What happens to the assets of a HK company limited by guarantee?

A Hong Kong company limited by guarantee (CLG) is a type of nonprofit organization that is commonly used for charitable, cultural, or educational purposes. Unlike a company limited by shares, a HK company limited by guarantee does not have shareholders and cannot distribute dividends to its members. Instead, the members of a HK company limited by guarantee agree to contribute a fixed amount of money (known as a guarantee) in the event that the company limited by guarantee is wound up.

When a HK company limited by guarantee is wound up, its assets will be distributed in accordance with its constitutional documents and the Companies Ordinance (Cap. 622) of Hong Kong. Typically, the first step in the winding-up process is to appoint a liquidator, who will be responsible for realizing the assets of the HK company limited by guarantee and distributing them to its creditors and members.

The order of priority for distribution of the company limited by guarantee’s assets is as follows:

1. Payment of the liquidation expenses and debts owed to secured creditors (such as banks or other lenders) who hold a charge or a mortgage over the guarantee’s assets.
2. Payment of any outstanding employee salaries and contributions to mandatory provident fund (MPF) schemes.
3. Payment of any debts owed to unsecured creditors (such as suppliers or service providers).
4. Repayment of the members’ guarantees, up to the fixed amount agreed upon in the constitutional documents.

If there are any assets remaining after all of the above payments have been made, they will be distributed to a charitable or other nonprofit organization with similar aims and objectives to the HK company limited by guarantee. The choice of the recipient organization will depend on the terms of the HK company limited by guarantee ‘s constitutional documents and the liquidator’s discretion.

It is worth noting that the members of a HK company limited by guarantee have no right to any of the company limited by guarantee ‘s assets during its lifetime or upon its winding up, except for the fixed amount of their guarantee. This means that any surplus assets will be used for charitable or other nonprofit purposes, rather than being distributed to the members.