In Hong Kong, companies are wound up, not “bankrupt.” Company procedures are under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). Bankruptcy under the Bankruptcy Ordinance (Cap. 6) applies to individuals, including sole proprietors.
Main routes for companies: voluntary winding up (members’ if solvent, creditors’ if insolvent) or compulsory winding up by court order.
When the court makes a winding-up order, the Official Receiver is automatically appointed as provisional liquidator unless a provisional liquidator has already been appointed. Creditors may later replace the Official Receiver with a private liquidator.
For individuals and sole proprietors, an Individual Voluntary Arrangement (IVA) under Cap. 6 can be a structured repayment alternative to bankruptcy. Companies seeking to restructure typically use a scheme of arrangement under Companies Ordinance (Cap. 622), Part 13.
When Can a Company Be Wound Up in Hong Kong?
A company in Hong Kong can be wound up voluntarily or by a court order.
Voluntary Winding Up
Members’ Voluntary Winding Up
Members’ voluntary winding up is used when the company is solvent and directors make a valid solvency statement; members pass a special resolution and appoint a liquidator.
Creditors’ Voluntary Winding Up
Creditors’ voluntary winding up is used when the company is insolvent; creditors confirm or appoint the liquidator and the focus is fair distribution.
Compulsory Winding Up (by the Court)
Common grounds include:
- Inability to pay debts (the most common basis).
- Just and equitable grounds, such as internal deadlock or loss of business purpose.
Other statutory grounds also exist, such as:
- A special resolution for court winding up.
- The company has no members.
- Failure to commence business within one year or suspension for one year.
- A company is deemed unable to pay its debts if a statutory demand for HK$10,000 or more is not satisfied within three weeks.
Who Can Petition to Wind Up a Company in Hong Kong?
A winding-up petition may be presented to the court by:
- The company itself
- Any creditor (including trade creditors, lenders, or employees owed wages)
- Any contributory (shareholder)
In limited statutory circumstances, certain public authorities (for example, the Official Receiver or the Registrar of Companies) may also petition.
Because winding up is a serious legal step that affects owners, employees, and creditors, companies should seek professional legal and financial advice before proceeding.
Is There an Alternative to Winding Up in Hong Kong?
For Companies
One main alternative to immediate winding up is a scheme of arrangement under the Companies Ordinance (Cap. 622), Part 13.
This is a court-sanctioned compromise or arrangement with creditors, which can be used as a restructuring tool to reorganise debts and potentially keep the business alive instead of putting it into liquidation.
For Individuals and Sole Proprietors
Individuals (including those trading as sole proprietors or in unincorporated businesses) may consider an Individual Voluntary Arrangement (IVA) under the Bankruptcy Ordinance (Cap. 6).
An IVA is a court-supervised repayment plan that allows a debtor to propose terms to creditors and, if approved, can avoid bankruptcy or bring an existing bankruptcy to an end.
IVAs do not apply to limited companies.
Under Section 20H of the Bankruptcy Ordinance, an IVA provides a court-approved mechanism for repaying debts over time, as an alternative to full bankruptcy proceedings.
Why Choose an IVA Instead of Bankruptcy? (Individuals and Sole Proprietors)
An IVA can be a less disruptive alternative to bankruptcy because it:
- Offers potentially better repayment terms for creditors, which can make approval more likely.
- Is often faster and less expensive than a full bankruptcy process.
- May support easier access to credit after successful completion compared with having a bankruptcy record.
- Helps avoid many of the bankruptcy restrictions that apply under the Bankruptcy Ordinance (Cap. 6).
For some debtors, an IVA provides a way to deal with unmanageable debts through a structured plan without immediately resorting to full bankruptcy.
How Does Company Winding Up Work in Hong Kong?
In Hong Kong, company winding up generally follows one of two main procedures: a creditors’ voluntary winding up or a compulsory winding up by the court.
A. Creditors’ Voluntary Winding Up (Insolvent Company)
Used when the company cannot pay its debts:
The board proposes winding up and members pass a special resolution to wind up the company and appoint a liquidator.
A creditors’ meeting is held; creditors confirm or appoint the liquidator.
The company makes the required public notices and statutory filings.
Also, the liquidator takes control of the company, realises assets, reviews past transactions, and distributes proceeds according to statutory priority (secured creditors, preferential debts, then unsecured creditors, etc.).
B. Compulsory Winding Up (By Court Petition)
Used when a petition is presented to the court, commonly on inability to pay debts:
A creditor, the company, or a contributory files a winding-up petition (usually supported by a statutory demand and evidence of the unpaid debt).
The petition must be advertised 7 clear days before the hearing, once in the Government Gazette and once at least in two local daily newspapers (one Chinese and one English).
At the court hearing, if a winding-up order is made, the Official Receiver’s Office (ORO) generally becomes provisional liquidator, unless a private liquidator has already been appointed.
