Liquidating a company can, at first, sound like a very confusing and complicated process, with countless documents, legal processes and lots of time required. While this may be the case if you have no legal experience, we have collected here a concise crash-course on the topic to help you understand it. Let’s start with the basics.
What is Liquidation?
Liquidation (also known as dissolution or winding-up) refers to the process of closing a company, with the vast majority of countries in the world having some kind of legislation the process must follow, after which the company is legally considered defunct and all of its assets are distributed between its shareholders.
Liquidation happens mostly due to being insolvent, changing market conditions or a sort of Market-exit strategy. Either that or it can be as a result of forced closure.
Liquidation of a company also involves the cancellation of your trade license, approvals from relevant government authorities, the payment of utility bills, the closing of bank accounts, drafting the final audit report and cancelling all of the work permits and company visas.
Liquidation in Dubai
As one of the foremost financial centers of the region and even the world, the laws governing liquidation in Dubai are especially strict and must be handled carefully.
Firstly, company liquidation in Dubai requires that a regulated auditor be appointed, afterward, shareholders of the company hold a meeting in which they pass a resolution of liquidation, which mentions the name and address of the appointed liquidator ( this is in the case for LLCs). The resolution needs to be attested by a Notary Public, before proceeding.
In the case of forced liquidation, this is skipped.
These are the documents needed to start the process:
A Copy of your trade license
A Memorandum of Association Copy with all changes to date
A Power of Attorney if required
The Shareholders Resolution
A Copy of the Shareholders passports
Your UAE passport Copy
The Deregistration Application Form
For Shareholders that are not located in the UAE, the resolution must be attested and notarized by the Embassy of that country, attested and legalized from the Ministry of Foreign Affairs and Ministry of Justice of the UAE (for companies registered in free trade zones, the use of a notary is not required).
After you complete this, the law requires that you cancel the work permits and visas of all of your company’s employees and partners, as well as receive approval from your telecommunications, water and electricity provider, and the Ministry of Labor.
If needed, the liquidator may overview the collection and distribution of company assets, and the settlement of liabilities.
After the announcement of the liquidation, which must be done in at least two local Arabic newspapers, creditors and third parties have an allotted time period during which they can object to the liquidation. If there is a need, the liquidator may ask the shareholders for more time. In the case of Limited liability companies, this period must be no shorter than 45 days.
The Liquidation audit
There is the option of going for a liquidation audit before finalizing the process. There exist many reasons why one would need an audit, namely, every time the liquidation of a Company is needed it is important that all the Company’s assets are accounted for and backed.
It is just as important to discover and list all of the Company’s legal obligations. A liquidation audit report will make a list of the assets and liabilities of the company and should lessen the chances of creditors taking legal action and objecting against the liquidation.
As the liquidation comes to an end, the Company’s assets are converted to cash and distributed to the creditors or assigned to other Company obligations. There are specific laws regulating the way the assets are distributed. For the process to run as smoothly and efficiently as possible, you need to work closely with the appointed liquidator.
The liquidation audit makes sure the creditors and shareholders are satisfied with the liquidation and have their share of the obligations and assets.
Finalizing the process
When the liquidation task is completed, and the time given for objections to the liquidation is over, a liquidation report must be issued by the appointed liquidator. Submission of the final audit report along with the original newspaper advertisement to the Department of Economic Development is needed, along with paying the outstanding fees.
On closing the liquidation, an application for the company deregistration along with a copy of the liquidation report must be submitted to the company’s registrar. Once the application is approved, the company’s registrar office will issue a certificate of deregistration.
Once the documents are submitted, the authority will review and once it is approved, the final payment to the authority has to be made. At the end of the process, the final certificate called the License Cancellation Certificate will be issued and the company will legally be dissolved.
Things to note:
Canceling your trade license is a process al in of itself, and not doing so may expose you to further legal obligations, so it is very important to do it as fast as possible.
The liquidation report is the document that is important for any further business regarding the company, as it encompasses the state of the company at the end of its operations and the obligations of the parties.
The process may differ from zone to zone, so it is recommended to find a reliable expert.