Simple Guide on Compulsory Winding-up of Companies

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Introduction

1.1The principal legislation for companies winding-up is contained in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and Companies (Winding-up) Rules (Cap. 32H).

1.2The main objectives of the companies winding-up are:

(a)to ensure that all the company's affairs have been dealt with properly;

(b)to have the company dissolved.

1.3Modes of winding-up include :

(a)voluntary winding-up which consists of :

(i)members' (shareholders') voluntary winding-up; and

(ii)creditors' voluntary winding-up;

(b)compulsory winding-up by the High Court of the Hong Kong Special Administrative Region (“the court”).

1.4The Official Receiver's Office mainly administers compulsory winding-up cases. For voluntary winding-up cases, the Official Receiver's Office is only responsible for keeping the unclaimed and undistributed money pursuant to section 285 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and rule 183 of the Companies (Winding-up) Rules (Cap. 32H).

Winding-up Petition

2.1A limited company may be wound up by the court in the circumstances set out in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). The more common ones are :

(a)the company is unable to pay a debt of $10,000 or above;

(b)the court is of the opinion that it is just and equitable that the company should be wound up; or

(c)the company has by special resolution resolved that the company be wound up by the court.

2.2A creditor, a shareholder or the company itself can file a winding-up petition against the company.

2.3A solicitor is normally instructed by the petitioner to prepare and file the winding-up petition.

2.4Any person (e.g. employee) who is qualified for receiving legal aid under the Legal Aid Ordinance (Cap. 91) and the relevant rules and regulations may apply to the Legal Aid Department for assistance in filing a winding-up petition. [For details, please contact the Legal Aid Department direct.]

Procedures for Filing Petition

3.1The procedures for filing a winding-up petition are :

(a)prepare a petition according to Form 2 or 3 in the Appendix of the Companies (Winding-up) Rules (Cap. 32H) with such variations as circumstances may require;

(b)deposit with the Official Receiver's Office a sum of $11,250 for the purpose of covering the fees and expenses to be incurred by the Official Receiver;

(c)go to the Registry of the High Court to:

(i)pay a court fee of $1,045,

(ii)obtain a date for the hearing of the petition, and

(iii)file the petition.

(d)submit a copy of all documents filed in the High Court in connection with the petition to the Official Receiver within 24 hours after such documents are filed with the court;

(e)advertise the petition seven clear days before the hearing date of the petition once in the Gazette and once at least in two Hong Kong daily newspapers (one Chinese and one English);

(f)deliver a sealed copy of the petition to the registered office of the company or, in case there is no registered office of the company, the principal or last known principal place of business of the company; and

(g)file an affidavit verifying the petition within four days after the petition is filed with the court using Form 7 or 8 in the Appendix of the Companies (Winding-up) Rules (Cap. 32H).

[Note
If a petitioner wishes to withdraw a petition already filed in the court, he has to apply to the court for approval. He is also required to pay the costs of the Official Receiver's Office. ]

Effects of Compulsory Winding-Up

4.1Generally, the winding-up of the company by the court shall be deemed to commence at the time of the filing of the petition for winding-up.

4.2After the commencement of winding-up :

(a)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; and

(b)the company or any creditor or shareholder may apply to the court to stay or restrain any pending action or proceeding against the company.

[Note
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. This will require a further sum of $3,500 to be deposited with the Official Receiver's Office by the petitioner. Additional sums may be required to be deposited when necessary.

Where a person other than the Official Receiver is appointed as the provisional liquidator prior to the making of the winding-up order, the person will continue to act as the provisional liquidator on the winding-up order being made.]

4.3After the provisional liquidator is appointed or the winding-up order is made against the company :

(a)no action or proceeding shall be continued or commenced against the company except with the approval of the court;

(b)the Official Receiver will become the provisional liquidator of the company unless a provisional liquidator has already been appointed prior to the making of the winding-up order (see Note in 4.2 above);

(c)if the property of the company is not likely to exceed in value $200,000, the Official Receiver, when acting as provisional liquidator, may appoint another person as provisional liquidator in his place; and

(d)the provisional liquidator will take over control of the company including its assets and accounting records and investigate the company's affairs.

