Liquidation

A Guide to Voluntary Liquidation in the UAE

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Business liquidation in UAE process overview

Let’s face it, running a business in the UAE is exciting, but sometimes even the most thrilling ventures need to close their curtains. Voluntary liquidation could be your ticket to a smooth goodbye if you’re contemplating an exit strategy.

What is Voluntary Liquidation?

Think of it as an organised way to shut down your company. Unlike a forced closure, you, the shareholder, are in control. You can decide when to pack up, sell your assets, and settle your dues.

Why Choose Voluntary Liquidation?

  • Avoid the Drama: Dodge the stress of a court-ordered closure and potential personal liability for directors.
  • Do it Right: Ensure a clean exit by following a legal framework that protects your interests.
  • Leave a Legacy: Maintain a positive business reputation compared to a forced shutdown.

The Process of Voluntary Liquidation in the UAE

The following are the key steps in a voluntary liquidation process for businesses in the UAE:

  1. Shareholder Resolution:

    Shareholders convene a formal meeting to discuss and vote on the company’s dissolution. A notarised resolution is drafted to document the decision and appoint a qualified liquidator.

  2. Liquidator Appointment:

    Selecting a competent liquidator is crucial. They will assume control of the company, overseeing the sale of assets, settlement of debts, and ensuring compliance with regulations.

  3. Notification & Clearances:

    The appointed liquidator notifies relevant authorities, such as the Department of Economic Development, of the liquidation. Additionally, clearances are obtained from entities like utility providers, landlords, and government departments.

  4. Asset Sale & Debt Settlement:

    The liquidator identifies and values the company’s assets (property, inventory, receivables). A strategic sale of these assets is conducted to generate maximum cash flow. The proceeds are then used to settle outstanding debts according to a specific order, prioritising secured creditors.

  5. Final Accounts & Distribution:

    The liquidator prepares final accounts, outlining the company’s financial position at the time of closure. After settling all debts and liabilities, any remaining funds are distributed to shareholders based on their ownership stake.

  6. Company Deregistration:

    Following the fulfilment of all obligations, the liquidator files for company deregistration. This results in the cancellation of the business license and the company’s removal from the commercial registry.

We Can Help with Voluntary Liquidation in the UAE

Voluntary liquidation can be a complex undertaking. Our team at Affiniax Partners possesses extensive experience in navigating this process efficiently and effectively. Contact us for a consultation and ensure a compliant and successful closure of your business. Please get in touch with Nihar Kothari at nihar@affiniax.com for more details.

LIQUIDATIONS IN THE UNITED ARAB EMIRATES (PART 1)

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How Liquidations Work in UAE

Introduction

Liquidation can be defined as the winding up of a Company by selling off its assets to convert them into cash to pay off the firms unsecured creditors. The secured creditors take control of the respective pledged assets upon obtaining foreclosure orders. Any remaining amount is distributed among the shareholders in proportion to their shareholdings. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they come due.

Types of Liquidations

There are two types of liquidations in the United Arab Emirates.

  • Voluntary Liquidation

In case of voluntary liquidation, the owners or shareholders of the firm decide that to close and wind up the Company as they do not have enough funds to pay off their creditors and other liabilities.

  • Mandatory Liquidation

In case of mandatory liquidation, the liquidation order is put forward by the courts. It is not in the will of an owner or shareholders to liquidate their company. This usually occurs when a company fails to pay creditors multiple times. Because of this, creditors can file a request for the liquidation of a company.

Here the assets of the Company are distributed to the creditors and contributors based on the priority of their claims.

Roles and Duties of a Liquidator

A liquidator must be appointed in order to liquidate a Company in the UAE.

Below are 7 points that describe the role of a Liquidator.

