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The purpose behind a Members’ Voluntary Liquidation (MVL) is to bring the life of a company to an end. This may be for a number of reasons but frequently during a group restructuring or where a major company is reviewing its operations and finds that it has certain corporate entities which it no longer needs.

Bankruptcy is a process to realise an insolvent individual’s assets and distribute the proceeds amongst his creditors. It starts when the Court makes a bankruptcy order against an individual, the debtor, who is unable to pay his debts as and when they become due.

The compulsory liquidation procedure in Hong Kong starts with the presentation to the Court of a winding-up petition. It may be that the petitioner has obtained a judgment against a company or there may have occured a statutory demand that has not been complied with.

Creditors’ Voluntary Liquidation (CVL) usually commences when the directors of the company realise that the company is insolvent and is unable to trade out of its financial difficulties. At this point, the directors convene meetings of shareholders and creditors and usually appoint an Insolvency Practitioner (IP).

A compulsory liquidation occurs when a company is wound up by an order of the court, most commonly because the company is unable to pay its debts, or it is proved to the court that the company’s liabilities are greater than its assets.

A Committee of Inspection (CoI) is made up of creditors, and sometimes shareholders, who are appointed at a meeting of creditors to assist the liquidator in the performance of his duties in accordance with the terms of the Companies Winding Up and Miscellaneous Provisions Ordinance.

The Scheme of Arrangement process can be somewhat cumbersome and expensive. However, in the absence of a formal corporate rescue procedure, in practical terms it is the only tool currently available to facilitate the rescue and restructuring of distressed companies in Hong Kong.