The Commercial Companies Law in the United Arab Emirates aims to develop businesses, the capabilities of the state and its economic position to regulate companies in accordance with global changes, especially with regard to regulating governance rules, protecting the rights of shareholders and partners, supporting the flow of foreign investment, and promoting corporate social responsibility. For the liquidation of companies, the provisions contained in Federal Law No. 2 of 2015 regarding commercial companies, as amended by Federal Decree-Law No. (7) of 2018 amending some provisions of Commercial Companies Law No. 2 of 2015, unless another method of company liquidation is stipulated in the company’s contract or articles of association. Unless the partners agree otherwise.
The authority of the managers or the board of directors ends with the dissolution of the company, and they are the ones in charge of managing the company until the company liquidator is appointed. The management of the company shall remain in place during the liquidation period, according to what the liquidator deems appropriate.
What is Company Liquidation?
Company liquidation is defined as the set of operations that aim to end its business and distribute all its assets to the claimants, as well as distributing the remaining assets, if any, to the partners and creditors.
The liquidation of companies also means the termination of all their commercial operations by selling assets or transferring all their shares.
There are several reasons that lead to the termination of the company, and then it must be dissolved and liquidated. In order to carry out the task of liquidating the company, a liquidator must be appointed in UAE to assume its obligations and management duties. Upon completion of this process, the company shall be dissolved and its registration shall be canceled.
What Are the Types of Company Liquidation in UAE?
The types of liquidation of commercial companies in the United Arab Emirates can be divided as follows: Compulsory liquidation: In this case, the creditors ask the court to implement the liquidation of the company, because it is unable to pay its debts, as one or more of the creditors file a lawsuit before the competent court requesting the company's liquidation or bankruptcy.
- Voluntary liquidation - liquidation procedures can be started without any interference from the court.
- Compulsory Liquidation - Liquidation by a decision of the competent court
General Assembly Resolution to Liquidate Companies in the UAE.
In the event that the cancellation was by a decision and the consent of the partners, the minutes of the general assembly meeting must be prepared to state the cancellation of the commercial license. The partners decide to dissolve and liquidate the company at the company's extraordinary general assembly. The legal liquidator is then appointed and the decision is documented with the notary public.
The Mechanism of Voting on the Decisions of the General Assembly
Each partner has the right to attend the meetings of the general assembly and has the right to represent him with special authorization, another partner other than the managers or any other party that the articles of incorporation permits his appointment to represent the partner in the general assembly, and each partner has a number of votes in proportion to the shares he owns.
There is a quorum to convene and vote on the decisions of the General Assembly:
- The meeting of the general assembly is not valid unless attended by one or more partners who own at least 75% of the shares in the company's capital.
- The decisions of the General Assembly are not valid unless they are issued by a majority of the partners present and represented at the meeting unless the articles of incorporation provide for a larger majority.
Stipulations in the Decision of the General Assembly to Liquidate the Company
Among the most important things that must be stipulated in the general assembly’s decision to liquidate the company are the following:
- Appointment of the company liquidator or liquidators
- Determining the liquidator's fees - it does not have to be a lump sum, as it may be a monthly fee
- Filter method
- Authorizing the liquidator to represent the company before others, including the courts
- The method of selling the company's assets
- Determining the liquidation period and the extent of its renewal
- Interim reports to the liquidator and the time frame for their submission
- Submitting a final account at the end of the liquidation procedure
- And any other things that would help to complete the liquidation easily and conveniently
Appointment and Duties of the Company Liquidator
The process of liquidating companies in the Emirates shall be carried out by one or more liquidators appointed by the partners of the concerned company or issued by a decision of the General Assembly or its representative, provided that the liquidator is not currently an auditor of the company’s accounts or has previously audited its accounts during the five years prior to his appointment as liquidator.
If the liquidation is based on a judgment, the competent court shall indicate the method of liquidation procedure in UAE and appoint the liquidator.
