Company Liquidation in Dubai
Company Liquidation in DubaiUpdated on Tuesday 05th April 2022
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Although Dubai is a very promising business destination, that offers many opportunities and directions for development, sometimes the business does not succeed to conquer the market as well as planned or it is perhaps confronted with unforeseen circumstances and economic difficulties. In such cases, company owners should consider commencing the company liquidation procedure. Our Dubai lawyers can help you with liquidation services and help you follow all the necessary legal steps to end the activity of the company. The liquidation procedure can sometimes extend over a long period of time and one of our Dubai liquidators will help you throughout the process.
What is company liquidation?
For any business, one of the toughest decisions relates to the liquidation of its operations. Put simply, liquidation will mean that the company, its assets, and its legal standing all cease to exist and the company is totally de-registered from all official documents. In other words, after liquidation, the company will no longer exist.
Through company liquidation, there remains no need for insolvent companies to continue running operations, thereby reducing the burden on the business community. Moreover, there is also a financial obligation to repay creditors and the distribution of the company’s assets are assured through liquidation proceedings.
Why is a company liquidated?
Reasons for liquidating a company can be one or more than one reason. Some of the common reasons to liquidate a company are:
- The company no longer owns assets, or owns a small number of assets;
- The company is unable to pay creditors;
- The company has no cash or liquidity to finance its own existence;
- The company is unable to obtain any form of revenue or business;
- The company obtains revenue but the losses (including but not limited to losses arising due to past decisions) are way too heavy;
- The directors choose to vote for liquidation in a legal manner at the board meeting.
Sometimes, there could be a combination of many reasons as to why a company chooses to walk down the path of liquidation.
Commencing the company liquidation procedure in Dubai
The liquidation of a company in Dubai is necessary when the respective legal entity is no longer able to make the daily business transactions or if its creditors are not being paid. In serious cases, the liquidation procedure can be imposed on the company if a Dubai regulatory agency believes that the company has committed a serious offence. In this case, we are talking about a compulsory liquidation. This type of liquidation also occurs when the company’s creditors file for liquidation. In other cases, the liquidation can commence voluntarily, when the shareholders decide it is time to end the business activity.
Once it has been established that the liquidation will commence, the company’s board gathers in a special meeting that will outline the development of the liquidation procedure. A liquidator is appointed at this time and any requests from the company’s creditors will be fulfilled. When the liquidation is compulsory, these details will be contained in the court order.
What are the steps in liquidating a company?
The first step is to obtain the valid documentation that warrants a liquidation in the first place. This could be a notarized board resolution (where majority of company directors/owners have voted for liquidation) or a court order that directs liquidation.
The next step you need to take is to appoint the services of a liquidation services company. This company will manage all the processes related to your liquidation. In some cases, the Government mandates that an official liquidator company be appointed. The reason why a liquidation services company has to be appointed is that the Government seeks complete transparency and non-bias in all matters related to liquidation of your company. Please note that when a liquidation services company is appointed, then the company must also confirm the same over written documentation.
Upon hiring a liquidation services company, the next step is to inform the authorities under whose jurisdiction the company has its trade license issued. If the authority is the Dubai DED, then the DED must be notified about the liquidation of the company and a formal application for license cancellation must be initiated.
The next step in your liquidation process is to ensure that all employees are officially terminated from your company, all their dues settled, and the employee count be brought to zero. After this, in your liquidation process, the company establishment cards must be cancelled and the letters must be saved as documentation for future.
All external approvals for cancellation must be obtained and the final trade license cancellation must be confirmed via document from license issuing authority.
While the exact steps may differ slightly due to the legal nature of the firm (sole proprietorship or limited liability company), the broad steps remain the same for liquidation of the company.
What if I do not want to liquidate my company, but company cannot continue?
In such situations, the license issuing authority believes that every company should be given a chance not to liquidate, and still get a fair chance at getting its business on track. This is why the Dubai DED has the capability of a company to “freeze” a license instead of cancelling it. When freezing a license, the company employees and establishment cards will still be cancelled, but the company may resume its activities after the freeze period is over by just renewing the cards and license.
Ultimately, the decision to liquidate a business rests wither with the judicial authority (courts) or with the board of directors. In order to effectively and smoothly complete your liquidation process, do reach out to us.
We invite you to watch a short video about the company liquidation in Dubai:
Documents required for company liquidation
Firstly, the company must present the official documents that prove that the decision to liquidate the company has been taken. This document will also include the name of the appointed liquidator. The original registration certificate must also be provided, along with the liquidator’s credentials. All these documents should be notarized. After the first steps of the liquidation have been completed, the business must also cancel any special permits or licenses it might have obtained to perform various economic activities in Dubai. Branches in Dubai will also need to provide original documents from the parent company. Also, the following documents are necessary when the liquidation procedure begins:
- the letter that shows the liquidation of the company is approved;
- the license of the appointed liquidator for the company that commences such procedure;
- the dissolution documents of the company in Dubai;
- the documents of the owners of the company that it is subject to liquidation.
What is a liquidation plan in Dubai?
The board of managers, alongside with the owners of the firm are in charge of establishing the liquidation plan of the business in Dubai. This needs to contain the reasons why the termination of the company is adopted, the time in which the liquidation takes place and information about the person in charge of such procedure.
What happens after the liquidation procedure commenced?
Once the liquidation process of a company in Dubai started, the firm is erased from the Trade Register, the business license is revoked, and the visa of foreign investors is annulled. More than that, the dissolution of the company is officially announced through a statement signed by the liquidator in charge. Please feel free to get in touch with our attorneys in Dubai for in-depth details about how companies are liquidated in Dubai and about the legal terms involved in such kind of procedure.
Our law firm in Dubai can provide liquidation services for any type of Dubai company. Please contact our attorneys in Dubai for further information. If you need legal services in other countries, such as UK, we can put you in touch with our local partners. We can also help you with services for opening a company in Bahrain.