About Company Liquidation in UAE
Company liquidation is the formal insolvency procedure by which a company is brought to an end. Company liquidation is also often termed as ‘winding up’ or ‘closing’ a company. All of the company’s assets are liquidated and the proceeds from the sale of assets are used to settle outstanding debts and pay outstanding expenses. Any balance remaining can then be transferred to the shareholders of the company.
Once a company is liquidated it will cease doing business and employing people. On liquidation, a company’s business licence is revoked and its name is removed from the Trade Registry. The entity is then considered to have ceased to exist.
Why is a company liquidation required?
There are two principal reasons why a company liquidation may be necessary in the UAE:
Even if there are no debts to be paid to creditors, it is highly advisable to formally liquidate a company that is no longer of use rather than simply allowing your trade licence to expire.
There are a number of procedures to be completed when formally liquidating a company. Ignoring these may attract various penalties and could also result in the ‘blacklisting’ of company, as well as its directors and shareholders, by the government authorities in UAE. This may impact on their involvement in other businesses or damage their ability to set up another company in future.
What is the role of a liquidator?
A liquidator is a UAE-registered agent or a firm, typically a chartered accountancy or audit firm, that is assigned to act on behalf of the company to sell its assets in order to generate cash to discharge any outstanding liabilities.
A liquidator may be appointed by shareholders via resolution or may be appointed by the courts in the case of compulsory liquidation.
Once appointed, the liquidator will issue an official letter of acceptance at the initial stage. Once all its duties are completed, the liquidator will prepare a statement of affairs and the liquidator’s report, which are essential to finalise the liquidation process.
Company liquidation in the UAE
The company liquidation process will vary depending on the following three criteria:
Type of ownership
Sole establishments or proprietorships are simply required to apply for the cancellation of their business licence through the relevant Department of Economic Development and acquire all relevant clearances from:
- Ministry of Human Resources and Emiratisation
- Directorate of Residency and Foreigners Affairs
- The relevant water and electricity authorities
- The leasing entity
However, you are required to appoint a liquidator if the legal form of your business is one of the following:
- General Partnership
- Limited Liability Company
- Simple Limited Partnership
- Public Joint Stock Company
- Private Joint Stock Company
Types of liquidation
Voluntary company Liquidations Shareholders of a company may elect to liquidate a solvent company or the directors of an insolvent company may choose to cease further trading and liquidate its assets in order to pay its creditors.
Compulsory company Liquidations If a company's debts are not paid on time, its creditors may request the courts to liquidate the company in order for them to collect their dues. The courts may decide to force a company to liquidate and sell its assets in order to pay outstanding debt.
Jurisdiction of registration
In the UAE Free Zones, there is no general requirement to appoint a company liquidator. Free Zone Company closing procedures will vary according to the requirements set out by the specific Free Zone Authority where the company is registered.
To close a Free Zone company, you are required to notify the Free Zone Authority in advance, which will publish a notice of liquidation. Business owners will be required to obtain No Objection Certificates (NOCs) from utility providing companies and other applicable government/free zone departments.
Once this documentation is cleared, they will be required to cancel employees’ visas and work permits and close bank accounts. Finally, business owners should receive an official termination letter from the Free Zone Authority.
Company liquidation procedures in UAE
In general, the formal process of company liquidation in Dubai, Abu Dhabi, and the rest of the UAE is as follows:
- Copy of the company’s Trade Licence
- Copy of the company’s Memorandum of Association
- Powers of Attorney (if any)
- Copies of passport / Emirates ID for all partners, owners and shareholders
- Deregistration application form.
- Cancellation of work permits and visas for all employees and partners
- Clearance letter from Immigration Department
- Clearance letter from Labour Department
- Clearance letters from utilities companies – water, electricity and telecoms
- Clearance letter from leasing entity (landlord)
- Clearance letter from Road & Transport Authority (RTA) for any registered vehicles
- Clearance letter from Federal Customs Authority (FCA)
- Bank account closure letter
- VAT de-registration and VAT clearance letter from FTA
Sovereign's company liquidation services in UAE
The company liquidation process can be lengthy and costly because companies must liaise with a number of external parties and authorities to arrange everything in a timely manner. Missing out any step or document can cause unnecessary delays and complications.
The company liquidation process in the UAE has also become more complex in recent years with the introduction of Value Added Tax (VAT), Economic Substance Regulations (ESR) and Ultimate Beneficial Ownership (UBO) rules, which means the companies need to approach the winding-up process more carefully.
Sovereign offers company liquidation services for all UAE entities – LLCs, free zone companies and offshore companies – from a complete liquidation to assisting with a part or parts of the process, as required by the client. Please contact Sovereign Dubai for further information about our liquidation services.
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