In this section, you can find general information on the bankruptcy procedures concerning individual persons, the relevant consequences on the debtors/bankrupts, and the rights of the creditors for claiming against the bankrupts.
When debtors fail to repay their debts and the Court has granted bankruptcy orders against them, the debtors’ assets are collected and realised (sold and converted to cash) by a neutral person (known as the “Trustee”). This Trustee can be the Official Receiver of the Official Receiver’s Office or a professional appointed by the creditors or the Official Receiver. The proceeds from the realisation, after deducting certain costs and expenses, are then distributed to the creditors (persons who are owed money by the debtors) for repaying the relevant debts or part of the relevant debts.
During the effective period of the bankruptcy order, part of the debtor’s earnings may be utilised for repayment. The Trustee also investigates the causes of bankruptcy and the Court may punish the bankrupt if any provision in the Bankruptcy Ordinance (Cap. 6 of the Laws of Hong Kong) has been breached.
The debtor in bankruptcy proceedings can be an individual person or the partners of a partnership, but not limited companies. When the bankruptcy order is discharged, the debtor is free from the monetary liabilities that were incurred before bankrupt.
Generally speaking, a bankruptcy case commenced by a creditor will undergo the following stages:
Issuing a statutory demand for debt repayment to the debtor by a creditor (if applicable)
Presenting a bankruptcy petition to the Court, and sending it to the Official Receiver's Office and to the debtor
Court hearing
Granting of bankruptcy order by the Court
The debtor's assets are collected and realised by the Trustee/Official Receiver
Distributing the relevant proceeds and part of the debtor's income to the creditors
Discharge of bankruptcy order
Scenario:
Mr. T is a Hong Kong merchant who frequently travels to mainland China. He borrowed $300,000 from ABC Bank, repayable by monthly instalments. He fails to make any repayment to the bank for six months despite verbal and written demands from the bank. The bank wishes to file a bankruptcy petition against Mr. T.
No. Other than the Creditor's Bankruptcy Petition (legal action commenced by creditors), debtors can also institute bankruptcy petitions against themselves (i.e. Debtor's Bankruptcy Petition). You are recommended to consult a lawyer before you commence bankruptcy proceedings.
A brief summary of the procedures for filing a Bankruptcy Petition to obtain a Bankruptcy Order:
(A) Creditor's Bankruptcy Petition
A creditor can file a bankruptcy petition to the High Court against a person or persons who have failed to repay debts. Under section 6 of the Bankruptcy Ordinance, the amount of debt in a creditor's petition must be equal to or exceed $10,000, and must be unsecured.
Statutory Demand
Bankruptcy Petition
Bankruptcy Order
(B) Debtor's Bankruptcy Petition
A debtor can also file a Debtor's Bankruptcy Petition (Form 3) with the High Court. Under section 10 of the Bankruptcy Ordinance, a debtor's petition can be filed whether or not the gross amount of indebtedness equals to or exceeds $10,000 (unlike the statutory requirement for filing a creditor's petition, whereby the amount of debt must not be lower than $10,000).
The Official Receiver's Office provides insolvency services to creditors and the public. The Office has five divisions: the Case Management Division, Legal Services Division 1, Legal Services Division 2, the Financial Services Division and the Departmental Administration Division.
1) Case Management Division
The Case Management Division is headed by the Assistant Official Receiver (Case Management) and is staffed by Insolvency Officers. The Division is responsible for the realisation of assets, the recovery of book debts, the adjudication of claims of creditors, the distribution of dividends, investigation into the causes of the failure, conduct and financial affairs of the debtor or company, the processing of the release of liquidators and trustees in bankruptcy, and the administration of the ordinances relating to liquidation and bankruptcy.
2) Legal Services Division 1
The Legal Services Division 1 is headed by the Assistant Official Receiver (Legal Services) 1. It is responsible for providing detailed legal advice on all aspects of the administration of insolvent estate civil litigation that relates to insolvency cases, and for providing a comprehensive litigation service for the benefit of insolvent estates, including appearing in court hearings and instructing barristers in complicated cases.
3) Legal Services Division 2
The Legal Services Division 2 is headed by the Assistant Official Receiver (Legal Services) 2. Its main functions are to provide general legal advisory services, investigate and prosecute insolvency offenders, make applications for the disqualification of company directors, liquidators and receivers, and provide training for Insolvency Officers.
4) Financial Services Division
The Financial Services Division is headed by the Assistant Official Receiver (Financial Services) and staffed by Treasury Accountants and Accounting Grade Officers. Its main functions include performing financial and accounting investigations into insolvency cases, conducting statutory audits of accounts that are submitted by outside liquidators, managing and investing insolvency monies and supervising outside liquidators.
5) Departmental Administration Division
The Departmental Administration Division is headed by the Departmental Secretary and staffed by General Grade Officers. The main functions of the Division are to provide general administrative support and a translation service, to arrange the storage and retrieval of seized documents for insolvency cases and to manage human resources.
You can conduct a bankruptcy search on your target person(s) through the Official Receiver’s Office (please call 28672448 or email oroadmin@oro.gov.hk for details) or via the Internet. You must provide the name and ID number of the target person(s) (or the trading name of a non-limited company) and pay a search fee of $80 for each search. The bankruptcy search will show all bankruptcy orders (both undischarged and discharged) on the target person(s).
When the Court has granted a bankruptcy order against a debtor, no other legal proceedings can be taken or continued with against the debtor or the debtor’s assets without the permission of the Court. The bankruptcy order will be advertised by the Official Receiver in the Gazette and two newspapers (one in Chinese and one in English).
The Trustee (the Official Receiver if act in this capacity) will take control of the assets of the bankrupt. The bankrupt's assets will be realised by the Trustee for repaying the debts. The Trustee/Official Receiver has the right to go to the bankrupt's house for inspection if necessary.
If the bankrupt is the registered owner or one of the registered owners of a real property, the real property or the bankrupt’s share in the real property will become part of the bankruptcy assets and the Trustee/Official Receiver will register the Bankruptcy Order against the real property in the Land Registry.
The bankrupt's provident fund will usually be considered as part of the bankrupt's assets (subject to the provisions of the relevant provident fund scheme). If retired civil servants become bankrupt, then their pensions cease to be payable unless there are discretionary arrangements. Also as mentioned in a High Court judgment (Re Choi Lai Ming ex parte The Official Receiver), the Government has security rights over civil servants' salaries and pensions under the Home Purchase Scheme loan (a loan advanced to a civil servant under the Government's Home Financing Scheme).
The Trustee/Official Receiver will distribute the balance of the realized amounts to the creditors by way of dividends after deducting certain expenses.
The balance of earnings of the bankrupt during the effective period of the bankruptcy order (which is usually 4 years for first time bankrupt) after the deduction of the reasonable living expenses of the bankrupt and the bankrupt's family, will also become part of the bankruptcy assets and will be distributed to the creditors after deduction of expenses.
Can the bankrupt travel outside Hong Kong without any restriction?
