitable way to close the company.
Ways to Close a Company in Hong Kong
At the legislative level, company dissolution in Hong Kong is governed by the Companies Ordinance (Cap. 622) and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).
These laws provide for different ways to close a company, including:
- striking off;
- deregistration;
- voluntary winding up; and
- compulsory winding up by court order.
Striking Off
In Hong Kong, the striking off process is initiated by the Companies Registrar and follows the steps below:
| Step | Explanation |
|---|---|
|
Issuing an enquiry |
If the Companies Registrar has reasonable grounds to believe the company is not carrying on business, the Registrar issues an enquiry to the company. |
|
Notice and publication in the Gazette |
If the Registrar does not receive a reply within the specified period, or receives confirmation that the company is not carrying on business, the Registrar issues a further notice and publishes a notice of the intention to strike the company off the register in the Gazette. |
|
Striking off |
If no objection is received, the company is struck off the register after three months from the date of the Gazette notice, and a further notice is published. The company is treated as dissolved from the date of publication of that notice. |
Deregistration
A company may be deregistered upon an application made by the company itself, its directors, or its members. Before submitting the application, you must make sure that:
- all members of the company agree to the deregistration;
- the company has not started carrying on business, or has not carried on business during the three months immediately before the deregistration application is submitted;
- the company has no outstanding liabilities;
- the company is not involved in any legal proceedings;
- the company does not own any immovable property in Hong Kong;
- if the company is a holding company, its subsidiaries do not own any immovable property in Hong Kong; and
- the company has obtained a notice of no objection from the Hong Kong tax authority.
Before filing a deregistration application, you should also ensure that the company’s up-to-date financial statements are prepared.
Deregistration of a company in Hong Kong typically involves the following steps:
| Step | Explanation |
|---|---|
|
Publication of the first notice |
Once the deregistration application is received, the Companies Registrar publishes a Gazette notice of the proposed deregistration. |
|
Objection period |
Following publication, interested parties may lodge objections to the company’s deregistration within three months. |
|
Publication of the second notice |
After the three-month objection period, the Companies Registrar publishes a second Gazette notice confirming the company’s deregistration. The company is treated as deregistered on the date this notice is published. |
Restoring a Hong Kong Company to the Register
Although the striking off and deregistration procedures described above may seem simpler and less costly, in practice they involve additional risks because the company can be restored to the register. An application for restoration may be made by a former member or director within 20 years from the date the company was dissolved by these methods. For example, an application may be filed if it later turns out that the company had outstanding liabilities.
A company may be restored to the register if all of the following conditions are met (as well as any other conditions the Companies Registrar may require):
- the company was in fact carrying on business at the time it was struck off or deregistered;
- the government authorities do not object to the company being restored (for example, where Hong Kong-located assets of the company have passed to the government);
- the applicant has provided the documents needed to update the company’s particulars; and
- the applicant has paid or reimbursed all costs, expenses, and liabilities of the government incurred in connection with maintaining the company’s property or considering the restoration application.
If the application is approved, the company is treated as restored to the register from the date of the relevant restoration notice. In that case, the company is treated as having continued in existence as if it had not been dissolved.
In addition, upon an application by an interested party made within three years, their legal position may be restored as if the company had not been dissolved.
Voluntary Winding Up in Hong Kong
This section describes the procedure for the voluntary winding up of a Hong Kong company initiated by its members.
As a rule, this route is used where keeping the company in existence is no longer commercially sensible because it has achieved the objectives set out in its constitutional documents, or for other reasons.
A key condition for a voluntary winding up is that the company is solvent. To confirm solvency, the company’s directors must:
- sign a certificate of solvency stating that the company will be able to pay its debts in full within a period not exceeding 12 months from the start of the winding up; and
- attach the company’s up-to-date balance sheet.
A voluntary winding up of a Hong Kong company is typically carried out as follows:
| Step | Explanation |
|---|---|
|
Passing the resolution |
The members must pass a resolution to wind up the company. |
|
Appointing a liquidator |
The liquidator assumes the directors’ powers and deals with the company’s assets and liabilities, including liaising with creditors and preparing progress reports during the winding up. |
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Preparing the final account |
Once the winding up is completed, the liquidator prepares a final account showing how the company’s assets were distributed and how its liabilities were settled. |
|
Holding the final general meeting |
Notice of the meeting must be published at least one month before it is held. At the final meeting, the liquidator presents the final account and explains it. |
|
Filing documents with the Registrar |
After the final meeting, the liquidator files the final account and the meeting minutes with the Companies Registrar. |
A voluntary winding up can be a lengthy process and may take more than one year.
Compulsory Winding Up by Court Order
In certain circumstances, a Hong Kong company may be wound up compulsorily by court order. This most commonly happens where there are breaches in the company’s operations. For example, grounds for compulsory winding up may include:
- the company not carrying on business for one year;
- the company having no members; or
- the company having an outstanding debt of HKD 10,000 or more.
In some cases, the Companies Registrar may also initiate compulsory winding up, for example where the company is carrying on illegal activities, commits other breaches, or fails to pay the required annual renewal fees.
In a compulsory winding up, the liquidator is also appointed by the court.
Consequences of Company Liquidation in Hong Kong
When liquidating a company in Hong Kong, you should also keep the following points in mind.
| Aspect | Explanation |
|---|---|
|
Tax compliance for Hong Kong companies |
Hong Kong corporate taxes must be settled before the company is recorded as dissolved. Even if the company has no profits, a profits tax return must still be filed. |
|
Ongoing director obligations |
It is important to note that some director obligations do not end when the company is liquidated. For example, former directors must ensure the company’s accounting records are kept for six years from the date of liquidation. Failure to comply may result in a fine of up to HKD 10,000. |
|
Distribution of assets |
After settling with creditors, it is important to identify and distribute all remaining assets among the company’s members. If this is not done, all property and property rights belonging to the company at the time of liquidation will vest in the government. |
Conclusion
Hong Kong law provides several ways to close a legal entity. Regardless of the method chosen and the reasons for closing the company, it is important to follow all required procedures. This helps ensure legal certainty, proper settlement of obligations, and minimises risks for members, directors, and other interested parties.
Uniwide supports the liquidation of Hong Kong companies, including providing advice, preparing the required documents, and helping to appoint a liquidator.