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Winding up a Hong Kong limited company is a legal process that sells off assets to repay debts and bring the business to an end. It falls mainly into two types, voluntary winding up by shareholders or creditors and compulsory winding up by the court. The process is rigorous, and directors must fulfil specific duties.
What is winding up?
What is winding up?
Winding up is a legal process in which a limited company sells all its assets for cash to repay its debts, and ultimately brings the company and its business to an end.
The main purpose of winding up is to liquidate the company's assets, distribute them to creditors in the order of priority set by law, and then formally close the company.Winding up takes two forms: voluntary winding up and compulsory winding up.
Which types of company can be wound up?
Winding up applies only to limited companies incorporated under the the Companies Ordinance, (Cap. 622).
A limited company is a separate legal entity, so its debts and legal liabilities are confined to the company itself and do not normally pass to individuals.
What is the difference between winding up and company bankruptcy?
Winding up and bankruptcy are two entirely different legal concepts, with different subjects and procedures.
Only a Limited company can be wound up. A limited company is a separate legal entity with a legal status independent of its shareholders, and its assets and debts are held and borne in the company's name. If the company cannot repay its debts, they are normally met from the company's assets only, and the shareholders do not become personally liable for the company's debts.
By contrast, a Unlimited company or partnership bears all debts with unlimited liability. If the debts cannot be repaid, the owner must ultimately apply in his or her personal name for bankruptcy to deal with the debts.
Ways to close a company: winding up vs deregistration
| Item | Winding up | Company deregistration |
|---|---|---|
| When it applies | The company has debts or assets to deal with | The company has no debts, no assets and has ceased trading |
| Legal procedure | More complex; a liquidator must be appointed | Simple procedure and lower cost |
Company deregistration Specific conditions must be met, including that the company has ceased trading, has no outstanding debts and all shareholders agree.
Type of winding up
Voluntary winding up
Also known as “self-initiated winding up”, this is a closure process started voluntarily by the company's members, usually proposed by shareholders or creditors, and applies whether the company is solvent or insolvent. The company must hold a general meeting and pass a special resolution before the winding up can begin. Voluntary winding up can be further divided into:
Members' voluntary winding up
When the company is able to repay its debts, shareholders can pass a special resolution for voluntary winding up.This procedure is initiated by the company's directors, who must file a solvency certificate.
Creditors' voluntary winding up
If the company cannot repay its debts, the directors may recommend a creditors' voluntary winding up. It is likewise started by a special resolution passed at a general meeting, but because the company is insolvent, a creditors' meeting must be held, at which the creditors appoint the liquidator.
Compulsory winding up
Compulsory winding up applies when a company cannot repay its debts but has not started winding up itself. A creditor, shareholder or the company itself brings proceedings asking the High Court of the Hong Kong Special Administrative Region to intervene and order a compulsory winding up.
Grounds for compulsory winding up by the court
The court may wind up a limited company on the grounds set out in the Companies (Winding Up and Miscellaneous Provisions) Ordinance. The more common grounds are:
- the company is unable to pay its debts of HK$10,000 or more;
- the court is of the opinion that it is just and equitable that the company be wound up; or
- the company has resolved by special resolution that it be wound up by the court.
Effects of compulsory winding up
Once the court makes a winding-up order, the company ceases trading, the directors' powers come to an end, and the liquidator takes over the company's assets.All legal proceedings will be stayed unless the court gives leave.
Conditions for a limited company to be wound up
Conditions for members’ voluntary winding up
- The company's accounts must be clear and complete;
- A special resolution must be passed at a general meeting with the approval of the majority of shareholders;
- The company itself must be able to repay all its debts;
- A liquidator must be appointed to supervise and handle the winding up throughout.
Conditions for creditors’ voluntary winding up
The company's accounts must be kept complete;
The company is unable to pay all its debts and can no longer continue trading;
The creditors appoint a liquidator to supervise and handle the entire winding-up process;
The liquidator must be a practising certified public accountant or a solicitor with the relevant professional qualifications.
