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Let’s know about Company Liquidation in UAE

By Sakshi Srivastava - 25 Feb 2022 Last Updated: 25 Feb 2022
Let’s know about Company Liquidation in UAE

The UAE is a vibrant business region with numerous business hubs and free zones that encourage commercial activity. Companies and investors from all over the world come here to develop businesses and seek for new chances. New businesses are constantly being developed in a location that is so conducive to doing business. However, this does not imply that every company in the UAE will be successful.

A company's survival and success are determined by a variety of factors. Many firms fail as a result of their inability to keep up with these variables. A failing company can soon become a liability for its owner. When a business ceases to function, it cannot be basically ignored. There is a formal procedure for closing a company, just as there is for founding a firm. This operation is called as liquidation, and it is very essential in the UAE.

What is Liquidation?

Liquidation is the process of closing down a business. Simply explained, corporate liquidation is a solvency procedure in which a company's assets are assessed and auctioned off to pay off whatever obligations it may have. The larger a company, the more complicated the liquidation process becomes since more assets and liabilities must be considered. The liquidation procedure in the UAE can also be complicated because there are numerous authorities, each with its own set of laws for liquidation. It is critical to understand the rules and regulations that apply to your firm.

There are two types of liquidation: compulsory and voluntary. Mandatory liquidation (also known as creditor's liquidation) occurs when a corporation is dissolved forcibly in order to pay off its debts. A corporation is not driven into voluntary liquidation by a third party. It is a decision made by the corporation to pay off its debts.

Voluntary Liquidations 

A firm's shareholders may elect to liquidate a solvent corporation, or the directors of an insolvent company may choose to discontinue further trading and liquidate its assets in order to pay its creditors.

Compulsory Liquidations

 If a firm's debts are not paid on time, creditors may petition the courts to liquidate the company so that they can collect their money. In order to pay off outstanding debt, the courts may order a firm to liquidate and sell its assets.

What is the work of a liquidator?

A liquidator is a UAE-registered agency or firm, usually a chartered accounting or audit firm, who is tasked with selling the company's assets in order to earn funds to pay off any outstanding liabilities. A liquidator can be appointed by shareholders through a resolution or by the courts in the instance of compulsory liquidation. At the initial stage, once appointed, the liquidator will provide an official letter of acceptance. Once all of its obligations have been fulfilled, it will prepare a statement of affairs and the liquidator's report, both of which are required to complete the liquidation process.

The Liquidation Procedure in the UAE

Before you commence the liquidation process, you must first get your affairs in order. You must have the following required documentation.

  • A copy of your company's licence. If your business licence has expired, you must renew it before you can begin the procedure.
  • An MOA (Memorandum of Association) that includes a copy of all amendments made.
  • Attorney-in-fact (if there is any)
  • Copies of all shareholders' passports are required.
  • Copies of emirates' identification
  • Resolution of Shareholders
  • Application for Deregistration

Time Period of Notice of Liquidation

The government gives firms a time frame during which they can pay off any debts. The notice period has a time restriction of 45 days. It is important to have all necessary duties (related to your business and your staff) completed before beginning the procedure. Aside from obtaining all of the necessary paperwork, the following tasks must be done.

  • Pay off any outstanding utility bills.
  • Pay off any outstanding telecommunications bills.
  • Obtain a letter of closure from your bank.
  • Make a report on the liquidation audit.
  • Cancel any visas obtained under their present business licence.

Once these documents are completed, you can begin the process of closing the business. The liquidation process differs for mainland and free zone enterprises.

Liquidation Procedure for Mainland Companies

In order to proceed with company liquidation in Dubai, regardless of your company type, you must apply for a business license cancellation. This is significant because it informs the appropriate authorities that your firm will no longer be operational. Otherwise, when your company license expires, you may face fines and penalties.

Shareholding companies must also take care of any liabilities owed to their partners and creditors while also protecting their shares and interests.

The method of cancelling your licence is determined on the legal nature of your business. The process for sole proprietorships and enterprises is relatively simple. They can request cancellation by obtaining the necessary clearance forms from

  • Directorate of Residency and Foreign Affairs
  • Ministry of Human Resources and Emiratization
  • Their relevant electricity and water authority
  • Their leasing entity

If a corporation has shares, it must liquidate them, collect debts, and pay off creditors before it may seek for cancellation.

Appointing a Liquidator

Companies having the following legal structures must also appoint a liquidator

  • Private Joint Stock Company
  • General Partnership
  • Public Joint Stock Company
  • Limited Liability Company
  • Simple Limited Partnership

In the entire liquidation process, a liquidator makes decisions. They're in charge of following

Starting the winding-up process

 After receiving a shareholders' resolution from the company, the liquidator begins the process by issuing an acceptance letter.

