The process of corporate liquidation involves ending the company’s operations and distributing its assets to the shareholders and creditors. The liquidation process happens when a company goes bankrupt, meaning it can not complete its commitments. The company sells its belongings, such as property, inventory and other equipment, to pay for its debts.
Liquidation also means selling defective equipment at a low price and distributing it among the shareholders. This process may be the last option for some companies, but it helps business owners fulfil their financial duties and objectives. If you want to wind up your business, getting help from an expert who can guide you through the procedure is better.
Corporate Liquidation in UAE
The liquidation process in the UAE can be complex as many authorities have their own rules and regulations. Additionally, if you have a big company, the liquidation process becomes complex as there will be more assets that the company needs to take care of. A company needs to remember the rules and regulations of the relevant authorities.
Several documents are required for the liquidation process in UAE.
- Photocopy of business license
- A Memorandum of Association
- Power of attorney
- Photocopies of passports of all shareholders
- Photocopies of Emirates ID
- Shareholder consent resolution
- Unregistering application form
Compulsory & Voluntary Company Liquidation
There are two types of corporate liquidation,
- Compulsory liquidation
- Voluntary liquidation
Compulsory Liquidation
Compulsory liquidation is implemented when a business is liquidated by force to pay off its creditors. This process is usually started by creditors still looking to get their investment from a company. They can appeal to the court to begin the process of liquidation.
The court will then appoint a liquidator if the case is approved and the liquidation process is started. The liquidator will take control of the company’s activities and take necessary steps to return the investments of creditors and shareholders.
If the liquidated company can not pay all its financial debts, the total assets and properties might not be enough to pay off all the creditors. In this situation, the creditors will only receive some of the unpaid debt, and the shareholders will receive nothing.
Voluntary Liquidation
Voluntary liquidation is the decision made by the company if they can not pay their debts to the lenders and creditors. A company can also choose voluntary liquidation if they want to Start a New Business, retire or wish to resolve conflicts with their business partners.
Voluntary liquidation is also a proactive step a firm takes to pay their debts to the creditors and divide up remaining company assets to the shareholders rather than waiting for creditors to go to court and file a liquidation application.
Notice Period for Liquidation
Before starting the corporate liquidation in Dubai, the companies are given a notice period by the government. This period is given to the companies to oblige with any debts they must pay. This notice period is one and a half months long. Companies must handle all the tasks related to the company and its employees. These tasks may involve the following,
- Paying the company’s utility bills
- Paying telecommunication bills
- Acquiring corporate bank account closing letter
- Cancellation of any visas obtained under the business
- Write up a liquidation auditor’s report
After completing the task mentioned above and gathering the required documents, you can start closing your business.
Liquidation Process in UAE
The business liquidation is different for free zones and mainland companies. Let us look at both separately.
Liquidation Process in Free Zone
There are three types of dissolution for free zone companies, which are,
Bankruptcy
This dissolution process is implemented by the court of law, according to the commercial rules of the UAE.
Summary Wrapping up
The summary liquidation process is done when a business has no unpaid debts and can pay its remaining debts or liabilities within the next few months.
Lender wrapping up
It is done when a business formally decides to wrap up its business and does a meeting with its lenders and creditors. Free zone companies must inform the local authorities about their company liquidation in the UAE through online portals.
Upon receiving the approval letter, all the responsibilities and authority of the company’s director are terminated. This termination process is then announced through local newspapers.
The visas acquired through the company are also terminated in all of the free zones. Employers must also inform their workers about contract termination two months in advance, along with their salaries. For businesses established in JAFZA, it is necessary to notify the authorities 2 months before the liquidation process starts. These requirements can be different for every free zone in the UAE.
Additionally, companies are required to submit NOC from utility suppliers and telecom authorities. The company can start the liquidation process when all of these steps are completed.
Liquidation Process in Mainland
Mainland Companies must apply for the cancellation of their Trade License before starting the company’s liquidation in the UAE. The licence cancellation will inform the authorities that your business is shutting down. If a company fails to notify the authorities, it may face penalties when its trade licence expires.
Cancelling Trade License
The cancellation process depends on the legal type of a company in the UAE mainland. This process is easy for a sole entrepreneur and involves getting the cancellation form from the following authorities,
- Ministry of Human Resources
- Foreign Affairs and Residency Authority
- Electricity and Water Authorities
- Renting authority
A company that involves shares must liquidate its shares, collect their debts, and pay their debts before starting the liquidation process.
Assigning Liquidator
The following companies are required to assign a liquidator for corporate liquidation in Dubai.
- Limited partnership company
- Limited liability company
- General partnership company
- Private joint stock company
- Public joint stock company
The role of a liquidator is to make all necessary decisions during the liquidation process, which involves the following,
Beginning the Wrapping Up
After receiving written consent resolution from the shareholders, the liquidator starts the liquidation process and issues a letter of approval.
Publishing Liquidation Notice
The next step is publishing the liquidation notice in two newspapers in the UAE in English and Arabic. The liquidator also selects the newspapers.
Assembling and Allocation of Assets
The liquidator also deals with the assembling and allocating of the company’s assets. They also help if the company has any liabilities.
Preparing Report
The last step is compiling a report about the company’s assets and debts.
Levels of Corporate Liquidation in Dubai Mainland
There are two levels of company liquidation in UAE, which are,
Level One
During this level, the liquidation process involves the following,
- Preparing meeting minutes for when the liquidation decision is taken, and a liquidator is appointed.
- Official agreement letter from liquidator
- Cancellation application form with completed forms
- Getting a certificate of liquidation from the Department of Economic Development
- Publication of official notice of liquidation in newspapers
- After the official notice, the company’s liquidation will start, and during the next one and a half months, the creditors can claim their debt from the company.
Level Two
- After one and a half months, the liquidator will submit a declaration letter to the Department of Economic Development.
- The next step involves getting approval from authorities to cancel the company’s trade licence.
- The relevant authority will cancel the business card of the firm
- The company’s sponsored visas will be cancelled
- The company will gather all required documents and apply for the final liquidation of the company.
- The authorities will check the submission of fees.
- The final step will be receiving the deregistration card from the authorities.
Liquidation for Civil Companies
For civil companies, the liquidation process involves the following,
- Filling out the cancellation form
- Cancellation of the company’s business card from the relevant authority
- Cancelling business visa sponsored by the company
- Getting required approvals from authorities
- Compiling draft of cancellation of partnership
- Submitting the previously mentioned documents for the cancellation process
Process of Freezing a Business Licence
The option of freezing a business licence is available for the business partners who want to continue the business that their business partners are dissolving. They can freeze the permit for up to three years by paying the required fee to the authorities. The necessary steps involve,
- A letter issued by the company to request the temporary freezing of the business license
- A letter issued by the relevant authorities affirming there are no sponsors on the business license
- A Detailed report provided by the inspection team of the economic development department
The Ending Notes
When corporate liquidation starts, it usually means the business can not meet its financial liabilities. Therefore, it decides to close down and sell off its assets to pay off claimants and shareholders. The company may not get the original price for their assets, but the court will determine an estimated value to pay the creditors.
Reach out to Al-riyady if you have any queries related to company liquidation. Our experienced team will help you with the whole liquidation process without any trouble. You can avail yourself of our other services, such as Auditing, Accounting, Tax Consultancy, and more.