First Meetings of Creditors and Contributories

5.1The provisional liquidator appointed after the making of the winding-up order will convene and chair the first meetings of creditors and contributories within three months from the date of the winding-up order for the purpose of appointing a liquidator and a committee of inspection.

5.2Generally, for the first meeting of creditors, only creditors whose Proof of Debt Forms have been admitted for voting purpose by the chairman of the meeting have the right to vote.

5.3Generally, for the first meeting of contributories, only contributories whose names appear in the latest Annual Returns of the company filed with the Companies Registry as members have the right to vote.

[Note
Creditors and contributories may decide, in suitable cases, whether an application should be made to the court, under section 209A of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), for an order for the winding-up of the company to be conducted as if it were a creditors' voluntary winding-up.]

5.4The chairman of the meetings will report the results of the meetings to the court and apply for an order of appointment of liquidator and members of the committee of inspection, if any.

5.5Where the provisional liquidator is of the opinion that the property of the company is not likely to exceed in value $200,000, he may apply to the court for an order that the company be wound up in a summary manner, i.e. there will be no first meetings of creditors and contributories and the provisional liquidator shall be the liquidator without a committee of inspection with such other modifications as may be prescribed with a view to saving expense and simplifying procedure.

5.6If any creditor or contributory requests for the summoning of the first meetings of creditors and contributories, the provisional liquidator should give due consideration to such request even though he is of the opinion that the property of the company is not likely to exceed in value $200,000.

Duties of Directors of a Wound-up Company

6.1On the appointment of a provisional liquidator or the making of the winding-up order, the powers of the directors of the company will cease. The directors must then :

(a)deliver to the provisional liquidator or liquidator the company's assets, books and papers and seal;

(b)attend the office of the provisional liquidator or liquidator for interview to provide information of the company's assets and dealings;

(c)submit a sworn statement of affairs of the company (similar to a balance sheet) (or a supplementary affidavit, if required by the provisional liquidator or liquidator) within 28 days from the date of the appointment of the provisional liquidator or the date of the winding-up order;

(d)attend meetings of creditors and contributories when notified by the provisional liquidators or liquidators;

(e)continue to co-operate with the provisional liquidator or liquidator until the liquidation is concluded; and

(f)notify the provisional liquidator or liquidator of any change in address.

6.2Directors who fail to perform their duties such as failure to keep and preserve company’s accounting records that comply with section 373(2) and (3) of the Companies Ordinance (Cap. 622), failure to prepare and submit the statement of affairs or a supplementary affidavit, etc. may be prosecuted (see 10.1 below) and disqualified from acting as directors for a certain period of time (see 11.1 and 11.2 below).

Rights of Creditors and Contributories

7.1After the making of the winding-up order, creditors must complete a Proof of Debt Form in order to prove for any debt contracted by the company and submit it to the provisional liquidator or liquidator together with any documentary evidence and a non-refundable filing fee of $35. The filing fee is waived for claims for wages/salary by employees. It is also waived for any other debts not exceeding $250.

[Note
For consumer creditors who have prepaid for goods or services by credit card (other than by credit card instalment payment plan) to a wound up company, apart from filing a Proof of Debt Form, they may also consider enquiring with the card issuer about the possibility of submitting a chargeback^* claim for reimbursement of the sum prepaid. The likelihood of a successful chargeback depends on the circumstances of each individual case and the decision whether to raise a chargeback claim rests with the card issuer. For further information on the chargeback mechanism, the consumer creditors may contact the card issuer. In case the consumer creditors subsequently get reimbursement of the sum prepaid through the chargeback mechanism after filing of a Proof of Debt Form, they should inform the provisional liquidator or liquidator and withdraw the Proof of Debt.]

