Closing down a company in the UAE is not easy. There are a lot of steps and requirements to be fulfilled in terms of legal requirements. There are two principal ways by which a company can be closed down or liquidated:
- Voluntary Liquidation: This is where the owners of the company themselves decide to close down the business.
- Insolvency Liquidation: This is when the company is not able to pay off its debts and thus must be closed down.
Whichever method you decide to go with, it’s also extremely vital to learn about and comply with the proper UAE Company Law. This guide is going to take you through all the necessary steps of liquidating your company in the UAE, one by one. We explain what needs to be done at each stage and what things you need to consider. Following the proper legal course is very important in closing a company to avoid any problems or penalties.
Reasons for Company Liquidation in the UAE
Following are some of the reasons for the liquidation of a company in the UAE:
- Financial Difficulty: One of the most crucial reasons for company liquidation considering that liabilities could overpower assets, or a continuous decline in revenue.
- Change of Business Goals: Perhaps the company may have achieved the set original goals or needs to refocus when the market changes.
- Legal Problems: Court cases, disputes, or failure to comply with the government may lead to the compulsory closure of the firm.
- External Events: This includes unpredictable events, natural disasters, and economic distress that may render business continuation impossible.
- Voluntary Winding Up: Shareholders can wish to close a solvent company—where a company has enough assets to pay its debts.
Pre-Liquidation Process: Essential Preparations
- Board Resolution and Appointment of Liquidator: Conduct a board meeting for the purpose of passing a resolution formally approving the company’s liquidation. This resolution should further decide upon the appointment of a qualified liquidator to carry out the task. The liquidator can be an individual possessing the necessary expertise or a specialized firm duly licensed for liquidation services in the UAE.
- Settle Outstanding Liabilities: Before starting the formal dissolution process, make sure all outstanding debts, including utility bills, phone charges, and employee dues, are settled. You should also obtain a closure letter from your bank and prepare a liquidation audit report that details your company’s financial status.
- Employee Affairs: Address any employee matters related to the closure. This will range from the final salary payment and gratuity to the cancellation of visas. You will need to liaise with the Ministry of Labour to ensure that all necessary procedures are followed to facilitate an amicable separation from your employees.
The Liquidation Process: Key Stages
Step 1: Application for Deregistration: The liquidator will submit the deregistration application on behalf of the company with the Department of Economic Development (DED) or whichever authority is appropriate, depending on your company’s location: Free Zone or Mainland. This application often needs to be accompanied by documents such as the company trade license, Certificate of Registration, and a notarized copy of the board resolution approving liquidation.
Step 2: Notice Period for Liquidation: The government requires a 45-day notice period after the filing of the deregistration application. This time is taken to let the creditors file their claims against the company. During this period, the liquidator will take care of the company’s assets, sell them if necessary, and try to resolve all the outstanding debts.
Step 3: Advertisement in Local Newspapers: Publish a liquidation notice in two newspapers of the UAE for the general public regarding the closure of the company and the deadline for any claims from the creditors. This is a step in compliance with the legal requirements and ensuring transparency in the process.
Step 4: Debt Settlement and Asset Distribution: The liquidator will try to pay off all claims from the creditors using money realized from the sale of the company’s assets. Any remaining assets after the debts are settled can now be distributed to shareholders according to the company’s articles of association.
Step 5: Final Liquidation Certificate: After the completion of all the above processes, the liquidator will file for the final liquidation certificate with the relevant authorities. This certificate implies that the winding-up of the company has officially shut down and been deregistered.
Additional Considerations for Specific Company Types
It is worth noting that in the UAE, there are many types of company formations that are regulated in various ways. As such, the procedures for company liquidation may differ depending on the type of company and jurisdiction. For instance, the processes involved in the liquidation of a Free Zone company may differ from those of a mainland company. Similarly, the steps for winding up a Limited Liability Company differ from those for a Sole Proprietorship or a Civil Company.
Other specific requirements for liquidation, including those for approvals, notices, and documentation, may also vary depending on the legal form of the company and the authority involved. Thus, it is important that the owners and shareholders of the companies seek the advice of legal practitioners dealing with the liquidation of that particular type of company. These advisors will be aware of all the latest legal requirements, which they can use to give bespoke advice, ensuring that all the regulatory requirements are complied with.
Considering Company Liquidation in the UAE? HHS Lawyers Can Help
Company liquidation in the UAE is a technical and demanding process requiring legal expertise. HHS court certified Liquidators and Legal Consultants are certified and vastly experienced to take you through each step of the process. We ensure an efficient, trouble-free liquidation process that meets all statutory requirements, minimizing your stress and maximizing your protection.
Get in touch with HHS Lawyers today for an appointment. We will take you through the legalities and get your company successfully closed.