Liquidation is a complex process that involves the winding up of a company’s affairs and distributing its assets to its creditors and shareholders. In this blog post, we will cover everything you need to know about company liquidation in the UAE, including what it is, why it is needed, and the processes for liquidating a limited liability company, free zone company, and offshore company.
What is liquidation?
Liquidation is the process of winding up a company’s affairs and distributing its assets to its creditors and shareholders. This can occur voluntarily, when a company’s shareholders decide to liquidate the company, or involuntarily, when a court orders the company to be liquidated.
Therefore, there are two types of liquidation:
Voluntary Liquidation :
Voluntary liquidation occurs when the shareholders of a company decide to wind up the company’s affairs and distribute its assets.
Involuntary Liquidation :
Involuntary liquidation occurs when a court orders the liquidation of a company, usually because the company is unable to pay its debts.
The process of liquidation involves selling off the company’s assets, paying off its debts, and distributing any remaining funds to shareholders or partners. In the UAE, liquidation is a legal process that must be followed in accordance with the laws and regulations set by the government.
Why is Liquidation Necessary
There are several reasons why a company may need to be liquidated. One of the most common reasons is that the company is no longer profitable, and it is not feasible to continue operating it. In such cases, liquidation is the best option to minimize losses and to pay off creditors.
Another reason for liquidation may be a change in the business environment or industry. For instance, if a company is operating in an industry that is no longer profitable or is facing significant challenges, it may be necessary to liquidate the business to minimize losses.
Finally, if the company is in financial distress, liquidation may be the only option to satisfy creditors and avoid bankruptcy.
How to Liquidate a Company in UAE
Liquidating a company in the UAE involves several steps and procedures that must be followed to ensure a legal and successful dissolution. But the process differs because it depends whether the dissolving company is an LLC company, a Freezone company or an Offshore company.
Liquidating a limited liability company (LLC) in the UAE
Step 1: Shareholder resolution
The first step is for the shareholders of the company to pass a resolution to liquidate the company. This resolution must be passed by at least 75% of the shareholders.
Step 2: Appointment of a liquidator
Once the resolution is passed, the shareholders must appoint a liquidator like Adam Global. The liquidator can be an individual or a company, but they must be licensed by the UAE Ministry of Economy.
Step 3: Notification of liquidation
The liquidator will notify the relevant authorities of the company’s liquidation, including the Department of Economic Development (DED) and the Commercial Register.
Step 4: Notice to creditors
The liquidator will also notify the company’s creditors of the liquidation. This notification must include details of the liquidator’s appointment and the date by which claims must be submitted.
Step 5: Payment of creditors
Once all claims have been received, the liquidator will pay the company’s creditors in accordance with the UAE Commercial Companies Law.
Step 6: Distribution of remaining assets
After all creditors have been paid, any remaining assets will be distributed to the shareholders of the company in accordance with their shareholding.
Step 7: Deregistration
Finally, the liquidator must deregister the company with the DED and the Commercial Register.
Step 8: Freezing the trade license
A license can be suspended or fully terminated. Companies in Dubai can pay a specific freezing charge to keep their trade licenses dormant for three years. They are unable to extend it past that time frame though.
Liquidating a Freezone Company in the UAE
Liquidating a free zone company in the UAE involves a series of legal and administrative procedures. The following is the general process of liquidating a free zone company in UAE:
- Board of Directors Meeting: The Board of Directors of the company must hold a meeting to pass a resolution for the liquidation of the company.
- Appointment of Liquidator: The shareholders must appoint a liquidator to manage the liquidation process. The liquidator can be a corporate entity.
- Notification to Free Zone Authority: The free zone authority where the company is registered must be notified of the liquidation process. This is done by submitting a liquidation application along with the necessary documents.
- Public Announcement: A public announcement must be made in two local newspapers, one in Arabic and one in English, notifying the public of the liquidation process.
- Cancellation of Licenses and Permits: The company’s licenses and permits must be cancelled. This includes the trade license, immigration card, and labour card.
