What is a members voluntary liquidation in Hong Kong

What Is a Members Voluntary Liquidation

A members' voluntary liquidation (MVL) formally winds up a solvent Hong Kong company. The directors declare the company solvent and appoint a liquidator to realise assets, settle liabilities, and distribute any surplus to the members. This process is for companies that have ceased trading and can pay all their debts, giving shareholders a proper closure.

An MVL is not a creditors' voluntary liquidation, which applies to insolvent companies. It is also not deregistration. Deregistration is a cheaper, simpler route, but only for a company that never started business or has ceased it completely, has no liabilities, and has all members' agreement. A company with assets or ongoing obligations cannot be deregistered.

Members Voluntary Liquidation Hong Kong

Hong Kong's Companies Ordinance (Cap. 622) governs a members' voluntary liquidation. The process starts with a members' special resolution to wind up the company. Before that, directors must make a declaration of solvency. Members then appoint the liquidator at a general meeting. The liquidator takes control, realises assets, pays creditors, and distributes any remaining surplus to shareholders according to their rights.

The Companies Registry requires notification of the resolution and the liquidator's appointment. The liquidator files a return of the final meeting with the Registrar. The company dissolves three months after that return is registered.

Solvent Company Liquidation

A solvent company can only use an MVL. Solvency means the company can pay its debts in full within 12 months of the winding up starting. Directors must be satisfied of this before making the declaration of solvency. If the liquidator later finds the company cannot pay its debts, the liquidation converts to a creditors' voluntary liquidation, and creditors take control.

The solvent versus insolvent distinction is fundamental. In a solvent liquidation, members appoint the liquidator and creditors have no role unless insolvency arises. In an insolvent liquidation, creditors appoint the liquidator and control the proceedings.

Declaration of Solvency Hong Kong

The declaration of solvency is a statutory directors' statement. It must affirm that a full inquiry into the company's affairs has been made and that the company can pay its debts in full within 12 months of the winding up commencing.

Make the declaration within the five weeks before the winding-up resolution, or on that day before the resolution passes. Deliver it to the Companies Registry for registration. A director who makes this declaration without reasonable grounds commits an offence.

A statement of the company's assets and liabilities, dated as close as practicable to the declaration, must accompany it. This statement demonstrates the company's financial position and supports the directors' solvency opinion.

Liquidator Appointment Process

Members appoint the liquidator at a general meeting. The appointment is effective from the winding-up resolution date. The liquidator must be a natural person who is a practising certified public accountant registered with the HKICPA, or a body corporate that is a registered practice unit.

Once appointed, the liquidator must: - Take custody of the company's assets, books, and records - Realise the assets and convert them to cash - Settle all company liabilities in full - Distribute any surplus to members according to their rights - Prepare a final winding-up account and present it at a final members' meeting - File a return of the final meeting with the Companies Registry on Form NDR1

The liquidator must also notify the Inland Revenue Department of the winding up and file the final profits tax return and audited financial statements. Before the company can be dissolved, the liquidator must apply for a notice of no objection from the Commissioner of Inland Revenue.

The company dissolves three months after the final return is registered. The liquidator must also ensure the Business Registration Certificate is cancelled with the Inland Revenue Department.