Abandoning a Hong Kong Company: Penalties and Striking Off

At a glance

Penalties are as set out in the Companies Ordinance and the Inland Revenue Ordinance and most recently published.

How do the penalties build up?

Not in one hit — they stack year on year.

Every year on the return date, an annual return falls due. Filed on time it is HK$105; filed late it moves through four bands with time, up to HK$3,480.

And that is only the registration fee, not a penalty. Separately there is a fixed penalty of up to HK$50,000, with up to a further HK$1,000 a day for continued failure to file.

The tax side runs in parallel: if no return is filed, the IRD can raise an estimated assessment — its own estimate of what you earned, assessed accordingly. Disagreeing means objecting within one month, and the objection has to be accompanied by the completed return and the accounts.

Which means leaving it alone does not freeze the problem. It only lets it grow.

On the remedies, see what to do about a late annual return.

When does a summons arrive?

There is no fixed timetable, but the longer it runs the likelier it becomes.

Both the company and each of its directors can be prosecuted. The summons goes to the company’s registered address — and this is the crucial point: if the company is still on an old address, or still on the address of a company secretary whose service has been terminated, you may never receive it.

In law, sending a document to the registered address counts as service, whether or not you actually saw it. That is how people end up convicted without ever knowing about it.

One more thing few people know about the hearing itself: the court does not send you a payment notice. How much, and by when, is all in the magistrate’s decision — you have to note it yourself and pay at the court’s shroff before the deadline. If you cannot pay it all at once, you can ask the magistrate for time to pay or for instalments there and then, when sentence is passed — say nothing and it is assumed you can pay.

Is being struck off the end of the matter?

No — and this is the most expensive step of all.

The Registrar of Companies has the power to strike a company off the register where it has long failed to file and appears no longer to be in operation. The company is dissolved as a result.

That sounds like the matter finally going quiet, but here is the problem: at the moment of dissolution, all property still belonging to the company becomes bona vacantia and vests in the Government.

Including:

• The balance in the bank account
• Property and vehicles in the company’s name
• Uncollected receivables
• Security bonds and deposits

Banks also run periodic searches, and freeze the account as soon as a company shows as struck off. By the time you notice, the money is usually already beyond reach.

Recovering it means applying to restore the company to the register and then dealing with those assets — which costs far more in both time and money than doing deregistration properly in the first place.

Can it still be brought back?

Yes, subject to a time limit and conditions.

A local company can generally apply for restoration within 20 years of dissolution. There are two ways: an application to the Registrar of Companies for administrative restoration, or an application to the court.

The thresholds for administrative restoration include: the company was struck off by the Registrar and dissolved; the Government does not object to restoration (where property has vested in it); the applicant has filed the documents needed to bring the register up to date; and the costs the Government incurred in dealing with the relevant property during the dissolution have been paid.

Put another way: restoration still leaves everything that was owed beforehand to be made good. Nothing is written off because the company happened to be dissolved in the middle.

What does it mean for you personally?

This is the question a lot of owners really want to ask and do not.

A director with a conviction record may have to account for it when incorporating another company, acting as a director elsewhere, applying for a licence, or opening a bank account. And unpaid tax and penalties do not automatically vanish because the company was dissolved — where personal liability is involved, it can still be pursued.

“Limited liability” protects against the commercial risks of ordinary trading. It is not protection against failing to meet statutory obligations.

If you are done with it, close it properly

Deregistering properly costs around HK$690 in government fees, plus an agent’s fee — a few thousand dollars all in. Set against catching up on several years of audits and tax returns, clearing penalties and possibly appearing in court, it is a great deal cheaper.

And once it is done, the matter is genuinely finished — no more letters.

If the company has already been struck off by the Companies Registry the position is different — it can potentially be restored, but there is a time limit, and once it passes there is no going back. See your company has been struck off — can it still be brought back.

Company sitting there for a long time and not sure what to do now? Talk to us — we will work out what is owed and what has to be made good, then decide the next step together.

The penalties, time limits and restoration conditions described here are as set out in the Companies Ordinance and the Inland Revenue Ordinance and most recently published by the Companies Registry, and this does not constitute legal advice. Where prosecution has begun or personal liability is involved, advice from a solicitor is recommended.