The global business community is attracted to the business opportunities offered by the UAE. There are numerous opportunities for incorporating new companies in the UAE; while many new businesses have been formed here, not all have succeeded.
The success of a business depends on various factors, and some fail to meet these, becoming liabilities for their owners. Closing a failing business involves a formal procedure called liquidation, which is significant in the UAE.
The liquidation process prevents owners from absconding due to debts owed to creditors, banks, or employees. In this article, we discussed the step-by-step liquidation process of companies for both the mainland and the Free Zone.
Owners or shareholders need to appoint liquidators like Now Consultant, an approved liquidator firm, to manage the liquidation process and protect you from heavy fines and penalties.
What Is Company Liquidation?
Liquidation refers to the process of closing down a business. The larger the business, the more complicated the liquidation process, as there are more assets and liabilities to manage. With the liquidation process, a business stops operating, ceases hiring, and has its license canceled and its name removed from the Trade Registry, marking it as no longer existing.
Liquidating a company in the UAE can be challenging due to the specific regulations of authorities. It is significant to understand the regulations that apply to your company. Now Consultant, a top auditing and business consulting firm in Dubai and the UAE, specializes in handling the company liquidation process, making it easier for you.
Type of Liquidation in UAE
The formal procedure of closing down a company’s operations can be undertaken either voluntarily or through mandatory actions.
Voluntary Company Liquidations:
Shareholders of a financially stable company can opt to liquidate the company voluntarily. Likewise, the directors of an insolvent business can decide to cease operations and liquidate its assets to repay creditors.
Compulsory Company Liquidations:
Creditors can petition the court to mandate a company’s liquidation if it fails to settle its debts on time. In these cases, the court can enforce the liquidation process, requiring the business to sell its assets to pay the outstanding debts.
Documents Required for Company Liquidation in UAE
To wind up a company in Dubai, companies need to prepare certain documents as mandated by the government of the UAE. Here is a list of the documentation required for the company liquidation process in the UAE:
- Power of Attorney (if applicable)
- License copy
- Application form for De-registration
- Shareholders’ resolution
- Emirates identification copy
- Passport copies of all shareholders
- Memorandum of Association (MOA) copy, including any amendments
Liquidation Notice Period
The government provides businesses with a 45-day notice period to address any outstanding debts. It is advisable to complete all essential tasks related to your business and employees before starting the process. In addition to gathering the above necessary documents, the following tasks must be completed before the liquidation process:
- Settle all outstanding utility bills
- Clear all outstanding telecommunication bills
- Obtain a bank account closure letter
- Prepare a liquidation audit report
- Cancel any visas obtained under the current business license.
Once these documents are prepared, you can start the company closure process.
How To Liquidate a Company In UAE? – Detailed Guide
In order to start a company liquidation process in the UAE, you need to follow the following steps. However, make sure that all the above documents and tasks are completed, which are necessary for the cancellation process.
Step 1: Business License Cancellation
When liquidating a company in Dubai, it is necessary to apply for a business license cancellation. This step informs the relevant authorities of your business’s discontinuation, preventing huge fines and penalties upon license expiration.
The procedure for canceling a license varies depending on the legal structure of your business. Sole proprietorships and establishments typically have a straightforward process. They can initiate cancellation by obtaining the necessary clearance forms from:
- Directorate of Residency and Foreign Affairs
- Ministry of Human Resources and Emiratization
- Local Electricity and Water Authority
- Leasing entity
Step 2: Appointing a Liquidator
For any legal structure, appointing a liquidator from a leading business setup firm, like Now Consultant, helps you at every step of the company liquidation process. However, companies with the following legal structures must require the appointment of a liquidator for the company liquidation process:
- Private Joint Stock Company
- General Partnership
- Public Joint Stock Company
- Limited Liability Company
- Simple Limited Partnership
Responsibilities of Liquidator:
A liquidator serves as the decision-maker overseeing the entire liquidation process. The responsibilities of a liquidator include:
- Initiating the winding-up procedure: The liquidator starts the winding-up procedure by issuing an acceptance letter upon receipt of a shareholders’ resolution from the company.
- Publication of Liquidation Notice: Once the process starts, a liquidation notice is published in both English and Arabic languages in a minimum of two local newspapers. The liquidator in the UAE is responsible for selecting the newspapers for publication.
- Gathering and Allocation of Company Assets: When necessary, the liquidator manages the collection and distribution of the company’s assets. Additionally, the liquidator participates in resolving any company’s outstanding liabilities.