Where a bankrupt leaves Hong Kong, the law does not impose on him an express duty to notify the Trustee of his itinerary and where he can be contacted. The bankrupt may freely leave without giving notification. Where he exercises his right to travel and leaves Hong Kong without giving the notification, he may suffer the adverse consequence that the period of his bankruptcy order may be extended by the court. The purpose of the restriction is to ensure that bankrupts stay within the radar of the Trustee so that the Trustee could if required obtain his co-operation in the administration of his estate.
Effect on the bankrupt's family members (e.g. joint owners of a flat or holders of a joint account)
Family members will NOT be required to bear the bankrupt's indebtedness. If the bankrupt owns a flat under the joint name of his/her spouse, then the bankrupt's share of the house may be realised. If the bankrupt holds a joint account with his family members, then the bankrupt's portion of the total amount may be drawn to pay off the debt.
Things that should be done
Bankrupts should attend interviews arranged by the Official Receiver/Trustee. If a bankrupt fails to attend an initial interview arranged by the Trustee/Official Receiver, the Court may make a non-commencement order so that the bankruptcy period will be extended in effect. They should also attend subsequent meetings with their creditors regarding the future arrangement of their assets and income and the administration of the bankruptcy estate.
Bankrupts should hand over all of their assets (both local and overseas) to the Official Receiver/Trustee and submit all documents related to their assets such as bank account statements or business account books, etc. They should also inform the Official Receiver/Trustee of all of their income and earnings. Bankrupts may commit a bankruptcy offence and be liable to imprisonment if they fraudulently remove or transfer any part of their personal properties.
If the bankrupts are also civil servants, then the Official Receiver will inform the departmental secretary of the relevant government department, the Civil Services Bureau and the Treasury. If the bankrupts work in banks, then their employer must be informed. If the bankrupts work in another part of the private sector, however, then the Official Receiver/Trustee will not approach their employers unless it is necessary for the collection or investigation of the bankrupts' financial information.
Things that should NOT be done
Bankrupts should not make repayments directly to individual creditors without the approval of the Court and the Official Receiver/Trustee. They should stop using credit cards or applying for loans from financial institutions. They should also stop paying life insurance premiums.
Bankrupts will not be able to act as company directors and may not be able to practise in certain professions such as lawyer, estate agent or insurance agent, etc. They cannot purchase luxuries such as buying cars or travelling overseas unless they have reasonable grounds to do so.
Bankrupts may commit a bankruptcy offence and be liable to imprisonment if they try to quit Hong Kong and take with them personal assets that should be distributed among their creditors. Bankrupts may also be liable to imprisonment if they try to conceal or avoid receiving legal documents in the bankruptcy proceedings or cause any unnecessary delay in the proceedings.
For more details of bankruptcy offences, please refer to question 11.
Any creditor of the bankrupt may request the Official Receiver to call for a general meeting of all the creditors to appoint a Trustee for the bankrupt's assets. If the total value of those assets is unlikely to exceed $200,000, then the Official Receiver or a person appointed by the Official Receiver will normally be appointed as the Trustee. Each creditor must complete a Proof of Debt Form with supporting documents to prove any debt contracted by the Bankrupt. The Proof of Debt Form should be submitted to the Official Receiver's Office.
If necessary, creditors can request the Official Receiver to apply to the Court for a public examination of the bankrupt in open court (section 19 of the Bankruptcy Ordinance).
The Official Receiver sometimes takes the view that the bankrupt has been un-cooperative, and that he is not making full and frank disclosure of his financial affairs. In such circumstances, the Official Receiver and the petitioner might have legitimate reasons to believe that a private examination would be beneficial to the administration of the assets in that more substantial and useful information might be obtained regarding the financial affairs of the bankrupt.
Upon application by the Official Receiver, the court will decide if the case is appropriate for an order for private examination. If the answer is in the affirmative, the court is likely to order the bankrupt to attend before a Master of the High Court to be examined under section 29 of the Bankruptcy Ordinance at such time as directed by the court, with an estimated length of examination (e.g. 2 hours). The petitioner is to have the conduct of the examination by his solicitor or barrister.
The court may further order the bankrupt to provide to the petitioner all documents in his possession, custody or power relating to himself, his dealings or property within certain days of the order (e.g. 21 days).
If employees are owed wages, wages in lieu of notice, severance payment s or other contractual sums by the employer, then they may (as creditors) petition to the Court for a bankruptcy order ( if their employer is an individual person or a partnership ), or a winding-up order ( if their employer is a limited compan y ).
If a bankruptcy or winding-up order has been granted against an employer, then the relevant employees are entitled to receive payment out of their employer's assets in preference to most other creditors in respect of wages, wages in lieu of notice and severance payments under the statutory limits. Take arrears of wages as an example, employees can recover wages up to a maximum of $8,000 each in respect of services rendered to their employer in preference. However, any arrears of wages, wages in lieu of notice or severance payments exceeding the statutory limits are non-preferential debts, and employees will be treated as ordinary creditors on claiming the exceeded amount.
Alternatively, employees can apply for ex-gratia payments from the Protection of Wages on Insolvency Fund through the Labour Department. For details regarding bankruptcy claims on employment matters, please visit the webpage on Employment Disputes.
If the bankrupt has not previously been adjudged bankrupt, then the bankruptcy order will be discharged in 4 years after the date of issue, provided that there is no valid objection from creditors and the bankrupt has fully complied with the provisions of the Bankruptcy Ordinance.
If the bankrupt has been previously adjudged bankrupt, then the order will be discharged in 5 years after its date of issue.
If creditors have valid objections (due to the bankrupt's unsatisfactory conduct or failure to fully disclose the assets or earnings, etc.) against the discharge of the bankruptcy order, then the order may be extended for a maximum period of 4 years. In case the bankrupt has been previously adjudged bankrupt, the maximum period of the extension is 3 years.
You should also refer to Question 4 about the possible suspension of the date of discharge (if the bankrupt fails to attend an initial interview).
When a bankruptcy order is discharged, the bankrupt is released from all provable debts, including any debts or liabilities that were proved in the bankruptcy proceedings. However, the bankrupt remains liable for the following debts regardless of the discharge of the bankruptcy order: those incurred by fraud, fines imposed for offences, or damages in respect of personal injuries to other persons, etc.
Some of the bankruptcy offences with imprisonment penalties are summarised as follows.
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Bankruptcy Ordinance(Cap. 6) Section |
Brief description of the offences |
Penalty |
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Liable to imprisonment for up to two years, except for (vi).
Liable on summary conviction to imprisonment for up to one year or upon conviction on indictment to imprisonment for up to five years for (vi) |
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Liable to imprisonment for up to two years. |
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Liable to imprisonment for up to two years. |
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Liable to imprisonment for up to two years. |
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Liable to imprisonment for up to two years. |
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Description of the Offence |
Penalty |
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(For more details of bankruptcy offences, please see the webpage of the Official Receiver’s Office.)