  • The liquidator appointed by a Company in its liquidation stage shall represent the Company in any litigation that may occur.
  • The assets of the Company are sold by the liquidator in order to settle the debts of the Company.
  • Certain debt is considered a priority, and these are settled before other debt. This mainly includes outstanding employees’ salaries.
  • Once all debt has been settled, the remaining funds are distributed among the shareholders or the owner.
  • In case the funds generated from the sale of the Company’s assets are insufficient to pay off the debts, the deficit will be adjusted against the share capital of the shareholders.
  • The Statement of Affairs and Liquidation Report has to be prepared by the liquidator after conducting the necessary procedures.
  • The liquidator would also be responsible to request for the removal of the Company from the Commercial Register.

Documents required for Liquidation of a Company in the UAE

  • Copy of the license
  • Memorandum of Association
  • Shareholder’s Resolution to Liquidate the Company
  • Power of Attorney
  • Passport copies of all shareholders, along with Emirates ID’s
  • Application for deregistration
  • Statement of Affairs and Liquidation Report
  • Letter from Labour and Immigration department that there are no visas.

To learn more about liquidation procedures in the United Arab Emirates, read Liquidations in the United Arab Emirates (Part 2)

For more information, Email us at mail@affiniax.com

LIQUIDATIONS IN THE UNITED ARAB EMIRATES (PART 2)

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Liquidation in UAE (PART 2)

In my previous article, titled, Liquidations in the United Arab Emirates (Part 1), we came across the roles, and duties of a Liquidator, the necessary documents required, and the different types of Liquidations in the UAE.

We now take a look at the Procedures for Liquidation.

Procedures for Liquidation

Mainland Company

In the case of a mainland Company the following steps and documents are required for its liquidation:

  • Shareholders resolution confirming the liquidation of the Company. This would usually be in the form of the minutes of the meeting which is held by the shareholders in which they decide on the liquidation of the Company and appointment of the liquidators for the same.
  • An acceptance letter from the liquidators accepting their appointment.
  • Application for cancellation of the Company from the Department of Economic Development (DED)
  • Receive a liquidation certificate from the Department of Economic Development (DED) once the above steps are completed.
  • Once the liquidation certificate is received from the DED, the Company has to publish a notice of liquidation in two local newspapers.
  • After the notice has been published, there is a notice period of 45 days for the debtors to submit their claims (if any).
  • Once the notice period of 45 days is over, the Company must submit the following documents:
    • A declaration stating that all parties have no objection relating to the liquidation of the Company
    • Approval would be required from other government agencies for the cancellation of the Company’s license.
  • The Company must then cancel its firm card with the Ministry of Human Resources and Emiratisation
  • Cancellation of the foreign partner’s visas which are sponsored by the Company.
  • The last step is to pay the DED fee, and the company will be successfully liquidated.

Free Zone Company

In the case of a free zone Company, the procedure is slightly different and involves the following steps:

  • Every free zone in the UAE has a portal. The Company intending to liquidate must notify the free zone by applying on the member portal.
  • Once they have notified the respective free zone, they need to submit their application for termination of the Company.
  • After submission of the application, they need to publish the notice in a local newspaper.
  • The free zone will file a final Company termination letter, and the Company will be liquidated.
  • A letter is to be obtained from the Labor and Immigration Department that there are no visas.

Bank Accounts, Employee Contracts, Utilities, and Other Services on Liquidation

In all cases, the Company will need to cancel the employees’ visas and their work permits. Dubai portal explains that this requires coordination with both Department of Naturalisation and Residency and the Ministry of Human Resources and Emiratisation.

As per the UAE’s Labor Law, employers are required to give their employees a two-month paid notice period before terminating their contracts. In many cases, employees can keep their residency visas until the company’s trade license runs out. Then, the company needs to cancel utilities and telecommunication services and close all its bank accounts. Collect a NOC from the utilities providing company and bank closure confirmation for processing the closure.

Company liquidation can be a complicated process. However, we can assist you in case you decide to liquidate. Our procedures for preparing the required documents and completing the process shall help you liquidate your Company smoothly.

To learn more about liquidation procedures in the United Arab Emirates, read Liquidations in the United Arab Emirates (Part 1)

For more information, Email us at mail@affiniax.com

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