In the event of multiple liquidators, their actions shall not be valid unless they are taken with their unanimous consent unless the contrary is stipulated in their appointment document.
The main duties of the company's liquidator are:
- Inventory of the company's funds and obligations: where the liquidator makes an inventory of the company's funds and obligations. Therefore, the company’s managers or the chairman of its board of directors must hand over to the liquidator the company’s funds, accounts, books and documents.
- Preparing a list of the company's money and obligations: The liquidator writes a detailed list of the company's money, obligations and budget to be signed by the company's managers or the chairman of its board of directors, and the liquidator must keep a book to record the liquidation work.
Among the duties of the liquidator, he must do all that is necessary to preserve the company’s funds and rights. So, he must:
- Representing the company and carrying out all the works required for liquidation: In particular representing the company before the courts, fulfilling the company’s debts, and selling its movable or real estate by public auction or in any other way, unless the liquidator’s appointment document stipulates that the sale be made in another way. The liquidator may sell the company’s assets as a whole, without permission from the partners or the company’s general assembly.
- Notifying the creditors of company liquidation: the terms of all debts owed by the company will fall as soon as they are resolved, and the company liquidator must inform all creditors in recorded correspondence with acknowledgment of receipt of the opening of the liquidation, inviting them to submit their requests, and publishing the notification in two widely spread daily local newspapers, one in Arabic and the other in English, and in all cases, The notification of liquidation must include a grace period for the creditors of not less than forty-five days from the date of the notification to submit their requests.
- Fulfilling the company's debts: If the company's funds are not sufficient to pay off all debts, the liquidator shall fulfill the proportion of these debts, without prejudice to the rights of privileged creditors, and every debt arising from the liquidation works shall be paid from the company's funds in priority over other debts.
- Depositing debts to the court’s treasury: If some creditors do not submit their applications, their debts must be deposited in the treasury of the competent court, and sufficient amounts must be deposited to meet the share of the disputed debts unless the owners of these debts obtain sufficient guarantees or it is decided to postpone the division of the company’s funds until the dispute is settled in the aforementioned debts.
- New business of the company: The liquidator may not start a new business unless it is necessary to complete the previous business. If the liquidator performs a new business that is not required by the liquidation, he is responsible for all his money for this business. If there are multiple liquidators, they are jointly liable.
Read More : What are the Roles and Duties of a Liquidator?
The liquidator must complete his mission within the period specified in his appointment document. If the period is not specified, each partner may refer the matter to the competent court to determine the liquidation period. This period may not be extended except by a decision of the partners or a special decision of the general assembly, as the case may be, after perusal of a report from the liquidator stating the reasons that prevented the completion of the company liquidation on time. If the liquidation period is fixed by the competent court, it cannot be extended without its permission. The liquidator must submit to all partners or the general assembly a temporary account of the liquidation activities every three months. He shall provide the information or data requested by the partners on the status of the liquidation, and the liquidator shall, within one week of the approval of the General Assembly, notify the partners that they must receive their dues within a period not exceeding twenty-one days by virtue of an announcement published in two daily local newspapers, one of which is published in Arabic.
Upon completion of the liquidation process, the liquidator must:
Presenting a final account to the partners, the general assembly or the competent court for the company liquidation work, so that these works end with the approval of the final account.
After paying the company’s debts, each partner receives, after dividing, an amount equal to the value of the share he submitted from the capital, and the remainder of the company’s money is divided among the partners in proportion to the share of each of them in the profit competent.
In the event that the company’s net funds are not sufficient to meet the partners’ shares in full, the loss shall be distributed among them according to the prescribed ratio.
It is worth noting that the liquidator is responsible if he mismanages the company's affairs during the liquidation procedure in UAE, he also asked for compensation for the damage caused to others due to his professional mistakes in the liquidation process.
Why Choose Farahat & Co for Liquidation in UAE?
At Farahat & Co, we offer top-notch company liquidation services in Dubai and all over UAE by experts in the field. We also provide liquidators to take care of all the legal processes involved in the liquidation of your company.