Before filing the petition with the High Court, the bank should issue a statutory demand to Mr. T stating the details of loan arrears with the demand, and the time limit for repayment. Standard bank demand notes or reminders cannot be treated as statutory demands. In usual practice, the bank will instruct a lawyer to prepare the statutory demand and the subsequent bankruptcy petition. The bank or its lawyer must use all reasonable ways to bring the statutory demand to Mr. T's attention, such as by sending the demand to Mr. T by hand.
The bank should first make sure that the demand has been sent to the last known address or usual place of abode or business of Mr. T. Otherwise, Mr. T may challenge the validity of the statutory demand in the subsequent bankruptcy proceedings.
If the bank or its lawyer has repeatedly sent the statutory demand by post or by hand, and they have reasonable grounds to believe that Mr. T has absconded or is trying to avoid receiving the demand, the bank or its lawyer can advertise the demand in one or more local newspapers. The Court may accept this as a reasonable way of serving the statutory demand.
According to section 6 of the Bankruptcy Ordinance, the conditions are as follows:
For proving the inability to pay or no reasonable prospect to pay the debt, the creditor should show that the debtor has failed to comply with or set aside the statutory demand within 3 weeks after the demand was served (if served by a newspaper advertisement, then from the date of posting in the newspaper).
If ABC Bank has fulfilled the above conditions, then it or its lawyer can file the bankruptcy petition with the High Court and serve the sealed copy of the petition on Mr. T.
If the bank or its lawyer has used all reasonable ways to send the demand and the petition to Mr. T, such as advertising them in local newspapers with approval from the Court, Mr. T has little chance of avoiding or suspending the proceedings by challenging the ways in which the documents were delivered by the creditor.
When a bankruptcy order has been granted against Mr. T, no other legal proceedings can be taken or proceeded with against him or his assets without the permission of the Court. The bankruptcy order will be advertised by the Official Receiver in the Gazette and two newspapers (one in Chinese and one in English).
Mr. T should attend the Official Receiver's Office for an interview about his current financial status and the future arrangement of his assets. He should also submit a Statement of Affairs (a document that includes the details of his financial status and all of his current liabilities) to the Official Receiver. He may also be required to attend all subsequent meetings with his creditors, the Official Receiver and the Trustee regarding the future arrangement of his assets and repayment procedures.
Mr. T should not make repayments directly to individual creditors, including ABC Bank without the approval of the Court and the Official Receiver. He should stop using credit cards or apply for loans from financial institutions. He should also cease payment of any life insurance premium. He cannot enjoy luxuries such as buying a car or travelling overseas unless he has reasonable grounds to do so.
The Official Receiver/Trustee will take control of Mr. T's assets and income. The Trustee or the representative of the Official Receiver has the right to inspect Mr. T's house if necessary. His provident fund (if any) will be considered as part of his assets (subject to the provisions of the relevant provident fund scheme).
Mr. T should hand over all of his assets (both local and overseas) to the Official Receiver/Trustee and submit all documents related to his assets such as bank account statements or the account books of his business, etc. He should also inform the Official Receiver/Trustee of all of his income/earnings.
If Mr. T owns a flat under the joint name of his wife, then his share may be realised for the repayment of his debts. If he owns any property outside of Hong Kong, then the Official Receiver/Trustee will require him to sell that property for the benefit of the creditors and to sign all necessary authorities, deeds and documents for such purpose. If Mr. T refuses to do so, then he may be punished for contempt of court.
After the deduction of administrative expenses, the Official Receiver/Trustee will distribute Mr. T's assets (including his surplus income) to his creditors by way of dividends. However, Mr. T's family members will not be required to bear his indebtedness.
With regard to the matter of reasonable living expenses as mentioned above, the High Court has made the following ruling (as per the case of Re Lau Nga Yee Christine):
Mr. T will not be able to act as company director or and may not be able to practice certain professions such as lawyer, estate agent or insurance agent, etc. If Mr. T works in a private company, then the Official Receiver/Trustee will not approach his employer unless it is necessary for the collection or investigation of his financial information.
According to section 135 of the Bankruptcy Ordinance, any persons who are adjudged bankrupt will be guilty of an offence (unless they prove that they had no intent to defraud) if after the presentation of a bankruptcy petition, or within six months before such a presentation, quit Hong Kong and take with them, or attempt or make preparations to quit Hong Kong and take with them, any part of their properties to the amount of $100 or more, which should by law be divided among their creditors. Such persons will be liable to imprisonment for up to two years.
Also with reference to section 136 of the Bankruptcy Ordinance, any persons against whom bankruptcy orders are made will be guilty of an offence if they conceal or absent themselves from their usual or last known place of abode or business or quit Hong Kong, with intent to avoid service of any legal documents in bankruptcy or to avoid examination of their affairs or otherwise to delay any bankruptcy proceedings against them. Such persons will also be liable to imprisonment for up to two years.
In that case, Mr. T might have committed bankruptcy offences and may be liable to imprisonment.
According to section 132 of the Bankruptcy Ordinance, any persons who have been adjudged bankrupt will be guilty of an offence if they have made any gifts or transfers of, or charges on, their properties with the intent to defraud their creditors. Such persons will be liable to imprisonment for up to a maximum of two years.
If Mr. T transfers his car to his brother to defraud his creditors, then he has committed a bankruptcy offence and may be liable to imprisonment.
ABC Bank must complete a Proof of Debt Form with supporting documents to prove that Mr. T has contracted the $300,000 debt. The Proof of Debt Form should be submitted to the Official Receiver's Office.
The bank may request the Official Receiver to call a general meeting of all of Mr. T's creditors to appoint a Trustee for Mr. T's assets. If the total value of Mr. T's assets is less than $200,000, then the Official Receiver or a person appointed by the Official Receiver will usually act as the Trustee.
If necessary, the bank can request the Official Receiver to apply to the Court for a public examination of Mr. T in open court. Such an application must receive consent from the creditors with not less than 25% in gross value of the debt.
The bankruptcy order will be discharged in 4 years after its issuance if :
If Mr. T has been previously adjudged bankrupt, then the order will be discharged in 5 years.
If the Trustee or the creditors successfully object to the discharge of the bankruptcy order (e.g. due to Mr. T's unsatisfactory conduct, failure to fully disclose his assets/earnings, etc. ), then the order may be extended for a maximum of 4 years (if Mr. T has previously been adjudged bankrupt, the maximum extension is 3 years).
When the bankruptcy order is discharged, Mr. T will be released from all provable debts, including any debts or liabilities that were proved in the bankruptcy proceedings. However, Mr. T remains liable for the following debtsregardless of the discharge of the bankruptcy order: those incurred by fraud, fines imposed for offences, or damages in respect of personal injuries on other persons, etc.
The Court may, as a condition of granting the discharge, order Mr. T to continue to make contributions to repaying his debt in such amount and for such period as it considers appropriate but not exceeding eight years from the date the bankruptcy order.
If Mr. T has not previously been adjudged bankrupt, then he may at any time apply to the Court for an early discharge. If he has been previously adjudged bankrupt, then he may make the application not less than 3 years after the date of the bankruptcy order.
However, the Court may not make the order for early discharge if, for example, the bankrupt:
In addition, the Court may not grant the order for early discharge if the creditors raise valid objections against the discharge.
