Process of liquidation in the Uae
Liquidation can be one of the best options for a company if it is no longer able to meet its financial obligations, or if it is insolvent. Liquidation can be either voluntary or compulsory i.e. through a court order.
When does a Company need to be liquidated???
Liquidation can be considered if the business is no longer profitable and there are no prospects for turning it around. Choosing liquidation converts the business assets to cash, which is then used to make these payments.
The concept of liquidation is in accordance with the provisions of the Federal Law No. 2 of 2015 on Commercial Companies (‘2015 Law’). Unless the Memorandum of Association or Articles of Association of the company specify any provisions contrary to the 2015 Law, the liquidation process should be executed in accordance with the default provisions as set out under the 2015 law.
Voluntary liquidation is when the shareholders agree to liquidate the company and appoint a liquidator through a shareholders’ resolution.
Compulsory liquidation is when there is a dispute between the shareholders and the liquidation is requested by the shareholders through the courts, the competent court shall select the method of liquidation to be used and formally appoint a liquidator.
Requirements for Liquidation:
- Resolution to be issued by the company approving the liquidation of the company and the appointment of a liquidator;
- Clearances will be required from the relevant authorities (i.e. telecommunication provider, SEWA, Emirates Post, etc.);
- Advertisement or notice shall be published in two local daily newspapers (one of which issued in Arabic) for a period of least 45 days; and
- The appointed liquidator should prepare and submit a liquidation report to the relevant licensing authority.
Upon the completion of the liquidation process and submission of the liquidation report by the liquidator at the relevant licensing authority, the latter will issue a liquidation certificate announcing the completion of the liquidation and closure of the company.
Whether a Company is Dissolved After Liquidation?
No, a company is not dissolved after liquidation. Dissolving a company and liquidating it are two separate procedures. Liquidating a company means selling off its assets to claimants whereas dissolving a company is deregistering it. The sale of assets is used to pay creditors and shareholders in the order of priority. Therefore, it is advisable to understand the best way forward for your company in the UAE to navigate difficult financial circumstances.