The liquidator then takes control of the company, secures and realises assets, investigates the company’s affairs and any antecedent transactions, and distributes funds to creditors in accordance with the statutory order of priority.
Once a winding-up petition is presented, directors must act with particular care:
- They should avoid preferential or undervalue transactions.
- Wrongful or fraudulent trading, asset dissipation, or non-cooperation with the liquidator can lead to personal liability, disqualification, or penalties.
What Happens After a Winding-Up or Bankruptcy Order in Hong Kong?
Once the court makes a winding-up order (for companies) or a bankruptcy order (for individuals), several immediate legal consequences follow:
1. Automatic Stay of Proceedings
A statutory stay of proceedings takes effect.
No one can start or continue legal action against the company or the bankrupt without the court’s permission.
2. Required Public Notices
The liquidator or trustee must publish notices of the order in the:
- Government Gazette, and
- Newspapers (where required) to inform creditors and the public.
Some advertising requirements are set out in the Companies (Winding-up) Rules (Cap. 32H).
3. Investigation and Information Requests
The liquidator or trustee can:
- Examine directors, officers, or the bankrupt under oath
- Demand books, records, and financial information
- Apply to the court for further orders (including recovery of transactions at undervalue, preferences, or misconduct)
4. Distribution of Assets
Assets subject to a fixed charge are paid to that secured creditor first. From the remaining free assets, the usual order of distribution is:
- Liquidation expenses
- Preferential debts (including certain wages under s.265 of Cap. 32)
- Floating-charge holders
- Unsecured creditors
- Members, if any surplus remains
The exact priority depends on the nature of the security and the statutory rules.
Steps in the Winding-Up and Bankruptcy Process
A. Company Winding Up in Hong Kong (High-Level)
The winding-up process generally follows these stages:
- Grounds established: for compulsory cases, a HK$10,000 statutory demand unpaid for three weeks can found a petition.
- Petition filed and advertised: the petition is lodged with the court and advertised in the Government Gazette and the required newspapers.
- Court hearing: the court considers the petition; if satisfied, it makes a winding-up order.
- Appointment of liquidator: the Official Receiver’s Office (ORO) often acts as provisional liquidator unless a private liquidator is appointed or confirmed.
- Liquidation work: the liquidator takes control, realises assets, reviews company affairs, and conducts investigations into antecedent transactions.
- Distribution and closure: funds are distributed to creditors according to statutory priority, followed by dissolution once the liquidation is complete.
B. Personal Bankruptcy and IVA (Individuals and Sole Proprietors)
1. Bankruptcy (Cap. 6)
- Petition filed (by debtor or creditor)
- Bankruptcy order made by the court
- Advertising in the Government Gazette and two newspapers
- Trustee (ORO or private) takes control of the bankrupt’s estate
- Realisation and distribution of assets
- Discharge after the statutory period under the Bankruptcy Ordinance (Cap. 6)
2. Individual Voluntary Arrangement (IVA)
- IVA proposal prepared and filed
- Creditor approval via the required voting thresholds
- High Court sanction where required under the Bankruptcy Ordinance
- Completion of the arrangement, which can avoid bankruptcy entirely or bring an existing bankruptcy to an end
Final Words
Winding up a Hong Kong company is a formal legal process focused on fair creditor repayment under Cap. 32. Individuals and sole proprietors considering bankruptcy under Cap. 6 can assess an IVA as a structured alternative. Because timing, advertising, filings, and director conduct affect outcomes and penalties, obtain professional guidance early.
Need help preparing meeting packs, statutory notices, and filing calendars for a voluntary or compulsory case, or exploring a scheme of arrangement or IVA? Air Corporate can assist with practical next steps and coordination with counsel.
FAQs
When the court makes a bankruptcy order, all the bankrupt’s property (wherever situated, including any share in a family home) vests in the trustee in bankruptcy. It stays under the trustee’s control until the bankruptcy estate is fully administered. Discharge from bankruptcy is not the same as completion of the trustee’s administration.
For a first bankruptcy, the usual period is 4 years from the order date, provided the bankrupt fully cooperates and there is no successful objection. A second or later bankruptcy usually lasts 5 years. The court can extend the period (up to 8 years) if there is a valid objection or misconduct. Note: a non-commencement order can delay when the discharge period starts if the bankrupt fails to submit required documents (for example, the statement of affairs).
No. Discharge ends the legal status and restrictions of bankruptcy, but property that vested in the trustee remains with the trustee until the estate is fully realised and distributed and the trustee is formally released.
The bankrupt’s beneficial interest in the property vests in the trustee. The trustee may sell that interest and distribute the net proceeds to creditors. If a sale does not occur before discharge, the interest still remains with the trustee and can be sold later. Any sale price is based on current market value, which may change over time.
