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Hongkong Company liquidation

Hongkong Company liquidation

Closing down a company in Hong Kong involves a certain number of formal steps and the overall process can take many months to complete.
The most common reasons for closing a company are:
failure of the company to carry on business
company is no longer profitable
inability to pay its debts
falling out between shareholders
non-compliance with statutory requirements, including mis-management of company affairs
corporate restructuring of the group to which the company belongs
Companies can be closed down either by "Deregistration" or "Winding Up". Although both the procedures will result in the dissolution of a company, the processes they entail are significantly different. This part deals with the liquidation of a Hong Kong private company.

1. Types of Winding up Available to a Hong Kong Company
There are two paths to winding up a company in Hong Kong - voluntary winding up or compulsory winding up.
(1) Voluntary winding up
Voluntary winding up of a Hong Kong company can be initiated either by members (shareholders) or creditors.
The voluntary winding up of a company begins by a special resolution being passed for the company to be voluntarily wound up and publishing this information in the Gazette within 14 days. The winding up is said to begin on the date on which the resolution is passed.

Effects of Voluntary Winding Up
With effect from the commencement of the winding up, the company must cease to carry on its business except insofar as it is required for the beneficial winding up.
The directors’ Powers will cease, except under circumstances where the liquidator has resolved that the directors should continue to have such powers.
Any transfer of shares is void unless made to, or sanctioned by the liquidator, and the status of the members cannot be altered.

(2) Compulsory Winding Up (Court Ordered Winding Up)
Reasons for Compulsory Winding Up
The most common circumstances under which a Hong Kong Court can order a compulsory winding up of a company in Hong Kong are:
the company is unable to pay a debt of HKD 10,000 or above
the court is of the opinion that it is just and equitable that the company should be wound up
the company has by special resolution resolved that the company be wound up by the court.
Effects of Compulsory Winding Up
(a) Once a winding-up petition is filed in the court, the winding-up of the company shall be deemed to commence.
(b) Once the winding up commences any disposition of the property of the company, including any transfer of shares or alteration in the status of the shareholders of the company, unless the court orders otherwise, is void.
(c)The company or any creditor or shareholder may apply to the court to stay or restrain any pending action or proceeding against the company.
(d) If the petitioner believes that the assets of the company are in jeopardy, he may apply to the court, after the filing of the winding-up petition, for the appointment of a provisional liquidator to safeguard the assets of the company prior to the hearing of the petition.

2. Overview of Winding-up Procedures
The procedures described below apply to court ordered winding up:
(1) Issuing a written demand for debt repayment to the target company
(2) Presenting a winding-up petition to the Court and the company (Note)
(3) Court hearing for the petition
(4) Granting of winding-up order by the Court
(5) Meeting of creditors and other relevant parties
(6) Appointment of liquidator
(7) Realization and distribution of company’s assets to the creditors
(8) Release of duties for liquidator
(9) Dissolution of the company
Note: The winding-up proceedings should be deemed to commence at the time of presenting the winding-up petition to the Court.

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