If a business in Dubai wants to close down, it’s important to do it the right way through company liquidation. Voluntary liquidation allows business owners to close operations by settling debts with creditors and employees. This process helps stop the bad practice of owners leaving the country without paying what they owe. Whether the business is in the mainland, a free zone, or offshore, they can end operations using liquidation services in Dubai.
To start the process, business owners or shareholders have to choose liquidators in Dubai to handle the winding-up. Though the main steps are similar, there might be slight differences in requirements based on the rules set by the licensing authority. Business owners planning to close their companies can keep reading to understand the simple steps, conditions, and requirements for company liquidation in Dubai.
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What is Company Liquidation?
Company Liquidation in Dubai is an official insolvency process in which a company (LL Company, branch of company, sole establishment, freezone company) stops all of its business operations, and the assets of the company are divided among creditors and shareholders. In simpler terms, company liquidation refers to the dissolving of a company. A company can choose to dissolve if it is unable to run its regular business operations.
Company Setup Consultants is a leading auditing and business consulting firm in Dubai and the UAE. With our expertise in managing the process of company liquidation in UAE, our specialists are here to simplify the task for you. We provide comprehensive company liquidation services to ensure a smooth and efficient closure of your business.
Exploring Reasons for Winding up a Company in Dubai
Closing a business in Dubai is often prompted by financial challenges, but it’s not the only factor driving voluntary liquidation. Entrepreneurs may choose to wind up their companies for various reasons, such as debt, financial losses, shifts in market conditions, decreased demand for products, or the fulfillment of business objectives. The decision to wind up a company can be influenced by a combination of these factors, reflecting the diverse challenges and circumstances faced by business owners in Dubai.
What is the Role of a Company Liquidator?
The role of a company liquidator is crucial during the process of liquidating a company. Their main responsibilities include:
a). Assessing and managing the company’s assets and liabilities: The liquidator evaluates the company’s financial situation, including its assets, debts, and obligations. They ensure that the assets are properly accounted for, valued, and sold to maximize the recovery for creditors and stakeholders.
b). Distributing proceeds and managing creditor claims: The liquidator is responsible for distributing the proceeds from the asset sale to creditors, following the order of priority set by law. They review and validate creditor claims, ensuring fair and equitable treatment in the distribution process.
c). Communicating with stakeholders: The liquidator acts as a point of contact for stakeholders, including creditors, shareholders, and employees. They provide regular updates on the liquidation process, address inquiries and concerns, and facilitate necessary documentation and procedures.
d). Completing legal and administrative requirements: The liquidator prepares and files necessary legal documents, such as the statement of affairs and final liquidators’ report, outlining the financial position of the company and the outcomes of the liquidation process. They ensure compliance with applicable laws and regulations throughout the liquidation proceedings.
e). Discharging the company’s obligations: The liquidator ensures that all outstanding debts, dues, and obligations of the company are properly addressed and settled. This includes payment of employee entitlements, such as gratuity and notice period dues.
Overall, the role of a company liquidator is to efficiently wind up the company’s affairs, safeguard the interests of creditors, and facilitate the orderly dissolution of the company.
Types of Company Liquidation
Depending on the reason behind the liquidation, there can be two types of company liquidation in Dubai. They are:
1. Voluntary Liquidation: When the company shareholders or the board of directors choose to stop the business operation and dissolve a company, it can be considered a voluntary liquidation. In a voluntary liquidation, the owners get to choose if he wants to liquidate the company or not. When a company achieves its goal, it might opt for voluntary liquidation.
2. Compulsory Liquidation: This is when a company is forced to liquidate. In case a company cannot meet its obligations, the creditors can petition the courts to liquidate the company. The creditors may choose to do this so that they can collect their investment. If the petition is valid, the court may compel the company to liquidate. Bankruptcy is one of the biggest reasons behind compulsory liquidation. Committing major crimes or infractions may also result in the compulsory liquidation of the company.
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Business Liquidation Services in UAE
Business liquidation services in the UAE involve the process of closing down a company and winding up its commercial operations. This occurs when it is determined that the company cannot sustain its services anymore, which can be due to various reasons.
