Company liquidation is a process that is initiated when a company (such as a Limited Liability Company, sole establishment, Branch of the company, or Freezone company )is unable to meet its financial obligations or is no longer viable to continue its operations. In Dubai, company liquidation is governed by specific laws and regulations that must be followed to ensure a fair and transparent process. This blog aims to provide a comprehensive understanding of the legalities of company liquidation in Dubai, including the legal framework, grounds for liquidation, the appointment of a liquidator, notification of creditors, sale of assets, termination of contracts, and distribution of assets. If you are considering liquidating your company in Dubai, To ensure compliance with the law, it is crucial to have a clear understanding of the legal obligations and to seek the guidance of a certified legal expert such as Legal House during the process.
The Legal Framework for Company Liquidation in Dubai:
The legal framework for company liquidation in Dubai is primarily based on the provisions of the UAE Commercial Companies Law, Federal Law No. 2 of 2015. The CCL (commercial company law)sets out the various procedures and requirements that must be followed for company liquidation in Dubai. The key provisions of the CCL regarding company liquidation are discussed below:
- Grounds for Liquidation: The CCL provides that a company may be liquidated for various reasons, including bankruptcy, dissolution, and expiration of its term. Additionally, a company may be liquidated if its shareholders pass a resolution to do so.
- Appointment of a Liquidator: The CCL requires that a liquidator be appointed to oversee the liquidation process. The liquidator must be a licensed auditor or an expert approved by the relevant authorities. The liquidator’s role is to ensure that the liquidation process is conducted in accordance with the law and to manage the company’s affairs during the liquidation process.
- Notification of Creditors: The CCL requires that the company notify its creditors of the liquidation process. Creditors are entitled to file claims against the company and must be notified of the liquidation process so that they can do so.
- Publish a Notice in a Local Newspaper: The company must publish a notice in a local newspaper announcing the liquidation and inviting any interested parties to come forward with any claims against the company.
- Preparation of Financial Statements: The company’s financial statements must be prepared up to the date of the liquidation and must be audited by the appointed liquidator.
- Sale of Assets: The CCL requires that the company’s assets are sold off and the proceeds used to pay off its debts and obligations. The sale of assets must be conducted in accordance with the law and must be done in a transparent and fair manner.
- Termination of Contracts: The CCL provides that the company’s contracts may be terminated during the liquidation process. However, termination must be done in accordance with the terms of the contract and with the approval of the court.
- Distribution of Assets: The CCL requires that the company’s assets be distributed in accordance with the law. First, priority must be given to the payment of secured creditors. Then, any remaining proceeds must be used to pay off unsecured creditors. Finally, any remaining proceeds must be distributed among the shareholders in accordance with their shareholding percentages.
- Cancellation of Licenses: The company’s licenses must be canceled with the relevant authorities.
- Closure of Bank Accounts: The company’s bank accounts must be closed with the relevant banks.
- Cancellation of Visas and Labor Cards: The company’s visas and labor cards must be canceled by the relevant authorities.
- Filing of Liquidation Report: A final liquidation report must be filed with the relevant authorities.
What are the types of company liquidations in the UAE or When a company can be liquidated?
In the UAE, there are five types of company liquidation:
Voluntary Liquidation:
This type of liquidation is initiated by the shareholders of the company when they decide to wind up the business voluntarily. The shareholders pass a resolution to liquidate the company and appoint a liquidator to oversee the process.
Compulsory Liquidation or Court-Ordered Liquidation
This type of liquidation is initiated by a court order when the company is unable to pay its debts or when there is a justifiable reason for liquidation. The court appoints a liquidator to oversee the process.
Insolvency Liquidation:
This type of liquidation is initiated when the company is declared insolvent, meaning it is unable to pay its debts as they fall due. The company’s creditors can apply to the court for a liquidation order, and a liquidator is appointed to oversee the process.
Expiry of the Company’s Duration: A company may be liquidated if its duration expires as per its Memorandum of Association.
Merger or Acquisition: A company may be liquidated if it is acquired by another company or merged with another company.
What are the most asked documents for the company liquidation process in UAE?
The required documents for the company liquidation process in Dubai may vary depending on the type of legal entity and the specific circumstances of the company. However, the following documents are generally required for any legal entity type of company liquidation in Dubai:
- Board resolution agreement
- Shareholder resolution
- Liquidator’s acceptance letter
- Copy of trade license
- Copy of MOA –memorandum of association
- Company bank statements
- Clearance letter from relevant authorities. (free zone/MOF/Dewa)
- Final liquidation report copy
- Copy of cancellation labor card and visas
- Noc – no objection letter from company owners
- Notarized agreements are required when the company is a branch office.
When the time comes that you have to close your business, you need to ensure that all of your company’s assets and liabilities are taken care of. This is especially true if you have a lot of money tied up in stock or other assets. The process of liquidating a company can be complex and time-consuming, which is why it’s important to work with a liquidator who understands all of the different laws and requirements that must be met during this process.
How Legal House Will help you :
If you’re looking for help with your company liquidation services in Dubai, we’re the ones to call. We have a team of experts who specialize in this area and can help you through all of the steps necessary to close down your business. From filing documentation to preparing financial reports, we’ll make sure that everything is done correctly and on time. Feel free to touch with us for a free consultation today !!
FAQ
Voluntary liquidation is initiated by the shareholders of a company who decide to close down the business. Court-ordered liquidation is initiated by a court if a company is unable to pay its debts or if it is involved in fraudulent or illegal activities.
The duration of the company liquidation process in UAE varies depending on the complexity of the case and the efficiency of the liquidator. On average, the process takes between 6 to 12 months.
The company’s employees are entitled to receive their end-of-service benefits, including gratuity, salaries, and other entitlements, as per the UAE Labour Law. The liquidator is responsible for ensuring that these payments are made.
The company’s assets are sold off to settle outstanding liabilities, including debts owed to creditors, employees, and suppliers. After settling all liabilities, any remaining assets are distributed among the shareholders in accordance with the company’s Articles of Association and Memorandum of Association.
Yes, a liquidated company can be restored in UAE if the company’s shareholders decide to do so within a specific period after the liquidation. The process of restoring a liquidated company involves submitting an application to the relevant authorities and settling any outstanding liabilities.
Failure to comply with the legal requirements for company liquidation in UAE can result in fines, penalties, and legal action against the company’s directors and liquidators.
The cost of closing an LLC company in Dubai varies depending on several factors such as the size of the company, the nature of its activities, and the amount of debt owed. Generally, it can cost between AED 10,00 to AED 10,000 or more to close an LLC company in Dubai.