^* Chargeback is a consumer protection mechanism provided by credit card associations to cardholders. Where retailers, for whatever reasons, fail to provide services or goods that are paid by credit cards, the card issuer may raise a chargeback claim against the acquirer (i.e. the business operator collecting payment on the retailer’s behalf) to reverse the relevant transaction. If the acquirer accepts the claim, it would pay back the card issuer the transaction amount and then the card issuer would reimburse it to the cardholder. This mechanism is provided by the contractual arrangements among the credit card association, card issuers and card acquirers.

7.2The Protection of Wages on Insolvency Fund Board (the Fund Board) administers the Protection of Wages on Insolvency Fund (the Fund). When a winding-up petition is filed against a company, the employees who are owed wages and salaries etc. may apply to the Fund Board for ex-gratia payments from the Fund subject to the relevant rules and regulations. Creditors who have received payments from the Fund must provide full details of the payments in their Proof of Debt Forms to be filed with the provisional liquidator or liquidator. Creditors may contact the Labour Department for any enquiry on the Fund Board or the Fund.

7.3Any creditor or contributory may request the provisional liquidator or liquidator to summon general meetings of creditors and contributories subject to the relevant winding-up provisions in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).

7.4Creditors and contributories are entitled to obtain a copy of the statement of affairs and any supplementary affidaviton on payment of the prescribed fee.

7.5If any person is aggrieved by any act or decision of the liquidator, that person may apply to the court for the reversion or modification of such act or decision.

Distribution of Dividend

8.1If, after deduction of all fees and expenses, there are funds remaining in the estate of the company, the liquidator will distribute this sum to creditors whose claims have been admitted.

Release of Liquidators and Dissolution of Company

9.1Once all the assets of the company have been realized, investigation completed and a final dividend , if any, has been paid, the liquidator will send notices, together with a summary of his receipts and payments in the liquidation, to the creditors and contributories of the company of his intention to apply to the court for his release as liquidator. Any creditor or contributory may raise objection to the intended release within 21 days from the date of the notice.

9.2If there is no objection to the intended release, the liquidator will proceed to apply to the court for his release as liquidator of the company.

9.3After obtaining the order for release, the liquidator will file with the Registrar of Companies the "Certificate of Release of Liquidator". On the expiration of two years from the filing of the “Certificate of Release of Liquidator", the company shall be dissolved.

Prosecution of Directors and Officers

10.1The Official Receiver acts under the authorization of the Secretary of Justice to prosecute the directors and officers of wound up companies who are in breach of certain insolvency related offences. Some common insolvency related offences and their penalties are summarized in Schedule 1.

Disqualification of Directors

11.1The Official Receiver may make application to the court for a disqualification order against any director of a wound up company if the director's conduct makes him unfit to be concerned in the management of a company.

11.2The court may make a disqualification order forbidding a person to act as a director of any company for a period up to 15 years.

Reference Materials

12.1For further information, please refer to:

Winding-up of a Company by the Court: The Main Processing Stages
Winding-up of a Company by the Court: Your Duties as a Company Director
Winding-up of a Company by the Court: Your Rights as a Creditor

12.2These documents can be obtained from the Official Receiver's Office free of charge, from the website http://www.oro.gov.hk or by fax-on-demand through telephone number 2867 2448.

Enquiries/Complaints

13.1If further information/complaint is required, please contact us:

Mail :	The Departmental Secretary Official Receiver's Office 10/F-12/F, High Block Queensway Government Offices 66 Queensway, Hong Kong
Telephone :	2867 2448
Fax :	3105 1814
E-mail :	oroadmin@oro.gov.hk

SCHEDULE 1
SOME COMMON INSOLVENCY RELATED OFFENCES AND PENALTIES

Some common offences and penalties under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and Companies Ordinance (Cap. 622):

Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) Section	Description of the Offence	Penalty
190(5)	Person failing to comply with requirements to submit a statement of affairs or a supplementary affidavit.	Liable to a maximum fine of $50,000 and daily default fine of $300
271(1)(o)	Officers disposed any property of the company which had been obtained on credit and had not been paid for within 12 months next before the commencement of the winding-up or at any time thereafter.	On indictment : liable to imprisonment up to a maximum of 5 years. Summary prosecution : liable to a maximum of 2 years.
271 (1) [relating to all paragraphs except (o)]	Officers failing to comply with section 271, including : (i)Officers failing to deliver to the liquidator all the property, books and papers or disclose their information; and (ii)Officers concealed or fraudulently removed any part of the property or the books of the company within 12 months next before the commencement of winding-up or at any time thereafter.	On indictment : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 2 years. Summary prosecution : liable to a maximum fine of $50,000 and imprisonment up to a maximum of 6 months.

Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) Section	Description of the Offence	Penalty
272	Officers falsifying books.	On indictment : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 2 years. Summary prosecution : liable to a maximum fine of $50,000 and imprisonment up to a maximum of 6 months.
273	Officers acting with intent to defraud creditors by giving, or concealing property of company.	On indictment : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 2 years. Summary prosecution : liable to a maximum fine of $50,000 and imprisonment up to a maximum of 6 months.
274(1)	Officers failing to keep accounting records that comply with section 373(2) and (3) of the Companies Ordinance (Cap. 622) for the 2 years prior to winding-up of company.	On indictment : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 2 years. Summary prosecution : liable to a maximum fine of $50,000 and imprisonment up to a maximum of 6 months.
275(3)	Person being a party to carrying on the business of a company with intent to defraud creditors.	On indictment : liable to unlimited fine and imprisonment up to a maximum of 5 years. Summary prosecution : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 1 year.

Companies Ordinance (Cap. 622) Section	Description of the Offence	Penalty
373(5)&(6) 374(4)&(5) 377(3)&(4)	Director failing to take reasonable steps to ensure that accounting records that comply with section 373(2) and (3) of the Companies Ordinance (Cap. 622) are kept and preserved.	Liable to a maximum fine of $300,000 and imprisonment up to a maximum of 1 year.
429(3)&(4)	Director failing to take reasonable steps to ensure that financial statements are tabled at the Annual General Meeting.	Liable to a maximum fine of $300,000 and imprisonment up to a maximum of 1 year.

The following offences and penalties of the Companies Ordinance (Cap. 32) as in force from time to time before 3rd March 2014 were repealed by the Companies Ordinance (28 of 2012) with effect from 3rd March 2014. These offences and penalties in the pre-amended Companies Ordinance (Cap 32), as in force immediately before their repeal may continue to apply by virtue of Schedule 11 of the Companies Ordinance (Cap. 622):

Pre-amended Companies Ordinance (Cap. 32) Section	Description of the Offence	Penalty
121(4) (repealed)	Director failing to take reasonable steps to ensure that proper books of account are kept and preserved	Liable to a maximum fine of $300,000 and imprisonment up to a maximum of 1 year.
122(3) (repealed)	Director failing to take reasonable steps to ensure that accounts are tabled at the Annual General Meeting.	Liable to a maximum fine of $300,000 and imprisonment up to a maximum of 1 year.

The Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) were amended by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (14 of 2016) with effect from 13th February 2017. The following offences and penalties in the pre-amended Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), as in force immediately before that date may continue to apply or have effect by virtue of Schedule 26 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32):

Pre-amended Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) Section	Description of the Offence	Penalty
190(5)	Person failing to comply with requirements to submit a statement of affairs	Liable to a maximum fine of $50,000 and daily default fine of $300
274(1)	Officers failing to keep proper books of account for the 2 years prior to winding-up of company	On indictment : liable to a maximum fine of $150,000 and imprisonment up to a maximum of 2 years. Summary prosecution : liable to a maximum fine of $50,000 and imprisonment up to a maximum of 6 months.