How to wind-up a company in Hong Kong

Winding-up a company in Hong Kong refers to the sale of the company’s assets to settle its debts, and the company’s subsequent dissolution. Just like Avengers: Endgame, the heroes (liquidators) gather all the remaining resources, settle unfinished battles, and then the saga closes.

The law in this respect is complex. While this article is meant to inform, it’s not exhaustive and should not be construed as legal advice.

How does this work?

1. The creditor (owed at least HK$10,000 – around US$1,200/EUR 1,100) should serve a statutory demand on the debtor. If the debt remains unpaid for three weeks, the company is deemed insolvent. This forms the legal basis enabling the creditor to file a winding-up petition.
2. The creditor files a winding-up petition, initiating litigation in the High Court.
   • Amongst other legal costs, this involves High Court fees and a deposit with the Official Receiver’s Office.
3. In the absence of opposition, and satisfaction by the court that the company is unable to pay its debts, a winding-up order is made and the provisional liquidator is appointed.
   • The debtor may oppose the petition by arguing a genuine dispute over the debt, or jurisdictional issues (such as reliance on an arbitration clause), that the value of the security exceeds the debt (where the debt is secured), or that restructuring efforts to pay back the creditors are in progress.
   • Winding-up is deemed to commence on the date of filing of the winding-up petition: from then onwards, directors have no powers, the liquidator takes over the company’s assets, books and accounting records and any disposition of assets (including shares) made by the company is void.
4. Directors must submit a statement of affairs (equivalent to a balance sheet), and the company’s assets, books and records to the provisional liquidator.
5. The provisional liquidator meets with creditors and contributories to appoint a liquidator and possibly also a committee to assist the liquidator.
6. The nomination of the liquidator is approved by the High Court. Alternatively, the Official Receiver (court appointed custodian) will offer the name of the next available insolvent practitioner.
7. The realisation of assets takes place, which usually lasts between two to three years.
8. The company is dissolved.

Note: the above is a non-exhaustive list covering key aspects of the process.

Is winding-up the right move?

When a company is wound-up, costs and expenses related to the liquidation are paid first, before paying preferential creditors (such as the tax authority and employees), secured creditors, and lastly, unsecured creditors.

Creditors should hence consider whether the debtor does indeed have sufficient assets to meet their debt, and weigh the costs of winding-up (including the fees and deposits mentioned above) against chances of receiving payment.