Capital restructuring has become increasingly common due to
changing market conditions. Companies in Hong Kong can take
advantage of the New Company Ordinance by reviewing their capital
structure to grow their businesses.
In Hong Kong, a company limited by
shares must have share capital, which is represented by shares in
the company. Share capital paid by shareholders is maintained to
meet the company's liabilities and to protect creditors;
capital cannot be paid back unless prescribed procedures have been
Companies Ordinance (Cap 622) came into effect on 3 March 2014.
Since then, the court-free procedures for reducing share capital
and amalgamating wholly-owned companies within the same group have
been well- received by the market.
According to the
Companies Registry (CR), the number of cases handled for these two
court-free options in 2014 and 2015 are detailed below.
Court-free capital reduction
court-free procedure for the reduction of capital, which is based
on the solvency test, applies to all Hong Kong companies as well as
to those cases where capital is used to offset against accumulated
losses. In comparison, this option is a faster and cheaper to the
Members' voluntary liquidation
Members' voluntary liquidation
is an alternative option to going through the capital reduction
process. If the relevant Hong Kong company will ultimately not be
needed, disposing the company through members' voluntary
liquidation may allow a return of surplus assets to the
company's shareholders in a more tax efficient and cost
of the court-free amalgamation makes it easier for a group of
companies to restructure and streamline business. The
amalgamation can be in a vertical or a horizontal form subject to a
solvency test. There are other conditions to be satisfied before
this option can be used.
amalgamation has been approved and takes effect, each amalgamating
company will cease to exist as an entity separating from the
amalgamated company; the amalgamated company succeeds to all the
property, rights and privileges, as well as all liabilities and
obligations of each amalgamating company.
The New Companies Ordinance also
allows other forms of alteration to an existing capital structure
of a Hong Kong company, such as:
an increase in its share capital
capitalisation of profits and issue of bonus shares, with or
without allotment of new shares
conversion of all, or any of its shares, into a larger or
smaller number of shares
cancellation of shares which have not been taken, or agreed to
be taken by, any person, or have been forfeited.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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