- Clearance Certificates: The company must obtain clearance certificates from various government authorities, including the Ministry of Labour, Department of Immigration, and Dubai Electricity and Water Authority.
- Settlement of Debts and Liabilities: The company must settle all outstanding debts and liabilities. This includes paying employee salaries, settling loans, and paying off creditors.
- Sale of Assets: If the company has assets, they must be sold, and the proceeds used to settle outstanding debts and liabilities.
- Final Audit: The liquidator must prepare a final audit report, which includes the company’s financial position at the time of liquidation.
- Distribution of Assets: Once all debts and liabilities have been settled, any remaining assets can be distributed among the shareholders.
- Company Deregistration: The final step in the liquidation process is to deregister the company from the free zone authority.
It is important to note that the liquidation process can vary depending on the free zone authority and the specific circumstances of the company. It is advisable to seek legal advice from qualified professionals like Adam Global to ensure compliance with all relevant regulations and laws.
Liquidation of an Offshore Company in the UAE
Liquidating an offshore company in the UAE involves a few key steps, which are outlined below:
- Board Meeting: The first step is to hold a board meeting and pass a resolution to liquidate the company. The board will also need to appoint a liquidator who will oversee the liquidation process.
- Notification: The liquidator will then need to notify the relevant authorities, including the Registrar of Companies and the Department of Economic Development, of the decision to liquidate the company.
- Advertisement: The liquidator must also place an advertisement in a local newspaper, announcing the liquidation of the company.
- Cancel Visas: The liquidator will then need to cancel the residence visas of any employees of the company.
- Asset Valuation: The next step is to value the company’s assets, which will be sold to pay off any outstanding debts.
- Payment of debts: The liquidator must then pay off all outstanding debts owed by the company. Any remaining funds will be distributed among the company’s shareholders.
- Deregistration: Once all debts have been paid and assets have been sold, the liquidator must apply to the Registrar of Companies to deregister the company.
It is important to note that the exact process may vary depending on the specific circumstances of the offshore company and the UAE jurisdiction in which it is registered. It is recommended to seek legal advice to ensure that all necessary steps are taken, and all legal requirements are met.
What are the Documents Required in Company Liquidation Process
The specific documents required for a company liquidation process in the UAE may vary depending on the type of company, its location, and other factors. However, the following list provides a general overview of the documents that may be required:
- Board Resolution: A board resolution authorizing the liquidation process and appointing a liquidator.
- Shareholders’ Resolution: A shareholders’ resolution approving the liquidation process and appointing a liquidator.
- Memorandum and Articles of Association (MOA): A copy of the MOA of the company.
- Trade License: A copy of the trade license of the company.
- Passport Copies: Passport copies of all shareholders and directors.
- Power of Attorney (POA): A POA in Favor of the liquidator.
- Bank Account Closure Certificate: A certificate issued by the bank where the company has its accounts, confirming that all accounts have been closed.
- No-Objection Certificate (NOC): A NOC from any government authorities where the company is registered or licensed.
- Employees’ End of Service Benefits Calculation: A calculation of the end of service benefits of all employees, if any.
- Financial Statements: The financial statements of the company, including the balance sheet, profit and loss statement, and cash flow statement.
- Tax Clearance Certificate: A tax clearance certificate from the Federal Tax Authority (FTA).
- Liquidation Report: A report outlining the process of liquidation, the status of assets and liabilities, and the distribution of proceeds.
Why Choose Adam Global for Liquidating Your Company?
Liquidation is a necessary process when a company is no longer able to continue operating, and it is essential to follow the legal process for liquidation in the UAE. As a company liquidation service expert, we at Adam Global understand the complexities of the liquidation process and can help guide you through each step. Whether you have an LLC, freezone company, or offshore company, we can provide expert advice and assistance to ensure that the liquidation process is carried out efficiently and in compliance with all applicable laws and regulations. Contact us today for more information on how we can help with your company’s liquidation.