Alternatively, Mr. T can apply to Court for annulment of the bankruptcy order if his debts and the expenses of the bankruptcy have all been paid after the making of the bankruptcy order.
In this section, you can find general information on debtors ' individual voluntary arrangements. In IVAs, individual persons can settle their debts through repayment proposals without declaring bankrupt.
The debtor can apply for an Individual Voluntary Arrangement ("IVA"). With an IVA, the debtor makes a repayment proposal to the High Court and the creditors. If the IVA proposal is approved by the Court and more than 75% of the creditors in value voting at the creditors’ meeting, then it will legally bind all creditors under section 20H of the Bankruptcy Ordinance.
An undischarged bankrupt can also apply for an IVA because an IVA is not equivalent to bankruptcy.
You are recommended to consult a lawyer if you want to apply for an IVA.
The advantages of IVA
The disadvantages of IVA
A brief summary of the procedures for applying for an IVA
Before the approval of the proposal by the creditors, the debtor should apply to the Court for an Interim Order (for a 14-day-period during which no bankruptcy or other legal proceedings can be taken or continued against the debtor without the permission of the Court). According to the Bankruptcy (Fees & Percentages) Order ( Cap. 6C), a court fee is charged and computed by the following rates on the gross amount of the proposal:
a. $15 on every $1,000 or fraction of $1,000 up to $100,000 of the repayment amount; and
b. $7.50 on every $1,000 or fraction of $1,000 beyond $100,000 of the repayment amount.
Example:
If the gross amount of repayment stated in the proposal is $150,000, then the court fee would be:
$[15 x (100,000÷1,000)] + $[7.5 x (50,000÷1,000)] = $1,875.
The role of the Court
Section 20K of the Bankruptcy Ordinance provides that the nominee may apply to the Court for directions in relation to any particular matter arising under the voluntary arrangement. The whole provision applies only to implementation and supervision of approved voluntary arrangement.
The role of the Court is limited to giving directions on matters relating to implementation and supervision, although no provision is specifically made as to the nature of the order that the court may make. It seems that the section is limited to enabling the nominee to seek assistance of the Court for a situation which is not envisaged by the proposal itself and which, for whatever reason, cannot be determined by the nominee exercising his own professional judgment.
Followings are some items suggested by the Official Receiver's Office (with reference to Rule 122C(2) of the Bankruptcy Rules).
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Overview of the contents |
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The following matters or items must be stated or otherwise dealt with in the proposal:
(i) the debtor's assets, with an estimate of their respective values and the basis of that estimate, and the extent (if any) to which the assets are charged in favour of the creditors;
(ii) particulars of any property, other than assets of the debtor, which is proposed to be included in the arrangement, the source of such property and the terms on which it is to be made available for inclusion;
(iii) the nature and amount of the debtor's liabilities (to the debtor's immediate knowledge), the manner in which they will be met, modified, postponed or otherwise dealt with by means of the arrangement;
(iv) the proposed duration of the voluntary arrangement and the proposed dates of repayment distributions to creditors, with estimates of their amounts;
(v) whether any, and if so what, guarantees have been given for the debtor's debts by other persons;
(vi) whether, for the purposes of the voluntary arrangement, any guarantees are to be offered by any persons other than the debtor, and whether (if so) any security is to be given or sought;
(vii) the name, address and qualification of the person proposed as the Nominee of the voluntary arrangement, and confirmation that the person is (as far as the debtor is aware) experienced and qualified to act as a Nominee in relation to the voluntary arrangement either as Trustee or otherwise for the purpose of supervising its implementation;
(viii) the amount that will be paid to the nominee by way of remuneration and expenses;
(ix) the functions that are to be undertaken by the nominee;
(x) the manner in which funds (e.g. debtor's assets) that are to be held for the purposes of the arrangement are to be banked, invested or otherwise dealt with pending distribution to creditors;
(xi) if the debtor has any business, then the manner in which it will be conducted during the course of the arrangement. |
(For more details of the suggested content for IVA proposals, please see the webpage of the Official Receiver's Office.
The proposal is effective from the date of the creditors' meeting on approval of the proposal. The Nominee appointed at the meeting will take control of all of the debtor's assets that are included in the IVA proposal, and the debtor should follow the approved proposal to repay the debts.
Any bankruptcy petition entered previously against the debtor will be dismissed by the Court. In case of any existing Bankruptcy Order, the Court may cancel it, with or without conditions.
However, if the IVA proposal cannot be approved by all necessary parties or if the debtor has failed to perform all of the obligations as stated on the IVA proposal, then the creditors may still proceed with the bankruptcy petition against the debtor.
Individual Voluntary Arrangement (IVA) Scenario
Miss M borrowed a total sum of $100,000 from 3 financial institutions. She is now unable to repay any of the loans. She does not want to be declared bankrupt because she wants to retain her existing job as an insurance agent. She wishes to apply for an IVA to settle her debts.
Miss M can retain her existing job as an insurance agent. In contrast, a bankrupt cannot act as a company director or may not practise in certain professions such as lawyer, estate agent or insurance agent, etc. The bankrupt cannot purchase luxuries such as new car or travel overseas unless the bankrupt has reasonable grounds to do so.
Although the Official Receiver or the Nominee may approach Miss M's employer to gather information about her case, this will not be carried out unless it is necessary to do so. Miss M can also avoid the stigma of bankruptcy, and be free from the legal restrictions imposed on a bankrupt. For example, she can travel freely in and out of Hong Kong without having to report to the Trustee or the Official Receiver. She can also act as a company director or an insurance agent.
Miss M should first propose a Nominee to implement and monitor her voluntary arrangement. She must then submit her IVA proposal and her Statement of Affairs to her Nominee for checking. She should also apply to the Court for an Interim Order (for a 14-day-period in which no other legal proceedings can be taken or continued against her without the Court's permission) to allow the relevant parties to have adequate time for considering or revising her proposal.
The Nominee will submit a report concerning her proposal to the Court stating whether a creditors' meeting with Miss M should be held to discuss the proposal. Such a meeting will be held in usual circumstances.
In general, Miss M must clearly state her assets owned and the details of her liabilities to her immediate knowledge. She must also propose the duration of the voluntary arrangement, repayment dates and the amount to be paid in each time. Her proposal should also include the functions to be undertaken by the Nominee and the Nominee's personal details.
For more details of the IVA proposal, please refer to “What should be stated on the IVA proposal?” on this website or see the webpage of the Official Receiver's Office.
During the creditors' meeting, the creditors and Miss M will negotiate on the IVA matters. The approval or modification of the proposal requires a majority of those creditors who totally hold in excess of 75% in gross amount of the debts owed and who are present in person or by proxy and vote on the resolution. Any modification of the proposal also requires consent from Miss M.
Once the proposal is approved during the creditors' meeting, it will legally bind every creditor and Miss M. The proposal is effective from the date of the meeting. The Chairman of the meeting must submit a report to the Court within 7 days of the creditors' meeting. Miss M must follow the approved proposal to repay her debts.
