Transfer of Business Ordinance Hong Kong: An Overview

Author: Stefan Schmierer, Managing Partner. Co-author: Sandra Niehr, intern.

This article provides an overview of the Transfer of Business (Protection of Creditors) Ordinance (Chapter 49) in Hong Kong, which was created to help manage the transfer of businesses. It was enacted on June 27, 1980. Its main goal is to protect creditors, regulate liability issues, and explain how these responsibilities can be managed.

Before this ordinance, the new owner could limit responsibility for the business' debts by only acquiring the assets. Also, acquisitions could be made without formally notifying creditors or the public, potentially leaving creditors with empty hands. Now, the ordinance makes sure the new owner is basically liable even if they only buy part of the business. It also requires the publication of a transfer notice to the public, adding transparency and limiting disputes and misunderstandings between the parties involved and creditors.

Applicability of the Transfer of Business Ordinance Hong Kong

Applicability: The Transfer of Business Ordinance applies when a business or part of a business in Hong Kong is sold or transferred to a new owner. "Transfer" is defined as the transfer or sale of a business, excluding:

• the sale of the stock-in-trade of a business in the ordinary course of its trade,

• the creation of a charge (a legal claim or lien on property),

• the transfer of land or any share or interest therein,

• or the transfer of a vessel (a ship or large boat) (or the transfer of any interest or share therein).

Furthermore, "business" refers to any trade or occupation (except a profession), whether or not it aims to make a profit.

Liability of the New Owner Under the Transfer of Business Ordinance Hong Kong

Liability of the new owner: The new owner is initially responsible for all debts and obligations, including taxes, at the time of the transfer. However, there are ways to limit this responsibility if certain conditions are met.

Conditions to Limit Responsibility Under the Transfer of Business Ordinance Hong Kong

Conditions to limit responsibility: If only part of a business is transferred (excluding goodwill), the new owner is generally liable for the debts and obligations of the previous owner. However, if the new owner can prove to the court that they bought the part of the business in good faith, for a fair price, and without knowing about the debts and obligations, they will not be liable for them. Also, the new owner will not be liable if a transfer notice is given 1-4 months before the transfer and is completed by the transfer date.

Requirements for Publishing a Transfer Notice Under the Transfer of Business Ordinance Hong Kong

Transfer Notice: As is typical in this context, a transfer notice must be made public. This notice should include details about the seller and the new owner, the nature of the business, the name or style under which it was operated during the last six months before the transfer, the business address, and the date of the transfer.

The notice must be signed by both the seller and the new owner and then publicly announced in the Gazette and in two Chinese-language newspapers and one English-language newspaper circulated in Hong Kong. As mentioned in the previous paragraph, the new owner's liability can be extinguished if the transfer notice is made 1-4 months before the transfer. If the notice is made less than one month before the transfer or after the transfer, the liability can be extinguished at the earliest one month after the last public announcement.

Rules of Responsibility Under the Transfer of Business Ordinance Hong Kong

The rules of responsibility: Both the seller and the new owner are responsible to third parties for any damages caused by false statements, missing documents, or unauthorized transfers. The seller must make sure all assets, contracts, and licenses are properly transferred to the new owner. The new owner needs to check all documents and follow legal requirements after the transfer. As mentioned earlier, if the new owner only buys part of the business (especially in asset deals), they can avoid liability if they can prove they did not know about any debts or obligations at the time of the transfer.

Consequences of Non Compliance With the Transfer of Business Ordinance Hong Kong

What happens if responsibilities are not followed: If the new owner is made liable for any amounts, they are entitled to compensation from the seller. This compensation can be claimed in civil proceedings or as a bankruptcy order. Any actions need to be started within one year upon the successful transfer, to be considered.

Best Practices for Acquirers Under the Transfer of Business Ordinance Hong Kong

Implications and Best Practices for Acquirers: The Transfer of Business Ordinance in Hong Kong regulates the sale and transfer of businesses and parts of businesses, as well as related liability issues.

Before the ordinance, there were no specific laws regulating the liability of the new owner when only part of a business was purchased. This could lead to situations where creditors were unable to claim their debts from the new owner.

The ordinance now ensures that the new owner is liable for all debts and obligations, even if they only acquire part of the business. To avoid or mitigate this liability, it is required to publish a transfer notice. It is advisable to publish it at least one month before the transfer date but no longer than 4 months.

The Transfer of Business (Protection of Creditors) Ordinance framework provides clarity and protection for creditors, ensuring transparency and a smoother transfer process.

How We Can Assist With Compliance Under the Transfer of Business Ordinance Hong Kong

Understanding and applying the transfer of business ordinance Hong Kong correctly is essential for both buyers and sellers involved in asset deals or business transfers. Ravenscroft and Schmierer advises companies on how to manage liabilities, publish compliant transfer notices, evaluate risks and ensure proper documentation throughout the transfer process.

Our team can help you:

• Assess potential liabilities when buying or selling a business.

• Draft and review transfer notices that comply with statutory requirements.

• Conduct due diligence on contracts, assets and creditor claims.

• Structure transactions to minimise exposure under the ordinance.

• Advise on dispute risks and mitigation strategies.

• Support both acquirers and sellers in negotiations and legal documentation.

If you are planning to acquire or transfer a business in Hong Kong, contact us today for practical and reliable guidance.

FAQ: Transfer of Business Ordinance Hong Kong

What is the purpose of the Transfer of Business Ordinance in Hong Kong?

The ordinance protects creditors by ensuring that a new owner remains liable for existing debts unless statutory conditions are met. It promotes transparency and prevents misuse of asset transfers.

When does the ordinance apply?

It applies whenever a business or part of a business in Hong Kong is sold or transferred, except for normal stock‑in‑trade sales, creation of charges, land transfers or vessel transfers.

Is the new owner always liable for the seller’s debts?

Generally, yes, but liability can be avoided if the new owner proves good faith, pays fair value, had no knowledge of existing debts or publishes a compliant transfer notice within the required timeframe.

What must be included in a transfer notice?

Details of the seller and new owner, the business name, address, nature of the business and the transfer date. The notice must be published in the Gazette, two Chinese newspapers and one English newspaper.

When should the transfer notice be published?

Ideally 1 to 4 months before the transfer date. If published later, liability may only be extinguished one month after the final publication.

What happens if false information is included in the notice?

Both the seller and the new owner may be jointly liable for damages caused by false statements or omissions. Civil action may follow.

Can the new owner recover losses from the seller?

Yes. If the new owner becomes liable for debts due to the transfer, they may claim compensation from the seller through civil proceedings or bankruptcy proceedings.

What should businesses do before acquiring a business?

Conduct thorough due diligence, review liabilities, verify documents and publish a transfer notice in compliance with statutory requirements.

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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For specific advice about your situation, please contact:

Stefan Schmierer 

Managing Partner

+852 2388 3899

sschmierer@rs-lawyers.com.hk