Liquidation Notice Publication

 Once the procedure has begun, a liquidation notice is published in at least two local newspapers in English and Arabic. Newspaper selection might be handled by liquidators in Dubai.

Collection and Distribution of the Entity's Assets

 When necessary, the liquidator oversees the collection and distribution of the company's assets. They will also assist in the resolution of the company's outstanding liabilities.

Preparation of a Statement of Affairs

 In order to complete the liquidation process, a liquidator's report and a statement of affairs are prepared.

Levels of Liquidation

For mainland corporations, the liquidation process is divided into two stages.

Stage 1

  • Preparation of notarized MOM (meeting minutes) in which the decision to liquidate the company and the appointment of a liquidator is made (if needed).
  • Arrangement for a liquidator to submit an official letter confirming that they accept being appointed by the company.
  • Fill out all essential forms to file a cancellation request.
  • At this stage, the DED (Department of Economic Development) will issue the firm a certificate of liquidation.
  • As necessary, the company will now post its liquidation notice.
  • The liquidation notice period will commence once the notice is published. Debtors will have a 45-day grace period during which they can submit claims.

Stage 2

  •  After the 45-day period has expired, the liquidator will submit a declaration letter to the DED. The letter must declare that no more objections have been received during the grace period.
  • The corporation will now seek authorization from the appropriate government agencies in order to cancel its license.
  • The company's firm card will be revoked by the Ministry of Human Resources and Emiratisation.
  • All visas sponsored by the corporation must also be terminated.
  • Once all of the necessary documents have been gathered, they must be presented in order to obtain final cancellation approval.
  • All fees that must be paid must be determined by the DED.
  • After paying all fees, a certificate of deregistration can be obtained by the company.

For civil works enterprises on the mainland, the liquidation process differs. They must complete the following activities

  • Fill out the appropriate cancellation form.
  • Cancel its business card with the Ministry of Human Resources and Emiratization.
  • Cancel all visas issued on behalf of the company to partners and sponsored individuals.
  • Collect all necessary approvals from federal agencies.
  • Create a partnership cancellation contract that must be notarized by a notary public.
  • Submit all of the above-mentioned documents and request their cancellation.

Liquidation Procedure for Free Zone Companies

There are three types of closures for free zone companies

Summary Winding up

 This is appropriate when a corporation has no outstanding liabilities or is capable of paying off all liabilities within the next six months.

Creditor Winding up

 This is valid when a company approves a resolution for winding up, which is subsequently followed by a meeting of the firm's creditors.

Bankruptcy

Under the UAE's Commercial Transaction Law 18/1993, this form can be carried out by the court.

A business closure in a free zone entails alerting the local authorities as well. This is possible through the internet portal of each free zone. Once a company termination application is issued, the company director's duties, authorities, and responsibilities are terminated as well. Following the verification of this application, a notice will be made in a local newspaper. Following that, the company's final termination will begin, including with the issuance of termination letters.

If your company is located in the Jebel Ali Free Zone (JAFZA), you must notify the authorities three months before you commence the winding-up procedure. Each free zone has its own regulations for the company's dissolution.

The necessity to withdraw visas obtained on your company's behalf is standard in all free zones. Employers must also provide their employees with a 2-month notice period (with salary) as well as a gratuity payment before terminating their contracts. This is in conformity with UAE labour legislation. Employees can keep their visas as long as the company's trade license is valid.

After completing all of this, businesses must obtain applicable NOCs from utility providers and telecommunications services. They can proceed with the business closure once all of these stages have been completed.

Conclusion

The liquidation process can be time-consuming and costly because corporations must coordinate with a variety of external parties/authorities in order to complete everything on time. Any missing step or document will result in unnecessary delay and complication. Dhanguard provides liquidation services for all UAE entities – LLCs, free zone companies, and offshore firms – ranging from a full liquidation to aiding with a portion or portions of the process as requested by the client.

For more information regarding the Company Liquidation in Dubai contact to Dhanguard we will gladly assist you in every aspect. 

Dhanguard provides the business setup and company formation services in Dubai, UAE with the guidance of our professional team of consultants. Faster and hassle-free company setup in Mainland and Freezone in UAE.

Dhanguard provides the company formation services in Dubai, UAE with the guidance of our professional team of consultants. Faster and hassle-free offshore company formation services and company formation services in Mainland and Freezone in UAE.

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