What Happens to Employees When a Company Closes in UAE

If you have been let go or laid off due to reasons that don’t have anything to do anything about your performance, you’re likely to wonder if you’ll get any compensation. Or, more importantly, when will you get it?

However, who receives compensation, as well as how much will be given by the company that will close down, is not always black and white. Some rules surround compensation for employees who worked for a business closing down.

In this article, we advise you to read on so you get a better understanding of how it all works.

Compensation for Employees of Closing Companies in the UAE

In the United Arab Emirates, if the employee has signed a contract of limited term, there are specific conditions that apply if they’re made redundant. As per UAE labor law, which applies to every single private mainland business and is followed by nearly all free zone companies, Article 115 applies.

It states that should the employment agreement be of a term that was determined in the contract and the employer rescinds, the employee is bound to get compensation for the damage he or she incurred.

The amount of compensation the employee will get will not exceed the total wage that is due for three months or the remaining duration of the employment contract, whichever is the shorter duration. This is going to apply unless it is stipulated otherwise in the contract.

Take note: The period of service of an employee will only make a little difference concerning the amount that is due for early employee contract termination. If there is gratuity pay entitled to the employee, then he or she will get it along with the compensation given to the employer upon termination of the employment contract of the employee.

As for when the compensation will be given, it will depend on a lot of factors. To hasten the release of what is due to you, it is recommended that you talk to an expert in liquidation in the UAE.

What Are the Entitlements of Rights of Employees of an Insolvent Company in the UAE?

If you are owed money by your employer, which is now insolvent, it is best if you claim it through a liquidation expert in the UAE, as mentioned earlier. The professional may also be the one who administers the insolvency of the business that employed you.

In some instances, for example, if a business rescue is being looked into or if the company is being bought by a new owner, you might be requested to continue providing service.

This will not have an impact on your rights for compensation if the businesses close later on. If the business is sold to third parties, your rights in terms of employment will be protected, as well as the money that is owed to you.

What Are the Different Kinds of Insolvency in the UAE?

If you are working for a business in the UAE that has, unfortunately, become insolvent, it can only mean any of five things; each of them has a slight difference in its implication to employees.

• Company Voluntary Arrangement – For this insolvency, this is simply a restructuring mechanism. The business arranges a payment plan that will be agreed upon by all creditors.
• Administration – It usually occurs when employers ask administrators to come and take over the company to keep it afloat.
• Receivership – This is similar to liquidation; however, it is usually instigated by creditors who have been owed the business money through a secure medium, e.g., a bank. The assets of the business will be sold to pay the creditors who are owed.
• Company liquidation – This is where the business is closed down, and all of its assets will be sold to pay all of the creditors, as well as the employees.
• Creditor Voluntary Liquidation – This type of insolvency involves a process that is designed to allow a business that has become insolvent to close voluntarily. This decision to liquidate the business will be made official through a board resolution. It’s instigated by company directors.

How Can Employees Claim Their Entitled Compensation If the Company Becomes Insolvent?

This is a topic that requires an in-depth discussion. The insolvency or liquidation expert in the UAE who will be handling the insolvency of the company you’re employed with will send you a set of claim forms that you need. When you find that the expert has not given you claim forms, you are to contact the professional and request the forms in writing.

FAQs

1. Am I entitled to compensation if my company closes in UAE?

Yes. If your employment contract is limited-term and the employer terminates it early due to business closure, UAE Labor Law (Article 115) entitles you to compensation. This is usually up to three months’ wages or the remaining contract duration, whichever is shorter. End-of-service gratuity is also payable if applicable.

2. When will I receive my compensation and gratuity?

The timing depends on the liquidation or insolvency process. To expedite payments, it is recommended to contact a licensed liquidation expert or insolvency administrator in the UAE who handles the company’s closure.

3. Does the length of my service affect my compensation?

Not significantly. Compensation is mostly based on the contract term and remaining wages. However, your total period of service will determine your end-of-service gratuity, which is paid separately.

4. What happens if the company is insolvent or bankrupt?

Your rights are still protected. Employees can file claims through the company’s liquidation expert. Even if the business is being rescued, restructured, or sold, you are entitled to your due wages and any unpaid benefits once the company eventually closes.

5. What types of insolvency exist in UAE and how do they affect employees?

• Company Voluntary Arrangement: Payment plan agreed with creditors; employees may continue to receive salaries as arranged.
• Administration: Administrator manages the company to keep it operational. Employee rights remain protected.
• Receivership: Creditors appoint a receiver to recover debts; employees may be paid from asset sales.
• Company Liquidation: Company closes, assets sold; employees are among the creditors entitled to payment.
• Creditor Voluntary Liquidation: Directors initiate voluntary closure due to insolvency; employee claims are submitted via liquidation forms.

6. How can I claim my compensation if my employer is insolvent?

The liquidation or insolvency expert handling the company will provide claim forms. If you haven’t received them, request the forms in writing. Submit the required documents promptly to ensure your claims are processed.

7. Do I need a lawyer or consultant to claim my dues?

It’s recommended to consult a UAE-licensed insolvency or liquidation expert, as they manage employee claims and coordinate with creditors. Legal advice can help ensure you receive full compensation and gratuity.

8. What if the company is sold to a new owner?

Your employment rights and any unpaid compensation remain protected. Even if you are asked to continue working under the new ownership, your claims for prior dues will not be affected.

9. Can I claim unpaid salaries from a free zone company?

Yes. Most free zone companies follow similar labor laws or their free zone-specific regulations. Filing through the designated free zone authority or a licensed liquidation expert is recommended.

10. What documents do I need to claim my dues?

Typically, you will need:

• Employment contract
• Salary slips or proof of payment
• Any correspondence regarding termination or redundancy
• Identification documents (passport, Emirates ID)

The liquidation expert will specify exact forms required.