- Preparation of Financial Statements: To finalize the liquidation process, the liquidator prepares a report and a statement with all the details of the company’s financial affairs
Step 3: Stages of Liquidation
The liquidation procedure is different for mainland companies and Free Zone companies, as given below:
(i) Liquidation Process for Mainland Companies
The liquidation procedure for mainland companies is comprised of two stages.
Stage 1
- Prepare notarized minutes of the meeting. Record the decision to liquidate the company. Appoint a liquidator if necessary.
- Arrange for an official letter from the liquidator. Confirm their acceptance of the company’s appointment.
- Request for company liquidation by completing and submitting all necessary forms.
- Upon the request, the Department of Economic Development (DED) will issue a certificate of liquidation to the company.
- The company will proceed to publish its liquidation notice as mandated.
- Upon publication of the notice, the liquidation period will start. Within 45 days, debtors will be granted a grace period to submit their claims.
Stage 2
- After 45 days, the appointed liquidator will submit a declaration letter to the DED. This letter will confirm that no further objections have been raised during the grace period.
- The company will obtain approvals from relevant government authorities to cancel its license.
- The Ministry of Human Resources and Emiratisation will cancel the company’s labor card.
- All company-sponsored visas must also be canceled.
- After gathering all necessary documents, submit them for final cancellation approval.
- The DED will determine all applicable fees that need to be paid.
- Once all fees have been settled, the company can obtain a deregistration certificate.
In the mainland, the liquidation process varies for civil works companies. They must do the following:
- Fill out the relevant cancellation form.
- Cancel the company’s labor card at the Ministry of Human Resources and Emiratisation.
- Cancel visas for all partners and sponsored individuals issued on behalf of the company.
- Obtain necessary approvals from government authorities.
- Prepare a partnership cancellation agreement to be authenticated by a notary public.
- Submit all aforementioned documents for cancellation procedures.
Freeze Business Licence Option:
If a company is dissolving but its partners plan to resume business soon, they can opt to freeze the business license instead of terminating it. A business license can be frozen for up to three years with the payment of a freezing fee. The following steps are required to freeze a business license:
- The company must issue a letter requesting the temporary freezing of their business license.
- The Ministry of Human Resources and Emiratization must issue a letter confirming that no sponsored individuals are under the license.
- A report produced by the inspection division of the DED.
(ii) Liquidation Process for Free Zone Companies
For companies in free zones, there are three types of closures:
- Summary Winding Up: This is applicable when a company has no outstanding liabilities or can settle all liabilities within six months.
- Creditor Winding up: This occurs when a company resolves to wind up, followed by a meeting of the company’s creditors.
- Bankruptcy: The court can initiate this closure process under the UAE’s Commercial Transaction Law 18/1993.
Each free zone has its own specific requirements for company winding-up procedures. In Free Zones, closing a company also requires informing the relevant authorities three months before initiating the winding-up process. This can be done through the online portal of each respective Free Zone. Once a company termination application is submitted, the company director’s duties, authorities, and responsibilities will also end.
Once this application has been verified, a notice will be published in a local newspaper. Following this, the company’s final termination will start, along with the issuance of termination letters.
The obligation to cancel visas issued on behalf of the company is consistent across all free zones. Employers must also provide their employees with a two-month notice period, along with gratuity payment, before terminating their contracts, as stipulated by UAE labor law. Employees may retain their visas as long as the company’s trade license remains valid.
Following completion of these tasks, companies must obtain relevant No Objection Certificates (NOCs) from utility providers and telecommunication services. Once these steps are finalized, they can proceed with the closure of the business.
How Can We Help
It is a great loss for entrepreneurs as their companies remain unsuccessful, and beyond this, they would not start the liquidation process before the expiry of the company license, which results in heavy penalties and fines.
Liquidating a company can be time-consuming and expensive. Companies must coordinate with external parties to ensure everything is done correctly and on schedule.
Now Consultant is an approved liquidator for both mainland and free zone companies. Our team of highly qualified liquidators handles the entire complex process for you at a very reasonable cost.
Our experts complete the liquidation process step by step in the given timeline in compliance with the relevant authorities.
FAQs:
Who Oversees The Liquidation Process In The UAE?
In the UAE, the liquidation process is overseen by a liquidator. Upon appointment, the liquidator provides a formal acceptance letter acknowledging their role.
What Qualifications Should a Liquidator Have?
A liquidator should be a UAE-registered agent or firm, typically a chartered accountancy or audit firm. They are responsible for selling the company’s assets to generate cash to pay off any outstanding liabilities.