One common reason for business liquidation is when a company’s liabilities far exceed its assets, putting it at risk of bankruptcy. In such cases, the company is required to cease operations and initiate the liquidation process. Alternatively, a company may choose to voluntarily liquidate if its management decides to shut it down for reasons known to them. During the liquidation process in UAE, all the company’s assets are utilized to settle its outstanding obligations. If any assets remain after all the liabilities are resolved, they are sold, and the proceeds are distributed among the company’s directors and shareholders.
The Process of Company Liquidation in Dubai, UAE
The process of company liquidation in Dubai or the rest of the UAE involves several stages:
1. Drafting and acceptance of a dissolution resolution by the shareholders:
The shareholders of the company draft and approve a resolution to dissolve the company. For Limited Liability Companies (LLCs) incorporated in the UAE, the resolution must be certified by a Notary Public. If shareholders are not present in the UAE, the resolution needs to be notarized and certified at the relevant UAE embassy, followed by attestation at the UAE Ministry of Foreign Affairs and Ministry of Justice.
2. Hiring a liquidator and receiving their formal acceptance letter:
A liquidator is appointed to oversee the liquidation process. Once the liquidator is appointed, they provide a formal acceptance letter acknowledging their role.
3. Publication of a notice of liquidation:
A provisional liquidation certificate is obtained, and a notice of liquidation is published in both English and Arabic in a public journal.
4. Filing the shareholders’ resolution and required paperwork:
The shareholders’ resolution, along with all necessary paperwork and payments, is submitted to the applicable licensing body.
5. Notice period and termination of permits and visas:
A 45-day notice period is initiated, during which the necessary clearances and approvals are obtained. This includes terminating work permits and visas for all employees and partners, obtaining clearance letters from the Immigration Department and Department of Labor, and obtaining clearance letters from utility companies, the leasing company, Road and Transport Authority (RTA), Federal Customs Authority (FCA), and closure of bank accounts. Value Added Tax (VAT) de-registration and clearance letters are also obtained from the Federal Tax Authority (FTA).
6. Preparation of the Liquidation Report:
Once the notice period has ended, the liquidator prepares the Liquidation Report.
7. Submission of the Final Report and cancellation costs:
The final Report, along with all associated paperwork and the required cancellation costs, is submitted to the relevant Authority.
8. Evaluation and issuance of License Cancellation Certificate:
The Authority reviews the application, and if approved, issues a “License Cancellation Certificate” officially confirming the company’s liquidation.
9. Documents Required for a Company Liquidation in Dubai
The process of company liquidation in Dubai is quite complicated. You must follow the rules and regulations set by the UAE government when liquidating your company. This also refers to the specific documents you will need to provide to liquidate your company.
Here are the documents required for a company liquidation in Dubai:
- Photocopy of the original trade license
- The memorandum of association (MOA)
- Power of Attorney
- Photocopy of all shareholders’ passport
- Photocopy of your emirates id
- Resolution of the shareholders
- Application form for deregistration
Why is company liquidation required?
Company liquidation is required for various reasons, and it offers several advantages:
a). Fresh Start or Dissociation:
Liquidation provides an option for businesses that wish to start afresh or no longer wish to be associated with a particular company in any way. It allows the opportunity to close down the current operations and explore new business ventures or disassociate from existing liabilities.
b). Proper Distribution of Assets:
During the liquidation process, all of the company’s assets are utilized to settle outstanding liabilities. This ensures that the company’s debts and obligations are properly addressed and paid off. Any remaining funds or assets are then distributed among the shareholders based on their ownership or as per the company’s bylaws or agreements.
c). Closure and Legal Dissolution:
Liquidation serves as the official closure and dissolution of the company. It provides a clear and legally recognized process for winding up the company’s affairs, settling financial obligations, and formally terminating its existence.
d). Compliance with Legal Requirements:
Depending on the jurisdiction and regulatory framework, liquidation may be a mandatory requirement for companies that are no longer able to operate or meet their financial obligations. By undergoing the liquidation process, companies can fulfill their legal obligations and avoid potential penalties or legal consequences.
e). Resolution of Disputes:
In cases where there are disputes or conflicts among shareholders or within the company, liquidation can provide a structured mechanism to resolve these issues and distribute the company’s assets fairly.