Any bankruptcy petition entered previously against Miss M will be dismissed by the Court. The Court can cancel any existing Bankruptcy Order with or without conditions.
The debtor, the creditors, the Nominee, and in the case of an undischarged bankrupt, the Trustee or the Official Receiver, may submit an application to the Court to challenge the decision of the meeting within 28 days after the submission of the Chairman's report to the Court.
Miss M can avoid bankruptcy proceedings if she complies with her obligations under the IVA.
Under section 20L of the Bankruptcy Ordinance, however, the Court can still make a bankruptcy order against the debtor if:
In this section, you can find general information on the procedures of winding-up of companies and the consequences on the relevant parties (including the creditors, employees, company directors and shareholders).
Only a limited company can be wound-up. The term “winding-up” (or “wound-up”) bears a similar meaning of “liquidation”. It generally means that all the assets of the company would be realized (sold and converted to cash) through a legal process in order to repay its debts. Winding-up would bring a company to an end.
A limited company is a company that is registered under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong). It is a separate legal entity (i.e. it can sue or be sued in legal proceedings). The liabilities of shareholders are limited to the value of the company’s shares held by them (limited by shares). Another situation, which is not common in commercial organizations, is that the liabilities of shareholders are limited to the amount in which the shareholders have agreed to contribute to the company's assets if the company is being wound-up (limited by guarantee).
An “unlimited company” is not a “company” in a strict sense. It is a business operated in the form of a sole proprietorship or a partnership.
A sole proprietorship is owned by an individual. A sole proprietor is solely and personally responsible for the liability of the business.
A partnership is a form of business owned by two or more persons (partners). The partners are personally jointly and severally liable (i.e. every partner should be liable) for the liability of the business.
An overview of winding-up procedures
You can get a general picture on the winding-up procedures (except “ voluntary winding-up ” ) from the following chart:
Issuing a written demand for debt repayment to the target company
Presenting a winding-up petition to the Court and the company (Note)
Court hearing for the petition
Granting of winding-up order by the Court
Meeting of creditors and other relevant parties
Appointment of liquidator
Realization and distribution of company’s assets to the creditors
Release of duties for liquidator
Dissolution of the company
Note: The winding-up proceedings should be deemed to commence at the time of presenting the winding-up petition to the Court.
Under sections 177 & 178 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32), it is a ground for petition if the company is unable to pay a debt of $10,000 or above (or an amount prescribed by the Financial Secretary of the HKSAR Government in special circumstances).
If it is anticipated that there will be a genuine dispute over the debt (the company is likely to argue, or just denying its liability for the debt), the creditor may sue the company for a judgment instead of presenting a winding-up petition. In other words, the creditor may institute legal proceedings against the company in order to obtain a court judgment to ascertain the company's liability for the debt. If the company still fails to comply with a court judgement to repay the debt, the creditor may then proceed to enforce the judgement by filing a winding-up petition (or enforce it through other legal proceedings).
It is my intention to present a winding-up petition against a company. How can I find out if there is already a petition presented against this company?
A request to search the compulsory company winding-up records is available at the Official Receiver’s Office at a search fee of $80. The relevant application form is available at the website of the Official Receiver’s Office. You can contact the staff of the Official Receiver’s Office at 28672448, or e-mail at oroadmin@oro.gov.hk for more details. You may also conduct a search of compulsory winding-up proceedings via the Internet.
Please note that the Official Receiver’s Office does not keep records of companies being wound-up voluntarily (not wound-up by court order) You must contact the Companies Registry for information related to the voluntary winding-up of a particular company.
After the commencement of winding-up proceedings (that is, after the presentation of the winding-up petition), all dispositions of the property of the company is void pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32). In other words, no transfer of any property of the company is allowed. Therefore, banks will usually freeze a company's account when they know that a winding-up petition has been presented against that company.
You may apply to the Court to grant an order to reactivate the company’s bank account. The Court will only grant such order if it will be beneficial to the company.
The application is made by summons (a demand for the relevant parties in the proceedings to attend court hearing) with an affirmation (a supporting document which is made on oath) explaining why an order to reactivate the company’s account is beneficial and also the facts relied upon. The Court will hear the application.
You are advised to seek assistance from a lawyer if you have to make such an application.
The Company can consider making an application to the Court for an order to strike out the petition. However, it is not easy for a Company to obtain such an order.
You can apply to the Court for the appointment of a provisional liquidator after you have presented a winding-up petition. The provisional liquidators will take the necessary steps to preserve the assets of the Company.
A sum of $3,500 must be deposited to the Official Receiver’s Office for the appointment of a provisional liquidator (for the purpose of covering the fees and expenses to be incurred in relation to such application). Additional sums may be required to be deposited when necessary.
Yes. You may apply for the Court to appoint either qualified persons or the Official Receiver to act as the provisional liquidator. However, you will still have to deposit $3,500 to the Official Receiver’s Office.
A petition has been presented against my company which is in heavy debt and is obviously insolvent. We have managed to locate an investor but the capital injection the investor can provide is not sufficient to pay off all of the company's debts. What options are available to the company to avoid its being wound up?
The company may try to negotiate with the creditors in order to reach a compromise regarding the repayment of the debts, and see if the creditors can be persuaded to withdraw the petition.
Alternatively, the company can propose a scheme of arrangement under section 674 of the Companies Ordinance (Cap.622). Upon application by the company, the creditors, or the liquidator (in the case where a winding-up order has been granted), the Court may order a meeting of all the relevant parties be held to discuss and negotiate the details of an arrangement for debt repayment.
If a majority in number representing at least three-fourths in value of the creditors (who are voting either in person or by proxy at the meeting) agree to any compromise or arrangement, the compromise or arrangement shall be binding on all the creditors if it is also sanctioned by the court. Sometimes the approved arrangement may involve the re-organization or transfer of the company's share capital, or even the merging of 2 or more companies.
The above procedures are complex and are usually carried out with the assistance of lawyers and professional financial advisors.
Another note is that whilst it is in the power of the Court to adjourn (postpone) winding-up proceedings, in order to enable a scheme of arrangement to be put in place, any such adjournment would generally only be ordered in the absence of opposition from the petitioning creditor. Even then that should only be done in circumstances where the court can see that there would be a realistic probability for a scheme of arrangement to be approved and can be sure that no adverse consequence to the parties involved will be occasioned as a result of the order made. (You may read the judgment from the case of Credit Lyonnais v SK Global Hong Kong Ltd for more details.)
No matter whether the company is in financial difficulty or not, it may hold a general meeting of its shareholders to bring itself to an end by winding-up procedures. If a special resolution is passed for winding-up, the company may then apply to the Court for a winding-up order (via procedures similar to a creditor's petition).
Alternatively, a special resolution that the company be wound up voluntarily may be passed. In that case, no winding-up order from the Court is necessary.
Upon the commencement of the voluntary winding-up, the company will cease to carry on business except that which may be required for the benefit of winding- up smoothly. The legal status and powers of the company will continue until it is dissolved.
