Company Liquidation is a critical process for businesses intending to cease their operations in the UAE. The process requires compliance with regulations and the submission of a detailed liquidation report UAE to the DDA (Dubai Development Authority), the primary regulatory body that oversees the liquidation process and ensures that it is carried out fairly and orderly.
Liquidation refers to the process where a company shuts down its operations and distributes its assets to creditors and shareholders. Businesses are required to follow the liquidation procedures properly in order to avoid any legal or financial complexities, such as penalties, fines, or other legal actions. Furthermore, it may also damage the reputation of the company as well as its associated allies.
In this blog, we will take you through the step-by-step procedure of liquidating a company, including the legal requirements and relevant costs.
What is Company Liquidation?
Liquidation is a legal process where a company closes down its business, cancels its registration and licenses, settles outstanding liabilities with creditors, and distributes remaining assets among shareholders.
Businesses opt for liquidation for various reasons, such as –
- Financial Challenges: Inability to continue operations due to debts or declining profits.
- Strategic Decisions: Focus on other profitable ventures or markets.
- Completion of Purpose: Closure of temporary projects or businesses established for specific goals.
- Market Conditions: Unfavorable regulatory changes, reduced demand, or extreme competition.
UAE Company Liquidation: Types
Company liquidation is of two types –
Voluntary Liquidation:
- When a solvent company decides to close
- Initiated by shareholders or directors
- Chosen for strategic or operational reasons
Compulsory Liquidation:
- Ordered by court due to insolvency or legal violations
- When the company fails to pay its debts or comply with regulations
Documents required for company liquidation in the UAE
The business owner needs to arrange the following documents to initiate the DDA liquidation:-
Board Resolution:
- Document confirming the company’s decision for liquidation
- Signed resolution by all directors stating the company’s liquidation and the appointment of a liquidator
Newspaper advertisement:
- An advertisement informing the company’s decision for liquidation to the public
- An advertisement informing creditors and shareholders about the same
Liquidation report UAE:
- The details about the company’s assets, liabilities, and financial position
- A liquidator report detailing the financial condition of the company
Undertaking letter by the liquidator:
- A confirmation from the liquidator whether they accept the position or not
- A letter duly signed by the liquidator ensuring the fulfillment of their duties as per the UAE laws and regulations
Clearance certificates:
- Document confirming that the company complies with all regulatory needs
- Clearance certificates such as lease clearance, customs clearance, tax clearance, labor clearance, and environmental clearance, issued from the relevant departments
Audited financial statements:
- A financial picture of the company
- Financial statements audited by a certified auditor
MOA and AOA:
- Verified constitutional documents of the company
- Certified original copies or photocopies of the MOA (Memorandum of Association) and AOA (Articles of Association)
Power of Attorney:
- A document authorizing the liquidator
- Attested by the relevant authorities
It is important to note that all documents are translated into Arabic or English and validated by relevant authorities. Moreover, they must be approved and registered with the DDA liquidator.
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Business Liquidation Process in the UAE: Steps Involved
The process typically involves several key steps that need to be followed diligently:-
Board Resolution and Shareholder Approval – The process begins with passing a board resolution recommending liquidation and obtaining approval from the shareholders through a general assembly meeting. The resolution must be documented, specifying the reason for winding up the company, the details of the appointed liquidator, and the distribution of assets among shareholders.
Appointment of a Liquidator – The next step is to appoint a liquidator who will oversee the liquidation process. However, make sure the liquidator, be it an individual or a specialized company, is registered with the relevant authorities in the UAE. Their primary role is to safeguard the interests of all shareholders and ensure a fair distribution of assets. In the end, they must prepare a final report, a liquidation report UAE, along with a statement of affairs for the company.
Publication Requirements – Upon its closure, the company must immediately pay all its debts and the liquidator shall notify various government authorities, such as the Department of Economic Development (DED) and other relevant authorities, about the decision for liquidation. They must also send registered letters to all the creditors asking for the submission of their claims. Additionally, the announcement of liquidation shall also be published in local newspapers.
Freezing Assets and Liabilities – Once the decision is made, the assets and liabilities of the company are frozen to prevent further transactions and ensure that the assets are maintained for distribution among the creditors and shareholders.
Preparation of Financial Statements – The liquidator then exhaustively audits the financial records of the company, prepares financial statements, and evaluates the value of assets and liabilities. These statements help the company in determining its financial position and distributing assets equally.
Settling Debts and Liabilities – During liquidation, the liquidator settles the debts and liabilities of the company. Once the creditors submit their claims, the liquidator reviews them and verifies their validity. If approved, the liquidator settles the debts using the available company assets.
Disposing of Assets and Distributing Proceeds – After settling all the debts and liabilities, the liquidator proceeds to sell the remaining assets of the company. The collected proceeds are then distributed among the creditors and shareholders based on their respective claims.
Visa cancellation – The next step is to cancel all visas and work permits including employee visas, partner visas, and dependent visas through the Ministry of Human Resources and Emiratisation (MOHRE) and the General Directorate of Residency and Foreigners Affairs (GDRFA).
Termination of Licenses and Registrations – Furthermore, all business licenses, permits, and registrations with the relevant authorities must be terminated, including the deregistration from the commercial register, closing bank accounts, etc. To cancel the license, the business must obtain no objection certificates (NOCs) from various government entities, such as the Federal Tax Authority (FTA), the Dubai Electricity and Water Authority (DEWA), the Dubai Municipality, the leasing entity, and the bank.
Employee and Creditor Rights – It is important to prioritize the rights of employees and creditors during the liquidation process, such as gratuity, outstanding wages, and compensation for any termination or laying-off. In addition, it must be ensured that these rights are fulfilled in accordance with the UAE labor laws.
The creditors must submit their claims within a specified timeframe and receive their share of assets based on their claims. Nevertheless, the liquidator must ensure that the claims are assessed fairly and the assets are distributed accordingly.
Conclusion
The process of Company liquidation and preparing a liquidation report Dubai is not simple. The business needs to have a clear understanding of the detailed steps, essential documents, payment methods, and clearance requirements involved in the process.
