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A Guide to Compulsory Company Liquidations in UAE

Liquidation is a legal insolvency operation that ends a corporation (sometimes known as "winding up" or "closing" a firm); all of its assets are liquidated, and the profits are used to pay off debts, cover expenditures, and distribute any residual funds to the company's owners. A firm will stop operating and hiring staff after it has been liquidated. A company's business license is canceled upon liquidation, and its name is deleted from the Trade Registry; the firm is then said to have ceased to exist.

Why is Company Liquidation Necessary?

There are two main reasons why a corporation may need to be liquidated in the UAE:

  1. The initial objective for incorporating the firm has been met, and the corporation is no longer necessary;
  2. The corporation is deemed bankrupt.

Read More : Process of Cancellation of Company Registration for Liquidation

Types of Company liquidation in UAE

The two types of liquidation are as follows:

  1. Voluntary Liquidation –

Voluntary liquidation in UAE is one way to dissolve a company. Adopting a legitimate shareholder's resolution will continue at the direction of the company's shareholders or creditors.

  1. Compulsory Liquidation

To recover their obligations or debts, creditors who are owed money by a corporation but have yet to receive payment may ask the courts to liquidate the business. The courts may determine that a company must liquidate and sell its assets to settle its debt.

Even if There are No Unpaid Obligations, is Company Liquidation in the UAE Still Required?

It is always best to legally dissolve a business rather than just letting your trade license expire, even if there are no outstanding obligations to creditors. When officially liquidating a firm, a variety of formalities must be followed. Ignoring them might result in fines and the "blacklisting" of the firm by UAE government officials and its directors and shareholders. It might harm their capacity to start another firm or affect the enterprises they are already involved in.

What Does a Company Liquidator Do?

A liquidator is a person or corporation registered in the UAE tasked with acting on behalf of the company to liquidate its assets to raise money to pay off any outstanding debts. These firms are often chartered accounting or audit firms. In the event of a forced liquidation, the courts may appoint a liquidator, or shareholders may do so by a resolution. The liquidator will first submit a formal letter of acceptance upon their appointment. They will create a statement of affairs and the liquidator's report after all of their tasks have been finished, which are necessary to wrap up the liquidation process.

Compulsory Liquidation Procedures in UAE

The most frequent methods for closing a business under Compulsory liquidation are:

  1. Filing a petition for winding up

The winding-up petition must be submitted to the appropriate court as the first step in the forced liquidation procedure.

  1. Court-issued order for closure

The court will issue a winding-up order after determining that the corporation should be liquidated.

  1. Selection of a liquidator

The current directors will lose all authority over the firm's day-to-day operations when the official liquidator takes control of it.

  1. Company property is sold.

The process of selling off the company's assets might include all of its moveable and immovable property. The liquidator will oversee the assets to pay off the company's obligations.

  1. Closure of the business

After the assets have been sold, the business will be formally dissolved, and its name will be struck from the list of registered companies.

Compulsory Liquidation Effects

  1. Creditors must be liquidated.

After the company's liquidation procedure, an unsecured creditor may get payment for all outstanding obligations. A creditor must furnish the liquidator with claim information (proof of debts). The liquidator will next examine all debt evidence. He may accept or reject a claim in its whole or part.

  1. Employees' compulsory liquidation

If a winding-up order is issued, all employees are instantly fired. According to UAE labor legislation, a former employee may be entitled to a gratuity.

  1. Directors must be liquidated.

When a corporation enters forced liquidation, its directors' rights are terminated, and they are immediately removed from office. You may be asked to help the liquidator and submit a statement of the firm's assets and liabilities as a former director of a company that is wound up.

There are Risks Involved

The risks of compulsory company liquidation in UAE depend on how the administrators run the firm, therefore this procedure may uncover a variety of difficulties. If the directors are determined to have engaged in improper or fraudulent trade and mismanaged the bankrupt firm, they may face further penalties as detailed below (but not limited)

  1. Personal liability for corporate debts.
  2. Disqualification as a director, as well as any future director appointments
  3. A fine.

Company Liquidation Services in UAE

Farahat & Co. has a team of the country's top company liquidators. We can walk you through the whole process of the liquidation procedure in UAE. Our experienced staff thoroughly examines each case and successfully conducts the voluntary and compulsory liquidation procedure. Don't hesitate to get in touch with us if you need any more assistance.

Read More : Company Liquidation Procedure in UAE : Step by Step Guideline

Shahnaz Kaushar is a senior Trademark and Intellectual Property (IP) Expert. She has handled some of the firm’s complex, high-profile cases – many involving the protection of trademark and IP rights.