Furthermore, any transfer of shares (except a transfer made by the liquidator or made with his/her approval), and any alteration to the status of the members of the company which is made after the commencement of a voluntary winding-up, will be void.
You may consider the option of voluntary winding-up. The relevant procedures include:-
If no special resolution can be passed at a general meeting of shareholders, the board of directors may nevertheless pass a resolution that the company be wound up. The relevant resolution shall include the following contents:
A declaration recording such resolution has to be signed by a director and be delivered to the Registrar of Companies within seven days of the date of the resolution. Meetings of the company and of the creditors have to be summoned within 28 days of the delivery of such resolution to the Registrar of Companies. A provisional liquidator also has to be appointed upon the delivery of the declaration.
Due to the complexity of the above procedures, you are advised to consult a lawyer or other qualified professionals before commencing such actions.
What does the Court consider in deciding whether or not a winding up order should be made?
The usual circumstances under which the Court would make a winding-up order are:
A winding-up order may also be made if it is proved that the affairs of the company have been conducted in a manner unfairly and prejudicial to the interest of some shareholders of the company, or its shareholders generally.
In considering these grounds, the Court will usually take into account the circumstances of the company including whether it is insolvent and whether there is an alternative solution to the dispute, such as buying out the shares of a disgruntled/dissatisfied shareholder.
When a winding-up order has been made, no legal proceeding shall be continued or commenced against the company without approval from the Court. In other words, all the other legal proceedings against the company will be automatically stayed or “frozen” upon the making of a winding-up order.
No. The action does not come to an end. The liquidator may, with the approval of the Court, continue and conduct the action against you in the name of and on behalf of the company.
No. The liquidator may bring action against you to recover the unpaid debt.
The liquidator can exercise the following powers with the approval of either the Court or the committee of inspection:
The liquidator can exercise the following powers without seeking prior approval from the Court or committee of inspection (while nevertheless the Court may order to limit and restrict the powers of the liquidator, if necessary):
Section 286B of the Companies (Winding Up & Miscellaneous Provisions) Ordinance (Cap.32) confers a power on the Court to examine a person on oath either by word of mouth or on written inquiries. The person that may be examined refers to the officer of the company or other person deemed capable of giving information, and includes a body corporate.
The authority of the Court under section 286B is limited to the production of documents which relate to the company in liquidation and does not extend to documents which relate to its current or former subsidiary or associated companies unless they also relate to the liquidated company itself, but this cannot be assumed.
In exercising its discretion, the Court must endeavour to strike a balance between the liquidator’s reasonable requirements and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the party from whom the documents or information are sought.
After a winding-up order has been granted by the Court, the company's creditors will be asked to attend the “First Meeting of Creditors and Contributories”. A statement of the company's affairs (Form 23), which is prepared by the director or responsible officer of the wound-up company, will be presented at the meeting. This statement is similar to a balance sheet of the company and contains details of all the company's assets and liabilities.
Furthermore, resolutions may be passed in relation to the further conduct of the winding-up, such as whether or not to apply for the appointment of a liquidator in place of the provisional liquidator, and whether or not to appoint a committee of inspection.
If the creditors wish to attend the meeting but are unable to do so, they may send proxies to represent their interests and to vote on behalf of them. A creditor can appoint someone to attend the meeting and to vote on the creditor's behalf by completing either a General Proxy From or a Special Proxy Form (if the creditor has a decision on a particular resolution), and return the relevant form to the Official Receiver's Office.
This procedure applies if, after the presentation of the winding up petition, either the Court is satisfied that the property of the company is not likely to exceed $200,000 in value, or the Official Receiver (or the provisional liquidator) so reports. Upon an order that the company be wound up in a summary manner, there will be no first meeting of creditors and contributories. The provisional liquidator will become the liquidator without a committee of inspection.
As an employee you are considered to be a "preferential" creditor of the company. If a bankruptcy or winding-up order has been granted against the employer, the employee is entitled to receive payments (in respect of wages, wages in lieu of notice and severance payments that fall under the statutory limits) out of the employer's assets in preference (with priority) to most other creditors.
For example, an employee (as a preferential creditor) can recover the arrears of wages up to a maximum of $8,000 in respect of services rendered to his/her employer.
Any arrears of wages, wages in lieu of notice, or severance payments in excess of the statutory limits are considered “non-preferential debts”, and the employee will be treated as an ordinary creditor with respect to any amounts claimed in excess of the statutory limits .
However, whether you will be paid even the amounts within the statutory limits will depend on the company's assets available. You may consider applying to the Labour Department for gratuitous payment from the Protection of Wages on Insolvency Fund .
For more details on insolvency claims which relate to employment matters, please go to another topic - Employment Disputes in CLIC.
You have to prove that the company owes you the debt by completing a Proof of Debt Form (Form 63A). You should submit the form to the provisional liquidator or liquidator, together with documentary evidence, if any, after the winding-up order has been made against the company. A filing fee of $35 is required if the debt exceeds $250 or it is not an employee’s claim. Also, you may attend or even summon a general meeting of creditors so that you can participate in decisions concerning the distribution of the remaining property of the company.
Unless the debt owed to you by the company is secured and the value of the assets covered by the security is sufficient to repay the debt, you are not guaranteed that you can recover all the money.
Unsecured creditors may recover money only if there are funds remained in the assets of the company after the realizations of all the company’s assets (i.e. all the assets were sold and converted to cash) and the deduction of all fees and expenses incurred in the winding-up process. Usually the unsecured creditors could not recover the full amount and they will be paid in proportion to the size of their debts.
Yes. You may apply to the Court for a reversion or modification of the decision but you must do so within 21 days from the date of service of the written decision of the liquidator.
A creditor may prove for a debt not payable at the time of the winding-up order. Therefore, it is possible for you to recover the debt. However, depending on the company’s assets at the time of winding-up, it may not be paid in full, and may not be paid immediately.
After the granting of winding-up order, the shareholders' liabilities are limited to the value of shares held by them (limited by shares). In this case, there will be no liability further than the value of any shares in the relevant shareholders' names in which they have not yet paid for at the time the company is wound up. Another case, which is not common in the commercial field, is that the liabilities of shareholders are limited to the amount in which they have agreed to contribute to the company's assets if the company is being wound-up (limited by guarantee).
Directors will not be subject to personal liability unless they have obtained advantages from the company unlawfully or in breach of the duties as a director or they have given personal guarantees to the creditors (which is not uncommon in particular for bank loans). The powers of all directors of the company will cease after the making of a winding-up order.
If you have decided to pay off all the company’s debt, you can apply to the Court for a permanent stay (suspension) of all further proceedings in the winding-up of the company under section 209 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32). The Court will grant a stay if it is satisfied that the rights of creditors and members are provided for; the liquidators are remunerated, and there are no further matters in the affairs of the company that call for investigation. The effect of a permanent stay is that the company is “revived”.
On 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 are legally required to:-
You have to attend the publication examination hearing.
