How to Liquidate Company in the UAE?
By Alia Noor, FCMA, CIMA, MBA, Oxford fintech programme, GCC VAT Comp Dip,COSO Framework.
Associate Partner Ahmad Alagbari Chartered Accountants, UAE
The legal procedure by which the corporate life of a company is brought to an end is known as liquidation, which may be defined as “The termination of legal existence of company by closing its business”. On liquidation, a company’s business licence is revoked, its name is removed from the Trade Registry and the entity is considered to have ceased to exist.
Ignoring the company liquidation rules has some significant penalties for Company owners and management, so it is important to properly end the company operations.
Liquidation is a formal insolvency procedure in which a company is brought to an end (also often termed ‘winding up’ or ‘closing’ a company); all of its assets are liquidated, and the proceeds from the sale of assets are used to settle debts, pay expenses and transfer any remaining balance to shareholders of the company.
Type of Liquidation
Shareholders of a company may elect to liquidate a solvent company, or the directors of an insolvent company may choose to cease further trading and liquidate its assets in order to pay its creditors.
Voluntary liquidation commonly results from continuous losses, a bank call on a loan or changes in the business environment causing the business to be impracticable.
If a company’s debts are not paid on time, creditors may request the courts to liquidate the company in order for them to collect their dues. The courts may decide to force a company to liquidate and sell its assets in order to pay outstanding debt.
The most common ground of Compulsory liquidation /winding up is when
A company cannot pay its debts or no longer has liquid funds required to maintain daily operations.
or The company commits a serious offense against established laws and regulations.
The court may order for winding up on any other grounds as prescribed by the law.
Impact of Compulsory liquidation
Compulsory liquidation for creditors: An unsecured creditor may receive all the outstanding debts at the end of liquidation process of the company on providing the liquidator with details of the claim (proof of debts)
Compulsory liquidation of employees: All workers of a company are automatically dismissed if a winding-up order is created. A former employee, may be entitled to a gratuity benefit as per UAE employment law.
Compulsory liquidation for directors: When a company goes into compulsory liquidation, the powers of its directors cease and they are automatically dismissed from office. As a former director of a company that is being wound up, you may be required to assist the liquidator and to provide a statement of the company’s assets and liabilities.
Role of a Liquidator
A liquidator is the officer appointed when a company goes into liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting it into dissolution. liquidator’s function is to ensure that the company’s assets are realised and distributed to the creditors and, if there is any surplus, to distribute it to the contributories.
Eight steps to Liquidate company in the UAE
The liquidation process will vary depending on the following three criteria:
- The type of ownership
- The type of liquidation
- The jurisdiction of registration, whether mainland Emirates or free trade zone.
In general, however, the formal process of liquidation in Dubai, Abu Dhabi and the rest of the UAE is as follows:
Minutes of a meeting of the board of directors declaring to liquidate the company and appointment of regulated liquidator. This document must be attested by Notary Public.
Official letter from liquidator
Obtain a confirmation letter from the registered liquidator stating to accept the responsibility to liquidate the company.
Application for liquidation:
Submission of the shareholders’ resolution, along with mandatory documents and required fees, to the relevant licensing authority, including:
- Copy of the company’s Trade Licence
- Copy of the company’s Memorandum of Association
- Powers of Attorney (if any)
- Copies of passport / Emirates ID for all partners, owners and shareholders
- Liquidation application form.
Publication of the Liquidation Notice
Once a provisional liquidation certificate is issued, the company can proceed to publish a notice of liquidation in a public newspaper, in English as well as Arabic.
45 days grace period will be given from relevant authority to wait for the creditors or clients if they have any financial claims on the company.
Final Liquidator’s report
The liquidator will submit final company audit report and a letter stating that there is no claim from the third party/Client/Creditors during the 45 days ad period
Clearance Certificates In case of Free zones obtain Clearance certificates from Free zone authority (FZE/FZCo), business unite & CLD Government section.
Bank account closure letter
VAT de-registration and VAT clearance letter from FTA
Final Liquidation Certificate
After submitting all the documents, relevant Authority will issue a final company liquidation Certificate.
- “𝐇𝐎𝐖 𝐓𝐎 𝐓𝐀𝐌𝐄 𝐘𝐎𝐔𝐑 𝐓𝐀𝐗 𝐃𝐑𝐀𝐆𝐎𝐍” - January 24, 2024
- Generative AI: A powerful tool for CEOs - January 19, 2024
- The Next Wave of Finance Digital Transformation: Unlocking Potential in 2024 - December 7, 2023