What is the law for liquidation of a company in UAE?
Liquidation Process in the UAE follows the Companies Law (Federal Decree Law No. 32 of 2021) and bankruptcy is regulated by the Bankruptcy Law (Federal Decree Law No. 9 of 2016).
How can an individual liquidate a company in Dubai?
To initiate the dissolution of a company in the UAE, it is necessary to engage the services of registered and approved liquidators. These professionals play a crucial role in the process of winding up the company’s affairs and ensuring a proper liquidation.
Why is it necessary to liquidate a business?
A company may face inevitable liquidation due to various factors, such as ineffective management practices, increasing debt burdens, insufficient income generation, and escalating costs of unnecessary assets. When revenue planning and monitoring are lacking, and losses persist over extended periods, liquidation becomes necessary.
How do I liquidate a company in Dubai?
Company liquidation in Dubai is a time-consuming and complicated process. You will need to hire a UAE-registered Company liquidator to liquidate your company in Dubai. Here are the steps to liquidate a company in Dubai:
- Obtain documents that explain the liquidation
- Hire a liquidity services firm
- Inform the company trade license authority
- Cancel all commercial documents
- Publish the final liquidation report
How long does it take to liquidate a company in UAE?
Typically, the company liquidation process will take around 45 to 50 days, considering the steps of the liquidation process are executed on time. The time it takes to liquidate any company in UAE will depend on various factors. The size of the business operation, the location of the company, and the type of business activities will decide how long it will take to liquidate a company in UAE.
For example, if you run your business operation in the free zone and perform one type of business activity, you can liquidate your company by visiting one department of the authority offices. However, on the mainland, you will need to get approval for liquidation from multiple departments, which can be located in different locations.
How much does it cost to liquidate a company in Dubai?
The cost of company liquidation in UAE is typically ranges from AED 8,000 to AED 12,000. To liquidate a company in the UAE, you need a licensed liquidator. This is mandatory for certain companies like general partnership firms.
What happens to employees when a company liquidates in the UAE?
In cases where unjustifiable termination is proven, Article 123 of the UAE Labour Law mandates that the court can compel the employer to provide compensation to the affected employee. Apart from compensation, the employee is entitled to claim gratuity, dues for the notice period, and any other outstanding payments from the company.
What happens after a company is liquidated?
Once a company decides to liquidate, it will need to stop all of its business operations. This means the company will be required to fire all of its employees and de-register the company. It will also need to cancel its trade license. Next, it will need to sell all of its assets to pay the creditors and the shareholders. Once the liquidation is completed, the business will not exist anymore.
How do I liquidate a company in UAE?
To liquidate a company in the UAE, follow these steps:
- Get an official letter from a registered liquidator agreeing to the role.
- Fill out the necessary cancellation form through DED or approved channels.
- Receive a liquidation certificate from DED.
- Advertise the liquidation notice in two local newspapers
Who is a liquidator in the UAE?
In the UAE, a liquidator is a crucial figure appointed to manage the liquidation process. This can be an individual or a licensed firm with the necessary authorization from the relevant authorities. The primary responsibility of the liquidator is to ensure that the liquidation adheres to the laws of the UAE.
What is the first step in liquidation process?
In every scenario, the initial step in the liquidation process involves company directors seeking unbiased guidance from an insolvency expert. Subsequently, they organize a meeting with shareholders to formally declare the planned liquidation.
How can we help you?
If you want to liquidate your company in Dubai, but you do not know where to get started, then you are in the right place. This is because Company Setup Consultants have helped numerous companies with liquidation in the UAE marketplace. Our experienced Company Setup consultants will answer all your company liquidation-related queries. Contact us today and hit the ground running.
Click here to book a free consultation with our experts and learn more about the process of company liquidation. Call +971582595164. You can also send a WhatsApp message at +971582595164. For email assistance, mail your query at info@companysetup.ae