According to Rule 56 of the Companies (Winding-up) Rules: “If any person who has been directed by the court to attend for public examination fails to attend at the time and place appointed for holding or proceeding with the same, and no good cause is shown by him for such failure, it shall be lawful for the court, upon its being proved to the satisfaction of the court that notice of the order and of the time and place appointed for attendance at the public examination was duly served, without any further notice, to issue a warrant for the arrest of the person required to attend, or to make such other order as the court shall think just”.
At the hearing, you may be asked questions concerning the promotion, formation and the conduct of the business of the company, and also your conduct and dealings as a director of the company.
You will be required to answer the questions on oath. You are recommended to obtain legal advice before attending the hearing, or to instruct a lawyer to present with you during the hearing.
The Official Receiver or the Liquidator (or their legal representatives) will take part in the examination.
Generally speaking, it will not affect your personal life, unless:
Case 1
1. you are convicted of unlawful conduct; or
Case 2
2. your conduct as a director makes you unfit to be involved in the management of a company; or
Case 3
3. you have attracted liability due to any unlawful acts, a breach of director's duties or personal guarantees given to the creditors.
In case 1, you may be subject to a criminal sentence including a fine. The following table (as extracted from the website of the Official Receiver's Office) highlights some of these offences:
|
Companies Ordinance (Cap. 622) |
Brief descriptions of the offences |
Penalties |
|
|
Director failing to take reasonable steps to ensurethat proper books of account are kept and preserved. |
Liable to a maximum fine of $300,000 and imprisonment for up to amaximum of 1 year. |
|
Director failing to take reasonable steps to ensurethat accounts are tabled at the Annual General Meeting. |
Liable to a maximum fine of $300,000 and imprisonment for up to amaximum of 1 year. |
|
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) Sections |
Brief descriptions of the offences |
Penalties |
|
|
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 a daily default fine of $300 |
|
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 there after. |
On indictment : liable to imprisonment for up to a maximum of 5 years. Summary prosecution :liable to a maximum of 2 years imprisonment. |
|
|
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 theproperty, books and records 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. |
On indictment : liable to a maximum fine of $150,000 and imprisonment for up to amaximum of 2 years. Summary prosecution :liable to a maximum fine of $50,000 and imprisonment for up to amaximum of 6 months. |
|
Officers falsifying books. |
On indictment : liable to amaximum fine of $150,000 and imprisonment for up to amaximum of 2 years. Summary prosecution :liable to a maximum fine of $50,000 and imprisonment for up to a maximum of 6 months. |
|
|
Officers acting with intent to defraud creditors by giving, or concealing, property of company. |
On indictment : liable to amaximum fine of $150,000 and imprisonment for up to amaximum of 2 years. Summary prosecution :liable to a maximum fine of $50,000 and imprisonment for up to a maximum of 6 months. |
|
|
Officers failing to keep proper books for the 2 years prior to the winding-up of the company. |
On indictment : liable to a maximum fine of $150,000 and imprisonment for up to a maximum of 2 years. Summary prosecution :liable to a maximum fine of $50,000 and imprisonment for up to a maximum of 6 months. |
|
|
Person being a party to carrying on the businessof a company with intent to defraud creditors. |
On indictment : liable to unlimited fine and imprisonment for up to a maximum of 5 years. Summary prosecution :liable to a maximum fine of $150,000 and imprisonment for up to a maximum of 1 year. |
In case 2, you may be subject to a disqualification order so that you cannot take up the office of director of any company within a specific period.
In case 3, you may be liable to the company for the advantages gained by you or the loss suffered by the company due to the breach or the unlawful act or you may be liable to the creditors under the personal guarantees given to them.
Again, no matter whether you are a nominee director or not, no personal financial liability for the company’s debts has to be borne by you. However, a nominee director has the same duty to the company as a “real” director does. Therefore, if a nominee director has committed any wrongs, omissions, or criminal offences, that nominee director will suffer the same consequences as a director who took active part in the Company.
Also, if you have given any personal guarantees in your name to the creditors of the company, you will be liable for the debts under the personal guarantees given.
Yes. Any transfers or dispositions of assets made by a company within 2 years before the commencement of winding up can be set aside (made invalid) if the company does not receive full value for the transfer or disposition. This is called a transaction undervalue. If the transfer or disposition is made more than 2 years and within 5 years of the commencement of winding up, it can still be set aside if the company was insolvent or had become insolvent after the transfer or disposition.
Hence, in this case, the transfer can be set aside. The liquidator will go after your wife for the assets.
The situation is the same if your company sold your company’s assets (e.g. a piece of land) to a third party at an undervalue within 2 years before the commencement of winding up.
Generally, the date of commencement of winding up is the date of filing of the petition for winding up if it is a case of a winding up by the court. In case of a voluntary winding up, the commencement date is the date of the resolution passed for winding up the company.
Even though the person who received payment is your company's creditor, the transaction is still invalid if it is made within 6 months of the commencement of the winding up and with the intention to prefer a particular creditor. It is called a preferential payment. If the person who received the assets is an “associate” of a company (e.g. a director), the relevant period is 2 years prior to the commencement of winding-up.
For example, if your company owes you (as a director or shareholder) or your wife or your relatives money and arrange payment immediately before the commencement of winding up, it would be a preferential payment as there is a clear intention that the company will “prefer” to repay these creditors than the others.
The reason behind is that your company's assets should be realized and all the relevant proceeds should be used to: i) settle all the expenses incurred in the winding-up proceedings; and ii) share with all the creditors but not only the one that you “prefer” to pay for. In this case, the creditor (who received your money) may be ordered by the Court to refund the money back to your company.
When will the liquidator be released from the relevant duties in a winding-up proceedings? When will the company be dissolved?
The liquidator can apply to the Court for the release of the duties once the followings have been accomplished:
- all the assets of the company have been realized (i.e. all assets have been sold and converted to cash);
- investigations related to the winding-up proceedings are completed; and
- a final dividend (if any) has been paid to the creditors to settle the debts
The liquidator will send notices, together with a summary of the relevant receipts and payments in the liquidation, to the creditors and contributories of the company of the intention to apply to the Court for release from the duties as liquidator. At this point, any creditor or contributory has 21 days from the date of the notice to raise objection to the intended release of the liquidator.
After obtaining the order for release from the court, the liquidator will file a “Certificate of Release of Liquidator” with the Registrar of Companies. The company shall be dissolved two years after the filing of the “Certificate of Release of Liquidator”.
Winding-up scenario
AZ Company owes Mr. C and other vendors a total sum of $500,000. Despite repeated verbal or written demands from those creditors, the company has failed to repay the debts. Mr. C, after chasing AZ Company for 2 two months in respect of his debt of $100,000, plans to institute winding-up proceedings against the company so that he can try to recover at least part of the debt.
Firstly, Mr. C should make sure that "AZ Company" is a limited company. He could find out the registered details of this company by conducting a company search at the Companies Registry and a business registration search at the Inland Revenue Department.
If it is confirmed that AZ Company is a limited company, Mr. C should also issue a formal written demand to the company requiring it to pay the debt before presenting a winding-up petition. The written demand must be left (not sent by post, by registered post, by fax or by electronic means) by Mr. C or his lawyer at the registered office of the company. The company must be given 21 days in which to pay the debt before any further action can be taken against it.
