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In Hong Kong, companies may face winding-up or bankruptcy due to mismanagement or other reasons. However, there is a clear distinction between the two and the impact on companies and relevant stakeholders is not the same.
This article will elaborate on these differences and explore the specific implications of voluntary and compulsory winding-up.
The difference between a company liquidation and bankruptcy
First of all, winding-up is a legal process in which the dissolution of a company is declared in accordance with the procedures prescribed by law when the company's operations cease and all its assets are sold at a low price in a short period of time to pay off the previous arrears.
Bankruptcy is a state in which a company is unable to continue operating when it is unable to pay off its debts due, and ceases business and liquidates its claims and debts after a court judgment.
Hong Kong Company Winding-up Method
There are two ways to wind up a company in Hong Kong, one is voluntary winding-up and the other is compulsory winding-up.
In Hong Kong, creditors have the right to bring a company to be voluntarily wound up. This type of winding-up may be a voluntary winding-up of the company by a special resolution of the company itself. On the day of the resolution, the winding-up proceedings commenced and notice of the resolution was to be published in the Government Gazette within 14 days of the resolution being passed.
Once a voluntary winding-up process has commenced, the company must cease all business operations except those conducive to the winding-up. All responsibilities, powers and rights of the Board of Directors will be discontinued.
However, a liquidator may still allow one director (or one or more senior officers) to continue to perform his duties in exceptional circumstances. Unless proposed or approved by the Liquidator or the Official Receiver, any transfer of shares shall be null and void and the identities of the members and shareholders of the company shall not change.
Compulsory winding-up is enforced by a winding-up order issued by the court. The High Court of Hong Kong usually decides to order the winding-up of a company on the following grounds:
(1) The company is unable to pay its creditors' debts of $10,000 or more.
(2) The Court held that it was fair and equitable to wind up the company.
(3) The company has resolved by special resolution to be wound up by the court.
The specific impact of different winding-up methods
1. From the date of liquidation of the company, the company must cease to operate business, except for those necessary for liquidation;
2. The powers of the directors shall cease unless the liquidator has resolved that the directors should continue to exercise such powers;
3. Without the consent of the liquidator or the approval of the liquidator, the transfer of any shares shall be invalid and shall not change the identity of any shareholder.
1. Once the liquidation application is submitted to the court, the company shall be deemed to have started liquidation;
2. Once liquidation has commenced, any disposition of the company's property, including the transfer of any shares or the change in the status of the company's shareholders, shall be null and void unless otherwise ordered by the court;
3. The company or any creditor or shareholder may apply to the court to suspend or restrain any pending action or proceeding against the company;
4. If the applicant believes that the company's property is facing a crisis, it may apply to the people's court for the appointment of a temporary liquidation team after the application for dissolution is accepted to keep the company's property before the application is accepted.