Company liquidation is a well-established concept under the Federal Law No. 2 of 2015 on Commercial Companies (the ‘2015 Law’) that governs the process of dissolving a company and settling its obligations.

The process of liquidation can be classified as either voluntary, initiated by the company or its shareholders, or compulsory, enforced through a court order. Regardless of the method, liquidation serves as a crucial mechanism to ensure the orderly distribution of assets and the resolution of liabilities, protecting the interests of stakeholders and ensuring compliance with legal requirements.

Types of Company Liquidation in Dubai

• Compulsory Liquidation

If a company fails to pay its liabilities, creditors can request that the courts dissolve it to recover their money. To settle these debts, the courts may order the company to liquidate and sell its assets. In cases of compulsory liquidation, shareholders or the courts can appoint a liquidator by resolution.

• Voluntary Liquidation

Voluntary liquidation occurs when shareholders approve the winding up of a company. This decision is made when the owner concludes that continuing operations no longer serves any purpose.

• UAE Business Liquidation Services

Business liquidation in the UAE is the process of a company returning all of its business activities and eventually shutting down. If the stakeholders believe that the business would not be able to continue with its services, then the company has to go for a shutdown.

The reasons for this can vary, from financial issues to market conditions or changes in consumer demand. If we are talking about a wound that is impossible to recover, then company liquidation in UAE becomes a must to conduct the shutting down of operations properly.

If a company’s debts are considerably larger than its assets, it is in danger of going bankrupt. When the business is no longer able to continue, it should go into liquidation.

On the other hand, if management has determined the business needs to shut down for particular reasons, liquidation is also a deliberate option. In the course of liquidation, all of the business assets are used to pay off the debts of the company.

Then, after liquidating all the obligations, the assets of this can be liquidated, and the money that it brings will be distributed between the directors and shareholders of the company.

Company Liquidation Process in Dubai

For compliance, the company will have to go through all the steps in company liquidation in Dubai. Factors Influencing The Liquidation Process The process of liquidation depends on the following three vital factors: 1) the cause of liquidation, 2) the legal form of the company, and 3) the reason for its insolvency.

Understanding this allows businesses to better approach the process of liquidation and ensure a conducive transition while complying with local guidelines.

• Drafting and Accepting a Dissolution Resolution by Shareholders

For Limited Liability Companies (LLCs) incorporated in the UAE, shareholders must draft and accept a dissolution resolution. This resolution requires certification by a Notary Public.

If shareholders are located outside the UAE, they must have the resolution notarized and certified at the relevant UAE embassy, followed by attestation from the UAE Ministry of Foreign Affairs and the Ministry of Justice.

• Hiring a Liquidator and Receiving the Liquidator’s Acceptance Letter

Once the company obtains a provisional liquidation certificate, it can publish a notice of liquidation in both English and Arabic in a public journal.

Next, the company must file the shareholders’ resolution with the appropriate licensing body, along with all necessary documentation and payments. By following these steps, businesses can ensure a compliant and efficient company liquidation in Dubai process.

A 5-day notice period is required during the liquidation process. During this time, the company must complete several essential tasks:

• Cancel all the work permits and visas of any worker and partner.
• A clearance letter from the Immigration Department
• Get a No Objection Certificate from the Labour Department.
• Obtain clearance letters from utility agencies for example water, power, and telecommunications.
• Get an approval letter from the lessor (the landlord)
• Obtain approval letter from RTA
• Get the clearance letter from the Federal Customs Authority (FCA).
• Receive a letter stating the closure of the company’s bank account.
• Get an FTA-issued VAT de-registration letter and a VAT clearing letter

Once the notice period concludes, the liquidator can prepare the Liquidation Report. The final report, along with all necessary documentation and required cancellation fees, should then be submitted to the appropriate authority. The authority will review the application, and if approved, it will issue a License Cancellation Certificate.

The Importance of Company Liquidation in Dubai

For any corporate team, liquidating the company represents the final option. This decision indicates that the company can no longer operate and must close down.

However, several advantages accompany company liquidation:

1. First, liquidation allows businesses to restart or disassociate themselves from a particular company entirely.
2. Additionally, it ensures the proper distribution of the company’s assets. During the liquidation process, the company’s assets are first utilized to cover its liabilities.
3. And, after settling these obligations, any remaining funds are liquidated and distributed to the shareholders.

FAQ on Company Liquidation

What Is the Liquidation Procedure?

The license should have expired for more than two years. Additionally, the Emirati partner must accept responsibility for the firm. To support the dissolution request, the company must provide relevant documentation, such as a partner’s exit agreement. Furthermore, the company needs a document from the Ministry of Human Resources and Emiratisation certifying the absence of sponsored personnel on the license.

What Are the Requirements for Freezing a Dubai License?

You must provide the following information:

1. A letter from the corporation or institution requesting a temporary suspension of the license.
2. A letter from the Ministry of Human Resources and Emiratisation confirming that the license does not list any sponsored persons.
3. A report issued by DED’s inspection section.

Conclusion 

Understanding Company Liquidation Process in Dubai is essential. As each step needs to be treated carefully, whether it is compulsory or voluntary liquidation. Although liquidation signifies cessation of operations, it enables closure or restructuring in an orderly manner.

It is in this complexity that professional services come in to help companies get the most out of both worlds in navigating the confusing path to their next steps.

What you need is having next to you one of the best lawyers in dubai, who are up to date, and knows how to address your needs efficiently and effectively.

Contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.

*Disclaimer: our blogs, law updates, and FAQs are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.

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