Mr. C can file a winding-up petition against AZ Company if the company is still “unable to pay its debts” 21 days after receiving the written demand. With reference to Section 178 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32), a company shall be deemed to be unable to pay its debts if: “a creditor, by assignment or otherwise, to whom the company is indebted in a sum then due equal to or exceeding the specified amount ($10,000), has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor.”
The petition must be advertised 7 clear days before the date on which the petition will be heard by the court, once in the Gazette, and once at least in two local daily newspapers (one in Chinese and one in English). The advertisement must state the date on which the petition was presented, the date set for the court hearing, and the name and address of the petitioner and the petitioner’s solicitors.
The advertisement should also contain a note at the foot thereof stating that any person who intends to appear at the hearing of the petition, either to oppose it or support it, must send notice of such intention to the petitioner, or to the petitioner’s solicitors, not later than 6 o’clock in the afternoon of the day previous to the hearing or not later than 1 o’clock in the afternoon of Saturday if the hearing is on the coming Monday. An advertisement of a petition for the winding up of a company by the court which does not contain such a note shall be deemed irregular.
Mr. C may apply to the Court for the appointment of a provisional liquidator after the presentation of the winding-up petition. The provisional liquidators will take the necessary steps to preserve the assets of the Company. A sum of $3,500 is required to be deposited with the Official Receiver’s Office. But sometimes additional sum is necessary if so required.
A possibility that the company might be able to make full repayment of its debts is not a sufficient ground on which to object to the petition. However, an application can be made to the Court for an adjournment of the winding-up proceedings so that appropriate arrangements can be made with the creditors. The Court has discretion as to whether the Company should be wound up, or there should be further negotiations between the company and its creditors before the granting of a winding-up order.
Suppose the debtor company applies to the Court for dismissal or a stay of (suspend) Mr. C's petition on the ground of cross-claim against Mr. C. What then would be the chance of success by the debtor company? The answer would depend on the fact of each case. Generally, that company must establish a genuine cross-claim with substance in it. The amount of cross-claim itself must exceed the amount of the debt claimed by Mr. C against that company. Where both requirements are met, the court would exercise its discretion to dismiss or stay the petition in the absence of special circumstances.
Mr. C has to supply proof of the debt owed to him by AZ Company by completing a Proof of Debt Form (Form 63A). He should submit the form to the provisional liquidator or liquidator together with any documentary evidence that he may have. A filing fee of $35 is required if the debt exceeds $250. Mr. C may attend or even summon a general meeting of creditors so that he can participate in the decisions concerning the distribution of the remaining property of AZ Company.
The shareholders' liabilities are limited to the value of shares owned by them (limited by shares). Therefore, there will be no liability further than the value of any shares in their names that they have not yet paid for at the time the company is wound up. Another case, which is not common in the commercial field, is that the liabilities of shareholders are limited to an amount in which they have agreed to contribute to the company's assets if the company is being wound-up (limited by guarantee).
On the appointment of a provisional liquidator or the making of the winding-up order, the powers of the directors of AZ Company will cease.
The directors are legally required to:-
The liquidator will apply to the Court for the release of the relevant duties once the followings have been accomplished:
The liquidator will send notices, together with a summary of the relevant receipts and payments in the liquidation, to the creditors and contributories of the company of the intention to apply to the Court for release from the duties as liquidator. At this point, any creditor or contributory has 21 days from the date of the notice to raise objection to the intended release of the liquidator.
You are recommended to seek assistance from a lawyer if you decided to institute winding-up procedures.
Generally, the full name, title (if any) and address of the petitioner; the name and the full address of the registered office of the company; the information concerning the capital of the company; and the objects of the company (i.e. the main aims or the functions of the company which are stated on the company’s memorandum of association) are required. The grounds and the facts to be relied on in support of the petition are also required.
Sample forms for winding-up petition are provided at the Appendix of the Companies (Winding-up) Rules.
If a court judgment has been obtained and there is no appeal against the judgment or no attempt by the company to set aside the judgment (to make it invalid), there is generally no dispute over the debt. A winding-up petition may be presented 21 days after a written demand is sent. However, a number of matters should be considered beforehand:
A shareholder or the company itself can also present a winding-up petition. The company may also be wound-up voluntarily without a Court’s winding-up order. For more details, please go to Section F: Voluntary Winding-up by the company itself.
Yes. In this kind of situation, the usual grounds for winding-up are that the affairs of the company are being, or have been, conducted in a manner unfairly prejudicial to the interests of part of the members/shareholders (Section 724 of the Companies Ordinance) and it is just and equitable (fair and reasonable) for the company to be wound up (Section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance).
Examples of this are:
The law in this area is rather complex and the assistance of lawyers is recommended.
Since a winding-up order will operate in favour of all creditors, you may leave the petition to the present petitioner without further participation before the winding-up order is made.
Alternatively, if the court hearing of the petition has not yet commenced, you may issue a notice in Form 10 to the present petitioner and appear at the hearing to support the petition. The advantage of appearing as a supporting creditor is that if the petitioner decides to withdraw or have the petition dismissed (because of having reached a compromise with the Company), you will be able to "substitute" as the petitioner and continue pursuing the petition yourself.
You may send a letter to that creditor disputing the debt and request him to withdraw the demand. Furthermore, you can apply to the Court to set aside the demand (i.e. to make it invalid) if a winding up petition is presented.
You can apply to the Court for an injunction restraining the creditor from presenting a petition. However, you must have substantial grounds, and be able to show that there is a genuine dispute against the claim before an injunction will be granted.
The answer depends on whether “ABC Trading Company” is a limited company or not. Usually a limited company will include the word “Limited” or “Ltd” as part of its name. However, in the course of conducting business, a limited company may use a “trade name”, i.e. a name other than its “real name”. Therefore, your best course of action is to do a company search at the Companies Registry and a business registration search at the Inland Revenue Department in order to find out the full registered identity of the company in question, or the name of the limited company that owns the “trade name” (i.e. ABC Trading Company).
If you have clarified that “ABC Trading Company” is a limited company, then you can institute winding-up proceedings against it (by specifying its “real name”, such as ABC Trading Company Limited, in the winding-up petition). If “ABC Trading Company” is not a limited company then it cannot be subject to winding-up procedures.
If “ABC Trading Company” is not a limited company and is owned by an individual person (or several partners), you should commence bankruptcy proceedings against that person(s). You can find out the details of a sole-proprietor or partners, by doing a business registration search at the Inland Revenue Department.
No. The Bankrupt can retain part of his/her income to meet the reasonable domestic needs of himself/herself and his/her family. The surplus shall be handed over to the Trustee. What amounts to reasonable domestic needs depends on circumstances of the each case. For example, while the need for a domestic helper may be reasonable for a single parent family, it may not be reasonable if the spouse of the bankruptcy is unemployed.
Generally speaking, the money received by the bankruptcy estate after the bankruptcy assets are sold will be applied in the following order:
Generally speaking, funds realized during the process of the wind up will be used in the following priority: -
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