Closing a Hong Kong Company: Deregistration, Winding Up, and Dormant Status

After steering your business through the bustling streets of Hong Kong for a significant duration, the time eventually arrives when you contemplate diversifying your ventures into new horizons. Yet, this brings about a crucial question:

- what path should you take with your Hong Kong company?

- Should it linger as a dormant entity?

- Should you proceed to deregister it or initiate a winding-up process?

In the following article, we aim to illuminate the distinctions between these three pivotal choices, all while emphasizing that seeking professional guidance remains the most prudent approach. As your business journey evolves, understanding these options can pave the way for a seamless transition while safeguarding your business interests.

How to deregister a company in Hong Kong?

Deregistration, also known as striking off, is a process that allows a company to be removed from the Companies Register. It's suitable for companies that have ceased operations and have no outstanding liabilities or assets. The full procedure takes typically around 6 to 9 months. To be eligible for deregistration, the company must not have carried on any business or operated for the three months preceding the application.

What documents and forms are needed for the company deregistration process in Hong Kong?

The steps involve submitting a specific form (IR1263) to the local Hong Kong Inland Revenue Department to request a "No Objection" notice. This notice is issued if the company meets the following criteria:

• All members of the company agree to the deregistration.
• The company has not started or carried on business in the 3 months immediately preceding the application.
• The company has no outstanding liabilities.
• The company is not involved in any legal proceedings.
• The company's assets do not include any immovable property in Hong Kong.
• If the company is a holding company, none of its subsidiaries' assets consist of immovable property in Hong Kong.
• The company has obtained a "Notice of No Objection to a Company being Deregistered" from the Commissioner of Inland Revenue.

Within 3 months of receiving the "No Objection Letter," the "Application for Deregistration of Private Company or Company Limited by Guarantee" form (NDR1) is submitted to the Hong Kong Companies Registry. Subsequently, the company's name is published in the Government Gazette for approximately 90 days (often around 100 to 110 days) to inform third parties of the ongoing deregistration and allow potential creditors to raise objections. If no objections are raised by the end of this period, the company will be deregistered.

Winding Up (Liquidation) in Hong Kong – What is and how it works?

Winding up, also known as liquidation, involves the formal process of ending a company's existence and distributing its assets to creditors and shareholders. There are two types of winding up in Hong Kong:

The voluntary winding up can be:

• Member’s winding up - This method is only applicable to companies that are solvent, meaning their assets exceed their liabilities, and they can pay off their debts within 12 months of winding up. The directors must make a declaration of solvency, stating that the company will be able to pay its debts, along with interest, within the specified time. This declaration must be submitted to the Company Registry within a specified time and after that a special resolution is passed by the shareholders, supporting the winding-up process - This usually requires approval from at least 75% of the shareholders.
  The Director should then proceed to appoint a liquidator to oversee the winding-up process. 
• Creditors’ winding up: Unlike Members' Voluntary Winding Up, this process is chosen when a company is unable to pay off its debts as they become due. In this scenario, the company's directors and shareholders decide to voluntarily wind up the company to address its financial difficulties and settle its obligations to creditors. The directors need to make a declaration of insolvency, stating that the company cannot continue its operations due to its financial situation. A meeting of creditors is convened, where they discuss and vote on the winding-up resolution. This process gives creditors a voice in deciding the future of the company. Similar to Members' Voluntary Winding Up, a liquidator is appointed to oversee the winding-up process, collect the company's assets, settle its debts, and distribute any remaining funds. A committee of inspection can be appointed by creditors to oversee the liquidator's actions and ensure transparency in the winding-up process.
  
  

2. Compulsory Winding Up: in this case the process when a court orders the winding up of the company due to insolvency or other legal reasons.

The more common circumstances for a winding-up petition are:

1. The company is unable to pay a debt of HK$ 10,000 or above;
2. The court is of the opinion that it is just and equitable that the company should be wound up: or
3. The company has by special resolution resolved that the company be wound up by the court.

The process begins when a petition is filed with the court, either by creditors owed a substantial amount, the company itself, shareholders, or regulatory authorities. The petitioner must present evidence to support the grounds for winding up. This can involve demonstrating unpaid debts, lack of activity, or other reasons justifying winding up. If the court is convinced that the company should be wound up, it will issue a winding-up order. The court may appoint an official liquidator to manage the winding-up process.

Are there any alternatives to complete closure, such as keeping the company dormant?

Maintaining a dormant company status is an option for companies that are not actively conducting business but wish to retain their legal entity for future use.

To maintain dormant status, the company must not engage in any business activities or relevant accounting transactions, except for certain permitted activities. Relevant accounting transactions include:

• Sums of money received and expanded by the company;
• Sales and purchases of goods by the company;
• Assets and liabilities of the company.

A dormant company is still required to fulfil annual compliance obligations, such as filing annual returns and financial statements.

To apply for dormancy, the company needs to pass a special resolution with at least 75% of the shareholders’ votes. Once the resolution is passed, the directors should file the special resolution with the company registry. 

Conclusion

Deciding which option to pursue depends on your company's situation and future plans. Deregistration is suitable for companies with no ongoing activities, while winding up is appropriate for those with assets and liabilities to settle. Dormant status is ideal for companies that anticipate resuming business in the future without actively operating at present.

Closing a company involves legal and financial complexities. Seek our professional guidance, to ensure compliance with regulations and a smooth transaction.