Winding up is a legal process of selling & converting assets into cash to repay debts. In Hong Kong, two most common methods for winding up a company involves Voluntary winding up and Compulsory winding up, both methods can lead company to dissolution while the procedure and feature may have some striking differences. The Companies Ordinance and Companies Rules regulates winding up procedure in Hong Kong.
Voluntary winding up of a company in Hong Kong can be commenced either by creditors or members (shareholders). The voluntary winding up of a company initiates by passing a special resolution as to voluntarily winding up and this information needs to be published in the Gazette within 14 days. Winding up is said to initiate on the date of passing the resolution.
Members’ voluntary winding up of a company can be executed if the directors of the company are certain that the company will be able to pay its full debts, within 12 months after the commencing of the winding up.
To begin the winding up procedure, directors’ meeting must be called upon where by majority of directors shall make a statutory Declaration of Solvency that must include statement of assets and liabilities, based on recent financial statements of the company and be submitted to Companies Registry within 7 days subsequent to the date on which it was prepared.
The directors have a duty to appoint a provisional liquidator, generally a professional accountant or a solicitor who is required to give his written consent to act as the provisional liquidator. The notice of appointment of the liquidator or provisional liquidator and notice of the commencing of the winding up process of the company must be published in the Gazette within 14 days of appointment.
The directors must call upon an Extraordinary General Meeting, within 28 days of conveying the Declaration of Solvency to the Companies Registry. The motive of the EGM is to pass a Special Resolution regarding winding up of the company and to pass an Ordinary Resolution, signing up the liquidators. With the passing of special resolution at the EGM, voluntary winding up is said to have commenced. Thereafter, the liquidator proceeds towards filing the necessary notifications and winding up the affairs as per Companies Ordinance.
In case, the liquidation procedure continuous for more than a year, the liquidator must hold a general meeting every year to keep the company members aware about the status. After the completion of winding up, the liquidator prepares and presents the final account as to how the company’s assets were disposed off and the process followed, in final general meeting. The Companies Registry should be supplied with the information of the meeting and a copy of account under one week of the meeting. Once the Registry receives the documents, the company will be dissolved after 3 months or at a date as per the court’s order.
A voluntary winding up by creditors will have to be executed in case the company fails to make a Declaration of Solvency, creditors’ meeting should be arranged as soon as the resolution for a voluntary winding up is passed. The company shall advertise notice of such meeting in the Gazette and two newspapers among which one must be in English and another must be in Chinese. A clear list of creditors of the company with their estimated claim amounts must be presented by the directors. A liquidator will be appointed by the creditors and a committee of inspection may also be appointed to act in harmony with the liquidator. The liquidation procedure is identical to that of voluntarily winding up by members.
Usually, a court in Hong Kong may order a compulsory winding up of a company in three circumstances. Firstly, when the company is incapable to pay a debt of HKD 10,000 or above. Secondly, when the court have an opinion that it is just and reasonable that the company should be wound up. Thirdly, when the company decides by special resolution that it should be wound up by the court. A petition can be filed by a creditor, a shareholder or the company itself for winding up against the company, through a solicitor. The petition shall be made as per Companies Winding Up Rules. The winding up of the company shall be deemed to initiate once a petition is filed in court. The court may pass a winding up order and the provisional liquidator taking control over the company, will proceed to inspect the company’s affairs.
The liquidator continues to investigate affairs of the company and disposes off assets of the company, paying dividend to the creditors. The company will be said to be dissolved as soon as the affairs are wholly wound up.
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