Company Liquidation in DIFC
The liquidation procedure for a company in the UAE can vary based on where the company is established. Every region in the Emirates has its own regulations regarding company liquidation. The reason behind this is simple; the UAE has several designated zones for business activities. And every zone is managed by a separate local authority. The business owner(s) need to follow regulations that apply to them in order to properly liquidate their business. while this makes free zone company liquidation confusing for many, it also helps maintain a healthy and regulated business environment in which everyone can prosper.
For businesses established in the Dubai International Financial Centre (DIFC), there are a few company liquidation requirements that have to be met.
The basics of company liquidation in UAE are the same as the rest of the world. A company gets liquidated in the Emirates when it becomes insolvent or is declared unfit to operate by its shareholders. Liquidation provides a systematic way to wind up an unsuccessful company. The UAE’s additional regulations help make sure that this systematic process also ties up any loose ends left by the company.
As a business owner in the UAE, there are two types of liquidations that you may face:
- Voluntary Liquidation: when a company’s owner/shareholder(s) feel that the company is unfit for operation (due to financial failure) and decide to shut it down.
- Mandatory Liquidation: when a company is unable to pay off its liabilities due to cash flow issues. Disgruntled creditors can request the court to step in and liquidate the company so that they can recover what the company owed them.
The latter is imposed on the company while the former is undertaken by the company itself. In both cases, the process involves evaluating a company’s assets and then selling them in order to collect money. This money is then distributed amongst the company’s creditors.
The Liquidation Process in DIFC
The first step to liquidate any company is to make the decision to do so. If it’s a voluntary liquidation, the company’s owner(s) or shareholders shall make this decision. If it’s a mandatory liquidation, the company will receive a court order and will be forced to initiate the process.
From start to finish, companies have to keep the authorities in the loop. DIFC’s regulations require companies to furnish various documents and proof of clearances before they can be liquidated.
1. A shareholder’s/board’s resolution must be furnished by the company. This resolution shall declare the intent to wind-up the company.
2. Once the intent to liquidate has been declared, the company has to appoint an official liquidator who will oversee the entire liquidation process. The DIFC has provided clear-cut guidelines for who can qualify as an official liquidator. It is mandatory for businesses to appoint DIFC approved auditors or liquidators. When appointing a liquidator, the following must be observed:
a. The company has to provide an official request letter, asking the liquidator to provide their services.
b. On acceptance, the liquidator has to provide a letter of appointment, stating that the liquidator will be
providing their services to the company.
3. The salaries and gratuity of all existing employees have to be paid off
4. A company has to settle any outstanding fees with the DED as well in order to obtain a certificate of company liquidation.
5. Clearances from relevant service providers and landlord(s) must be obtained.
6. Once all of the above requirements have been fulfilled, a public announcement of the company’s intent to shut-down must be made. This is done by publishing liquidation notices in 2 local newspapers. Once the notices have been published, a waiting period of 45 days begins. During these 45 days, anyone who has an objection to the company being shut-down can step forward.
7. Once the 45-day period finishes and no claims have been raised, the company can move forward with its liquidation process.
8. The company has to cancel all visas that were issued under its license, including the visas of the directors.
9. A letter of clearance has to be obtained from MOHRE as well.
10. The company can then have its license terminated and undergo official liquidation.
List of Required Documents
The DIFC requires companies to provide a set of documents while undergoing liquidation. These documents include:
- A board/shareholder’s resolution attested by the Notary Public
- A letter of request from the company to the selected liquidator
- A letter of appointment from the selected liquidator to the company
- Certificate of company liquidation from DED
- Clearance documents from relevant service providers, bank(s), and government bodies
- Letter of clearance from MOHRE
- Copies of the liquidation notice published in 2 separate local newspapers
- Final audit report
- Liquidator’s report
The above-mentioned documents are all mandatory. Companies should keep in mind that the DIFC authority can ask for more documents and the fulfillment of more requirements as it deems necessary.
You can go through the DIFC’s guidelines and regulations regarding company insolvency for further detail. Trying to figure out and comply with the DIFC’s regulations can be exhausting unless you have prior experience in dealing with legal and financial matters. This is why it is recommended to enlist the help of reputable financial services agencies.
Push Digits Chartered Accountants is a leading financial audit firm in UAE providing financial statements audit, tax, mergers and acquisitions, company formation, and company liquidation services. We are quite knowledgeable about DIFC’s company liquidation practices and can help you wind up your company efficiently and timely. We can help you with the following:
- Guidance and assistance in evaluating your assets
- You will not have to worry about arranging all the necessary documents and preparing them for submission.
- We will help you get clearance from all relevant parties.
- Act as your financial auditors
- You will be able to meet all deadlines and avoid any penalties that may be awarded due to the inability to meet DIFC’s guidelines.