Company Liquidation

Company liquidation is a hectic task. The liquidation of a company is not just about closing it down; there are many factors to be considered while doing so. The government authorities have to be notified, the business licenses will have to be canceled, assets need to be distributed and the list goes on. The legal formalities included in company liquidation are the most tedious task among them all.

What is Company Liquidation

Company liquidation is a legal insolvency process that concludes the operations of a business. When a company goes through liquidation, its assets are sold to pay off its debts, liabilities, and commitments. Often known as ‘winding down’, the business license of a company is cancelled upon liquidation, its name is deleted from the Trade Registry, and the firm is considered to have ended.

There can be diverse reasons for liquidation, the major ones are;

The expiry of license/ duration stated in the articles of incorporation/ association or the accomplishment of the objective for which the entity was set up
The loss of all or a major portion of the entity’s assets
Mergers
Sound financial assets are supporting the market and assisting firms in continuing to operate.
Shareholders’ approval that the entity’s term of existence can be brought to an end as per the stipulated majority, etc.

When a firm can no longer pay its debts, it might be dissolved either voluntarily or forcibly by authorities. There are two types of company liquidation methods under UAE law:

Liquidation on a voluntary basis

There are various reasons for a corporation to voluntarily wind up, including the expiration of a defined period, the achievement of the firm’s mission, abandonment of the goals, merging with another firm, ongoing commercial setbacks, and the company’s failure to afford its obligations.

Liquidation on a compulsory or legal basis

The compulsory winding up of a company relates to the necessary measure taken when a firm commits a major violation of the law or when the company is unable to continue its commercial activities. It also takes effect when customers submit complaints with government agencies to recover their assets. The local government then takes steps to dissolve the enterprise forcibly.

Who is a Liquidator?

The person who is in charge of conducting the liquidation process is termed the liquidator. The court or shareholders of an entity appoint a liquidator and it is dependent on the type of liquidation as well. Immediately after being appointed, the liquidator will provide a formal letter of acceptance. They will write a statement of affairs and a liquidator’s report once all of their responsibilities have been performed, which are required to perform the liquidation procedure.

License Cancellation

License cancellation is one of the primary steps in the liquidation process, and the formalities differ based on the form of company. In the case of establishments and sole proprietorships, you will have to apply for cancellation through DED. Also, clearances need to be acquired from the below-mentioned departments-

Steps Involved in LLC Company Liquidation

Step 1: The first step of company liquidation is to submit a notice to the Dubai Development Authority (DDA) mentioning the reason for liquidation.
Step 2: The board resolution for de-registration of the company must be attested by the owners before the authorities of the DDA.
Step 3: Place an advertisement in newspapers about the liquidation of the company in both Arabic and English language.
Step 4: The original company license, Certificate of Formation & Share certificates, Lease agreement, and the Original Department of Economic Development License must be submitted to the DDA.
Step 5: DED will provide creditors or clients with a 45-day notice time to wait if they have any financial claims against the company. Also, cancel all employee and partner visas and receive NOC from the Ministry of Labor.
Step 6: Once the notice period is over, the liquidation report must be prepared by an auditor in Dubai.
Step 7: The completed Report, along with all supporting evidence and the applicable cancellation payments, should be sent to the relevant Authority, who will evaluate it and, if accepted, issue a ‘License Cancellation Certificate.

Steps Involved in Free Zone Company Liquidation

Almost every free zone has its own process for liquidating businesses. The most typical and standard approach for deregistrating a Free Zone Company in the UAE is as follows:

Step 1: Minutes of a board of directors meeting declaring the firm to be liquidated and appointing a regulated liquidator AND send a notification to the Dubai Development Authority (DDA) explaining why the company is being liquidated.
Step 2: A letter from the registered liquidator declaring the acceptance of responsibility for the company’s liquidation, as well as fees to be sent to the relevant free zone authorities
Step 3: Place an advertisement in newspapers about the liquidation of the company in both Arabic and English language.
Step 4: The Free Zone Authority will grant a 45-day notice period to wait for creditors or clients who have financial claims against the enterprise.
Step 5: Once the notice period is over, the liquidation report must be prepared by an auditor in Dubai and also obtain certificates of clearance from the Free Zone Authority (FZE/FZCo)
Step 6: Cancel all employee and partner visas, receive NOC from the Ministry of Labour and Ministry of Immigration, and send all documentation to the Free Zone Authority, who will issue a final business liquidation certificate after verifying all of the documents.

There are certain things to look into when you decide to liquidate a company. Leaving the task to a professional who provides company liquidation services will be a wise choice.