De-registration

 

Introduction

De-registration

Comparison between de-registration and liquidation

 

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Introduction

 

A company can be dissolved in two ways :

(i) by an application to the Registrar for a deregistration or

(ii) by petition to the court for an order to commence a compulsory liquidation or by the commencement of a voluntary liquidation.

A voluntary liquidation can be divided into a creditor's voluntary liquidation or a member's voluntary liquidation, depending on whether the company is solvent or not.

 

Dissolution by Deregistration

 

S750 Application for Deregistration

 

(1)    A company, or a director or member of a company, may apply to the Registrar for deregistration of the company.

(2)    An application must not be made unless, at the time of the application—

(a)    all the members agree to the deregistration;

(b)    the company has not commenced operation or business, or has not been in operation or carried on business during the 3 months immediately before the application;

(c)    the company has no outstanding liabilities;

(d)    the company is not a party to any legal proceedings;

(e)    the company’s assets do not consist of any immovable property situate in Hong Kong; and

(f)    if the company is a holding company, none of its subsidiary’s assets consist of any immovable property situate in Hong Kong.

(3)    An application—

(a)    must be in the specified form;

(b)    must be accompanied by the prescribed fee; and

(c)    must be accompanied by a letter of no objection which is issued by the Commission of the Inland Revenue Dept.

(4)    If the applicant is a company, it must nominate in the application a natural person to be given notice of the deregistration.

(5)    The applicant must give the Registrar any further information that the Registrar may request in connection with an application.

(6)    A person who, in connection with an application, knowingly or recklessly gives any information to the Registrar that is false or misleading in a material particular commits an offence and is liable—

(a)    on conviction on indictment to a fine of $300000 and to imprisonment for 2 years; or

(b)    on summary conviction to a fine at level 6 and to imprisonment for 6 months.

 

Companies to Which Deregistration does not Apply

 

The company for purposes under section 750 excludes (a) public company; and (b) a company specified below:

(a)    a bank, as defined under the Banking Ordinance (Cap 155);

(b)    an insurance company, as defined under the Insurance Companies Ordinance (Cap 41);

(c)    a corporation licensed under Part V of the Securities and Futures Ordinance (Cap 571) to carry on a business in any regulated activity as defined by section 1 of Part 1 of Schedule 1 to that Ordinance;

(d)    an associated entity, within the meaning of Part VI of the Securities and Futures Ordinance (Cap 571), of a corporation mentioned in paragraph (c);

(e)    an approved trustee as defined by section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap 485);

(f)    a company registered as a trust company under Part VIII of the Trustee Ordinance (Cap 29);

(g)    a company having a subsidiary that falls within paragraph (a), (b), (c), (d), (e) or (f); or

(h)    a company that fell within paragraph (a), (b), (c), (d), (e), (f) or (g) at any time during the 5 years immediately before the application under section 750 is made.

 

Liabilities in Connection with the Dissolved Company

 

Section 756 provides that even though a company is dissolved under this Part, the liability (if any) of every director, manager and member of the company continues and may be enforced as if the company had not been dissolved.

 

Books and Paper of the Dissolved Company

 

Section 758 provides that if a company is dissolved by way of deregistration, every person who was a director of the company immediately before the dissolution must ensure that the company’s books and papers are kept for at least 6 years after the date of the dissolution. A person who contravenes subsection (1) commits an offence and is liable to a fine at level 3 (HK$10,000).

 

Restoration by Order of Court

 

Section 765(2) and section 766(1)(b) provide that where a company has been deregistered, and is dissolved, under section 291AA of the predecessor Ordinance, an application to the Court for the restoration of the company to the Companies Register may be made by a person who feels aggrieved by the deregistration, within 20 years of the deregistration.

 

Section 766(2) provides that an application under section 765 may be made at any time if the purpose of the application is to enable a person to bring proceedings against the company for damages for personal injury.

 

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Comparison between de-registration and liquidation

 

There are advantages and disadvantages for choosing de-registration as a means to dissolving a company. The obvious advantage for de-registration is that it costs much less than that for liquidation. But there is disadvantage for using deregistration, as set out below: 

 

It is an untrue belief that de-registration can put an end to the business of the Company including its financial obligations towards creditors. In fact, it is not the intention of the law. As per section 756, the legal obligations for directors and members imposed under the Companies Ordinance, cannot be extinguished by way of the de-registration procedure.

 

To extinguish the financial obligations, one should dissolve the company by means of liquidation. De-registration and liquidations are different legal procedures, and each has different legal consequences in respect of the financial obligations for the shareholders and the non-financial obligaitons for the directors, including that under the Companies Ordinance (Cap 622) and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).

 

The difference between deregistration and liquidation can best be explained by using an analogy here: there are two ways of handling the human body after a person's death. Deregistraiton is like a burial and liquidation is like a cremation. One can re-examine the corpse after the burial, but one cannot re-examine the corpse after the cremation as it has been reduced into ashes. That is why many property developers, after the completing the sale of flats, will liquidate the company which was set up for the development project. They do this to protect themselves against any contract or tort claims in future.

 

In case that the directors or members make a decision on de-registration, then the directors must clear the tax liabilities by applying to the Inland Revenue Department for a no-objection letter. In case that the members decide to wind up the Company voluntarily, it is the liquidator who should clear the tax liabilities.