Liquidation, generally called winding up, involves dissolving a firm, paying its debts, and distributing any surplus resources to its shareholders. In the UAE, those operating in Mainland UAE and those in financial-free zones such as the Dubai International Financial Centre (DIFC) are governed by distinct laws, and their liquidation procedures diverge as such. To explain the company liquidation in Dubai, here’s a comparison of the limited liability company liquidation process for Mainland UAE and DIFC.

Types of Liquidation

1- There are two broad ways to liquidate a limited liability company (LLC) in Mainland UAE.

• Voluntary Liquidation: This type is initiated by the shareholders where the company can pay its debts.
• Compulsory Liquidation: This process is initiated by the court when a company is declared insolvent or unable to pay its debts.

2- Equally, in the Dubai International Financial Centre (DIFC), the liquidation also has two routes:

• Voluntary Liquidation: This occurs when the shareholders or the company’s board of directors decide to liquidate the company while the company is solvent.
• Compulsory Liquidation: This is when creditors or shareholders apply to the DIFC Courts for an order for the liquidation of the company on the basis that the company is insolvent.

In this article, we will take a look at the process of voluntary company liquidation in UAE defining the major differences in the procedures for Mainland UAE and DIFC.

Legal Framework for Company Liquidation in Dubai

1- In the Mainland UAE, if the constitution of a limited liability company does not provide for the liquidation process, the provisions of the Federal Decree-Law No. 32 of 2021 on Commercial Companies and the UAE Bankruptcy Law (Federal Decree-Law No. 51 of 2023) apply. It is significant to understand that these laws are important in relation to UAE company entities that a business registers with specific provisions eventually leading toward liquidation UAE.

2- The process, where the company’s constitution is silent on liquidation, is governed by the DIFC Companies Law (DIFC Law No. 5 of 2018), and the DIFC Insolvency Law (DIFC Law No. 1 of 2019) in the DIFC. The DIFC comes with its own legal system, court system, and litigation procedures based on merchants’ common law principles, which presents a different approach to liquidation UAE in comparison to Mainland UAE.

Estimated Costs and Timeline

1- The dissolution process in the Mainland UAE requires paying an administrative fee, which includes a minimum of AED 5,000 for DET and the Ministry of Human Resources and Emiratisation. You also have to consider the liquidator’s fees and charges for getting NOCs from relevant authorities.

It usually takes a couple of months to extract each of the components during the dissolution process, as the documents are prepared and procedures carried out. This formality is included in the general company liquidation in UAE.

2- There are no administrative fees involved for a company to dissolve in DIFC. The confirmation of the liquidator’s appointment certificate shall be issued upon payment of a fee of USD 100. They also incur the liquidator’s fees, as well as expenses connected to winding-up the company’s affairs.

The timeline for the winding-up process depends on how efficiently the required documents are prepared and submitted, followed by the review time needed by the DIFC Authority (DIFCA). This is a specific procedure within company liquidation in Dubai.

Conclusion

Although the voluntary liquidation process for limited liability companies registered in Mainland UAE and in DIFC share an overall structure, crucial differences are distinguished by virtue of the differing legal frameworks that apply in the two jurisdictions. That is, in Mainland UAE, the procedures are governed mainly by Federal Decree-Law No. 32 of 2021 and depend heavily on public authorities such as the DET. 

It focuses more on local administrative processes, like newspaper notices and government approvals. Furthermore, the duration and cost of the Mainland process is contingent upon the speed of documentation preparation and the expeditious coordination with necessary authorities.

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

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