Hong Kong company winding-up process: the complete voluntary winding-up procedure
When a Hong Kong limited company decides to cease operating voluntarily and is able to repay all its debts, it can do so through a “members' voluntary winding up”. The following are the 11 main steps for shareholders to apply for a voluntary winding up:
Winding-up step 1: Pass a board resolution to wind up
The company must first hold a board meeting at which more than half of the directors pass a resolution that the company is able to pay all its debts in full within 12 months after the winding up begins, and recommend a voluntary winding up. The directors must also sign a declaration of solvency stating the date on which the winding up will commence, and file it with the Companies Registry within 7 days of that date.
Winding-up step 2: Submit the solvency certificate
The directors' declaration of solvency must be filed with the Companies Registry together with the accounts and balance sheet, certified by an approved accountant. The declaration must state that the directors believe the company will be able to pay its debts in full within 12 months after the winding up begins, and must state the date on which it is made. The declaration must be made within 28 days before the general meeting is held, and must be filed before the winding up begins.
Winding-up step 3: Give notice of the general meeting
The company must give notice of the general meeting at least 21 days before the commencement date of the winding up. The notice must include the draft winding-up resolution and the details of the proposed liquidator. If the company's articles provide otherwise, notice must be given within the period specified in the articles.
Winding-up step 4: Hold the general meeting and appoint the liquidator
At the general meeting, shareholders pass the voluntary winding-up resolution by special resolution (that is, with the approval of not less than 75% of the shareholders present) and formally appoint a qualified liquidator (who must be a practising certified public accountant or a solicitor) to carry out the entire winding-up process.
Once the liquidator is formally appointed, all the directors' management powers cease immediately, and they may continue to exercise any powers only if expressly authorised by the liquidator. In addition, from the commencement of the voluntary winding up, any transfer of shares, or any change to the membership of the company, that has not been approved or ratified by the liquidator is void and has no legal effect.
Winding-up step 5: Submit the resolution and the notice of the liquidator's appointment
After the resolution is passed at the shareholders' meeting, the resolution and the notice of the liquidator's appointment must be submitted to the Companies Registry for registration within 15 days, and must also be published in the Gazette as a formal notice.
Winding-up step 6: Notify the IRD that the business has ceased
The company must notify the Inland Revenue Department in writing that it has begun winding up, stating the last day of business and the liquidator's contact details, to facilitate the subsequent settlement of salaries tax, profits tax and other related matters.
Winding-up step 7: Publish the winding-up notice and notify creditors
The company must publish a notice of the commencement of winding up in the Hong Kong Gazette and in newspapers, and notify creditors that the company has entered winding up, inviting them to submit their claims to the liquidator. The notice generally must be published within 14 days after the resolution.
Winding-up step 8: The liquidator sells assets and distributes to creditors
After taking over the company, the liquidator carries out a detailed review of its assets and liabilities, begins selling the company's assets, and pays creditors in the order of priority set by law, including employees' severance payments, taxes and other amounts payable.
Winding-up step 9: Prepare the winding-up report and hold the final general meeting
Once the winding-up process is complete, the liquidator must prepare a winding-up report setting out in detail the disposal of assets, the repayment of debts and the final balance, and hold a final general meeting to report the outcome of the winding up.
Winding-up step 10: Submit the report and handle the liquidator's cessation of office
After the final general meeting, the liquidator must file the winding-up report with the Companies Registry within one week and submit a notice of cessation of office, formally ending the liquidator's duties.
Winding-up step 11: Formal dissolution of the company
After the report is submitted, the Companies Registry will announce the company's formal dissolution within 3 months. At that point the company's legal personality ends and all its statutory obligations come to an end.
Compulsory winding-up process: the 6 steps explained
When a Hong Kong limited company cannot repay its debts but does not wind up voluntarily, a creditor, shareholder or the company itself may apply to the court for compulsory winding up. This type of winding up is carried out after the court has heard the case and made an order. The following are the complete six steps of compulsory winding up:
Compulsory winding-up step 1: Serve a statutory demand on the company
A creditor may first serve a written “statutory demand” on the company, requiring it to repay the debt owed, counting from the date the notice is issued, within a period of 21 days. If the company still has not paid within that period, or refuses to acknowledge the debt, the creditor may then file a winding-up petition with the court.
