Company Liquidation – Step by Step Guide
The UAE is a thriving business region with loads of business hubs and free zones that promote business activities. Companies and investors from all over the world flock here to establish companies and chase opportunities. In a place that is so favorable for business, new companies are always being formed. But this doesn’t mean that every company in the UAE becomes successful.
The survival and success of a business depend on a number of factors. Many businesses are unable to keep up with these factors, and as a result, they end up failing. A failing business can quickly turn into a liability for its owner. You can’t simply abandon a business when it stops performing. Just like with forming a company, there is a formal procedure for closing a company. This procedure is known as liquidation, and in the UAE, it’s pretty important.
What is Liquidation
Liquidation means winding up a business. Simply put, company liquidation is a solvency process in which a company’s assets are valued and sold off in order to clear any debts that it may have. The larger a business is, the more complex the liquidation process becomes since more assets and liabilities need to be taken into account. The liquidation process in the UAE can also be tricky because there are loads of authorities with their own rules for liquidation. Knowing the rules and regulations that apply to your company is important.
There are two kinds of liquidation i.e. mandatory and voluntary. Mandatory liquidation (also known as creditor’s liquidation) is carried out when a company is forcibly dissolved in order to pay off its debts. Voluntary liquidation isn’t forced upon a company by a third party. It is a decision taken by the company in order to clear its debts.
Liquidation Process in UAE
Before you initiate the liquidation process, you must first get things into order. You need to have the following documents prepared:
- Copy of your business license. If your business license has expired, you will have to get it renewed before you can begin the process
- An MOA (Memorandum of Association) with a copy of any changes that have been made
- Power of Attorney (if there is any)
- Copies of all shareholder’s passports
- Copies of emirates ID
- Shareholders’ resolution
- Deregistration application form
Liquidation Notice Period
The government grants businesses a notice period in which they can cater to any debts. The notice period has a limited duration of 45 days. Before you begin the process, it is best to have all essential tasks (related to your business and your employees) taken care of. Apart from arranging all the required documents, the below tasks must also be completed:
- Pay off all pending utility bills
- Pay off all pending telecommunication bills
- Obtain bank account closure letter
- Prepare a liquidation audit report
- Cancel any visas that have been obtained under their current business license
Once these documents are ready, you can start the process of closing the company. The liquidation process for mainland companies and free zone companies varies.
Liquidation Process for Mainland Companies
For company liquidation in Dubai, regardless of your company type, you need to apply for a business license cancellation in order to proceed with the closure of your business. This is important as it notifies the relevant authorities that your business is no longer going to be operative. Otherwise, you may end up having to deal with fines and penalties when your business license expires.
Shareholding companies must also take care of all liabilities towards their partners and creditors while also protecting their shares and interests.
Business License Cancellation
The license cancellation process depends on the legal nature of your business. Sole proprietorships and establishments have a relatively easy process. They can apply for cancellation by getting the relevant 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 company has shares, then it will have to liquidate its shares, collect debts, and Pay off its creditors before it can apply for cancellation.
Appointing a Liquidator
Companies with the following legal forms need to appoint a liquidator as well:
- Private Joint Stock Company
- General Partnership
- Public Joint Stock Company
- Limited Liability Company
- Simple Limited Partnership
A liquidator acts as a decision-maker in the entire liquidation process. They are responsible for:
- Starting the winding-up process: the liquidator begins the process by issuing an acceptance letter after they have received a shareholders’ resolution from the company.
- Liquidation Notice Publication: after the process is started, a liquidation notice is published in English and Arabic, in at least two local newspapers. Liquidators in Dubai can take care of the newspaper selection.
- Collection and Distribution of Entity’s Assets: when needed, the liquidator also oversees the collection and distribution of company assets. They will also take part in settling the company’s outstanding liabilities.
- Preparation of Statement of Affairs: to finalize the liquidation process, the liquidator’s report and a statement of affairs is prepared as well.
Stages of Liquidation
The liquidation process for mainland companies can be divided into two stages.
- Preparation of notarized MOM (minutes of the meeting) in which the decision to liquidate the company is taken and the appointment of a liquidator is decided on (if needed).
- Arrangement of an official letter issued by a liquidator, stating that they accept being appointed by the company.
- Application for cancellation by filing all required forms.
- At this point, the DED (Department of Economic Development) will issue a certificate of liquidation to the company.
- The company will now publish its liquidation notice as required.
- Once the notice has been published, the liquidation notice period will begin. During these 45 days, debtors shall have a grace period in which they can submit claims.
- Once the 45 days have passed, a declaration letter from the liquidator will be submitted to the DED. The letter shall state that there are no further objections from anyone during the grace period.
- The company will now collect approvals from relevant government authorities in order to cancel their license.
- The firm card of the company will be canceled at the Ministry of Human Resources and Emiratisation.
- All visas sponsored by the company must be canceled as well.
- After all the required documents have been collected, they must be submitted in order to gain approval for final cancellation.
- The DED shall determine all fees that must be paid.
- After all the fees have been paid, a certificate of deregistration can be received by the company.
In the mainland, the liquidation process varies for civil works companies. They must do the following:
- Fill the relevant cancellation form.
- Cancel its firm card at the Ministry of Human Resources and Emiratization
- Cancel visas of all partners and sponsored people that were issued on behalf of the company.
- Collect relevant approvals from government bodies.
- Draft a contract of partnership cancellation that must be authenticated by the notary public.
- Submit all of the documents mentioned above and submit them for their cancellation.
If a company is being dissolved but its partners/owner(s) plans on doing business again in the near future, they have the option to freeze their business license instead of terminating it. A business license can be frozen for up to 3 years after paying a freezing fee. A business license can be frozen after the following steps are taken:
- A letter has to be issued by the company/institution, requesting temporary freezing of their business license.
- A letter must be issued by the Ministry of Human Resources and Emiratization, stating that there are currently no sponsored people on the license.
- A report generated by the DED’s inspection division.
Liquidation Process for Free Zone Companies
For free zone companies, there are 3 kinds of closures:
- Summary Winding up: this is valid when a company has no outstanding liabilities or is capable of paying off all liabilities within the next 6 months.
- Creditor Winding up: this is valid when a company passes a resolution for winding up and it is then followed up with a company creditors’ meeting.
- Bankruptcy: this form can be carried out by the court, under the UAE’s Commercial Transaction Law 18/1993.
In free zones, a business closure involves notifying the local authorities as well. This can be done through every free zone’s online portal. Once a company termination application has been issued, the duties, authorities, and responsibilities of the company director shall be terminated as well. After this application has undergone verification, an announcement will be published in a local newspaper. After this, the final termination of the company shall commence, along with the issuance of termination letters.
If your business is established in the Jebel Ali Free Zone (JAFZA), you have to provide the authorities with a winding-up notification 3 months before you begin the winding-up process. Every free zone has its own requirements for the company winding up.
The requirement for canceling visas issued on behalf of your company is common in all free zones. Employers must also give their workforce a 2-month notice period (with pay) along with gratuity payment before their contracts are terminated. This is in accordance with the UAE’s labor law. Employees may hold onto their visas for as long as the company’s trade license is active.
After taking care of all this, companies are required to gather relevant NOCs from utility providers and telecommunication services. Once all these steps have been performed, they can proceed with the business closure.
How Can We Help
Push Digits Chartered Accountants is an approved liquidator for mainland and free zone companies. We have a highly qualified team of liquidators who take over the entire complex process from you at a very nominal cost. Our experience and learning curve allows us to complete the job fairly quickly which effectively allows us to charge the minimum possible fee from our customers. We are warmly looking forward to working with you.