Compulsory winding-up step 2: File the winding-up petition with the court
A creditor, shareholder or the company may submit the petition to the court, the Official Receiver's Office and the company. Once the winding-up petition is filed, the company is treated as having entered the winding-up process, and during this period it may not dispose of its assets. Its bank accounts are also usually frozen to protect the creditors' interests.
Compulsory winding-up step 3: The court arranges a hearing and makes the winding-up order
The court will arrange a hearing of the winding-up petition and fix a date. The petitioner must serve sealed copies of the petition on the Official Receiver's Office, the Chief Bailiff and the company's registered office respectively. Within 7 days of the petition hearing, the petitioner must also publish a winding-up notice once in the Government Gazette, and publish a notice in at least two local newspapers (one Chinese and one English), setting out the details of the petition and the hearing arrangements.
Compulsory winding-up step 4: Appoint the liquidator and hold the first meeting of creditors and contributories
If, after hearing the case, the court is satisfied that the company is insolvent, or that one of the other circumstances listed in the Companies (Winding Up and Miscellaneous Provisions) Ordinance applies, such as long-term inactivity, prejudice to shareholders' interests or a special resolution of the shareholders, it will make a compulsory winding-up order. The company then formally enters the statutory winding-up process.
After the winding-up order is made, the petitioner will usually appoint a solicitor or professional accountant as provisional liquidator. If no provisional liquidator is appointed, the Official Receiver will act temporarily. The liquidator will convene the first meeting of creditors and contributories within three months of the date the winding-up order is made, to deal with matters relating to the winding up, including asset valuation, review of liabilities and planning of the subsequent procedures, and to let creditors vote on important matters.
Compulsory winding-up step 5: Deal with and sell the company's assets
The liquidator will realise the company's assets in turn, and pay costs and debts. The order of priority is: costs of the winding up (such as legal fees, court fees and administrative expenses) → preferential creditors → ordinary unsecured creditors → interest on debts → distribution to shareholders. If the liquidator considers that the total value of the company's assets does not exceed HK$200,000, he or she may apply to the court to use the summary procedure, which reduces the cost of the process and speeds up dissolution.
Compulsory winding-up step 6: The liquidator completes his or her duties and applies for the company's dissolution
Once all the company's assets have been dealt with, its debts have been paid, and any necessary investigations have been completed, and any final dividend (if any) has been paid out, the court will, if no one objects, approve the release of the liquidator from his or her duties. The liquidator will then submit a “certificate of release of the liquidator” to the Companies Registry. Two years after the date the certificate is submitted, the company is formally dissolved by operation of law.
What are the duties of a director of a company in winding up?
When a provisional liquidator is appointed or a winding-up order is made, a director's powers as a director of the company come to an end. However, directors must still comply with a series of statutory obligations, including:
- Handing over all the company's assets, books and records, legal documents and company seal to the provisional liquidator or liquidator
- Attending the office of the provisional liquidator or liquidator when requested, to provide information relating to the company's assets and transactions
- Within 28 days of the date of appointment or of the winding-up order, submitting a sworn statement of the company's affairs (similar to a balance sheet), or filing a supplementary affidavit if required
- Attending meetings of creditors and contributories when notified
- Continuing to cooperate with the provisional liquidator's or liquidator's investigations and work throughout the winding-up process
- Notifying the provisional liquidator or liquidator on their own initiative if their residential address changes
If a director fails to carry out the above statutory duties, for example by failing to keep or retain accounting records that comply with section 373(2) and (3) of the Companies Ordinance (Cap. 622), or failing to submit the statement of affairs and supplementary affidavit on time, the director may be prosecuted and the court may disqualify the director from acting as a director of the company for a period.
Winding-up FAQ Q&A
How long does winding up usually take?
The time needed to complete winding up varies with the type of winding up and the complexity of the company. A voluntary winding up usually takes 6 months to 1 year, and may be faster if the assets and debts are simple; if the company is insolvent, or complex asset sales or legal disputes are involved, it may extend to 1-2 years. A compulsory winding up generally takes 2-3 years from the filing of the winding-up petition to the company's dissolution.
Because winding up involves many legal steps and document filings, the process is often tedious and takes a long time. We recommend seeking the help of a professional firm to handle the winding up, to reduce the risk of errors and delays so that the company can complete its dissolution smoothly.
What are the costs of winding up a company?
Winding up a Hong Kong limited company involves a number of costs, which vary with the actual circumstances and the type of procedure (for example, whether the court is involved and whether a provisional liquidator must be appointed). The following summarises the common cost items:
Official Receiver's Office deposit: HK$12,150 (used to pay the administrative fees and basic expenses of the Official Receiver in carrying out the winding up)
Court fees: about HK$1,045, payable at the High Court Registry, being the basic court fee for filing a winding-up petition.
Fee for appointing a provisional liquidator: HK$3,500 or above, depending on the complexity of the case and the time required, payable to the Official Receiver's Office.
Legal fees: depending on the circumstances of the case, covering services such as preparing the petition documents and court representation.
Risk of costs: if the winding-up application is unsuccessful, the legal costs of the proceedings will be borne by the petitioner, in an uncertain amount.
What can a company do before winding up?
Winding up is not the only way out for a company in difficulty. Before formally entering winding up, a company can still take various steps on its own initiative to try to improve its financial position, and even avoid winding up:
Negotiate a repayment arrangement with creditors: the company can proactively negotiate a repayment plan with creditors, such as extending the repayment period or paying in instalments, in order to persuade the creditors to withdraw the winding-up petition.
Propose a debt restructuring scheme: under section 674 of the Companies Ordinance (Cap. 622), the company can have a solicitor or financial adviser draw up a restructuring plan, which may include adjusting the terms of the debts, waiving interest, restructuring shares or transferring assets. If the scheme is approved by the court and passed by a majority of creditors, it will be legally binding on all creditors.
Business restructuring and consolidation of resources: the company can review its internal structure, close loss-making departments and merge functional units to improve operating efficiency and cash flow.
Seek external financing: if the company has potential to recover, it can proactively seek investment or loans to inject funds into its operations and ease the pressure of its debts.
Sell assets or profitable businesses: sell non-core assets or high-value business units to raise funds for urgent needs or to repay debts.
Through the above methods, a company may be able to resolve its financial difficulties gradually without entering winding up, and regain room to operate.
What happens to employees when a company is wound up?
Once a company enters winding up, its existing employees are treated as preferential creditors and may claim against the company for unpaid remuneration. Under Hong Kong law, the following items are paid in priority:
Wages in arrears
Payment in lieu of notice (that is, compensation for terminating the contract without the notice period)
Severance payment
The above three items together have a priority repayment cap of HK$18,000. In addition, unpaid paid-leave pay has no cap and can also be included in the preferential claim.
However, if an employee's entitlement exceeds the statutory cap, the excess is treated as an ordinary unsecured claim, which has to be shared pro rata with the other creditors out of the proceeds of the winding up, so the chance of recovery is relatively low.
In a compulsory winding up, can a winding-up petition against the company be presented?
Yes. Any creditor or shareholder of the company, or the company itself, can present a petition for the winding up of the company.
Professional winding-up services in Hong Kong: SetupHK
If you want to save time and avoid complicated procedures by getting professional help to complete the Hong Kong company winding-up process, we are a trustworthy choice.
Since our founding in 2014, we have helped many clients complete company winding up smoothly. With extensive experience and a well-established process, we are well regarded by our clients. Our team upholds the highest industry standards and offers you:
Professional and reliable service: from document preparation and legal procedures to government submissions, a dedicated specialist assists you throughout to ensure accuracy.
Comprehensive one-stop solution: covering cancel the business registration, the application for a notice of no objection from the IRD, applications to the Companies Registry and every other step.
Efficient and timely: quick response and instant replies help you complete the deregistration process in the shortest possible time.
Whether you are an SME owner or an individual entrepreneur, just provide the basic information and contact SetupHK right away, and we will help you complete the winding up with ease, so you can focus on what comes next without worry.
Further reading: “What is a company secretary? Definition, duties and eligibility to act explained”
