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Liquidation of Joint Liability Companies in UAE

Liquidation of a company in Dubai is the termination of the company’s business and the settlement of all its rights and debts to determine its net funds to divide it among the partners. It is a series of operations after the dissolution of the joint-liability company, that is, ending the company’s commercial activities, and preceding the dissolution of the company, as there is one of the general reasons for dissolving companies. Liquidation is also referred to as the sum of the operations and procedures that are followed to fulfill the company’s rights, pay its debts, and inventory its assets to determine the net funds that will subsequently be divided among the partners.

What are the Reasons for Dissolving and Liquidating a Joint Liability Company?

 First: General Reasons for Dissolving Companies

The general rules to which all forms of commercial companies are subject to apply to the joint-liability company include the following:

  • The expiration of the company’s term stipulated in its contract, unless it is renewed under the rules of its articles of association.
  • Unanimity of the partners to end its term unless the company contract specifies a smaller majority, or there is a condition prohibiting the company from doing so. It is impossible to make a viable investment.
  • The end of the purpose for which the company was established or its absolute impossibility.
  • The loss of the company's capital, wholly or partially, in a way that makes it impossible to invest effectively.
  • Merger per the provisions of the law.

Second: Special Reasons for Dissolving Some Types of Companies

Since the joint liability company is based on personal consideration, as we mentioned, the company dissolves when this consideration collapses. If we consider that the reasons for dissolving the company here are not part of the public order, it is permissible to agree among the partners on what contradicts it, so it will be possible for the partners to agree on the continuation of the company despite the occurrence of a reason.  One of the reasons for the solution is that it is an exception to the original.

The reasons for the dissolution of a joint-liability company are stated in Article 296 and Article 297 of the Commercial Companies Law.

1. Withdrawal of One of the Partners:

According to Article 55 of the law, a partner withdraws from the company by written agreement with the rest of the partners. If there is no agreement, we resort to the judiciary to seek a ruling on withdrawal, with the need to inform the other partners by reliable means at least 60 days before the date of the day he specified for withdrawal.  In all cases, the company has the right to claim compensation for the damages arising from its withdrawal when necessary:

  • If the withdrawal is made in bad faith and to achieve his interests.
  • Or withdrawal at an inappropriate time, which may be at a time when the company has contracted with parties to implement large deals that would be impossible to complete in the case of the partner’s withdrawal.

2. The death or bankruptcy of one of the partners, or the announcement of a precautionary seizure decision against a partner:

Origin: Dissolution of the company by force of law due to the loss of the personal consideration that is considered the basis of the joint liability company, unless what is mentioned in the articles of incorporation of the joint liability company addresses this issue.

Exception: We distinguish if the joint liability company consists of two or more partners

  • If it consists of two people, it is not considered a reason for dissolution until the expiry of a period of 6 months for the company with a single partner, as he has failed to correct the company’s situation and find a new partner.
  • If it is composed of more than two people, the company will dissolve after 60 days and the partners do not unanimously decide to continue the company.

Who Appoints the Liquidator in the Joint Liability Company?

The liquidator or liquidators are appointed, if there are more than one, by a judicial ruling or by the partners in concluding the company’s charter or upon the commencement of the company’s dissolution, or by a decision of the company’s general assembly, provided that he is not acting as an auditor of the company’s accounts on the date of his appointment or has done so previously during five years, and the liquidator must record his appointment decision in the commercial license.

1. Judicial ruling:

The Companies Law, in accordance with Article 306 to Article 326, handles the issue of liquidation of companies with regard to the nomination of the liquidator and the general steps and stages in two cases:

Because a specific method of liquidation was not mentioned in the articles of the company’s articles of incorporation, which differs from the procedures contained in the law.

The partners did not agree on a specific liquidation method when deciding to dissolve the company.

2. By the partners:

Its charter must include a mechanism for liquidation, its method, and the name of the liquidator and his powers. Otherwise, it will be liquidated in accordance with the judicial ruling.

3. The general assembly of the company:

By an official decision from them in accordance with the voting rules regulated in its charter, provided that the method and mechanism of liquidation, its powers, and the identification of the liquidator, his remuneration and its duration shall be stated in the decision.

Farahat & CO has liquidation experts who have extensive legal and accounting experience in liquidating companies.

What is the Effect of Liquidation on the Legal Personality of the Joint Liability Company?

The joint liability company shall retain its legal personality during liquidation to the extent that the liquidator deems appropriate and sufficient to facilitate its liquidation procedures. The most important consequences of this are:

The joint-liability company retains its nationality, domicile, and eligibility to litigate, and is registered in the commercial registry. It also maintains its financial liabilities and may be declared bankrupt if the company stops paying its debts.

The company's commercial name will remain and the phrase "under liquidation" or whatever it means will be added to it. The same will apply to all its correspondence and transactions that it carries out.

The authority of the directors or the board of directors ends with the dissolution of the company, and they remain in charge of managing the company to the extent that the liquidator or liquidators deem sufficient, and they are considered to be against the liquidator from a third party.

The legal personality of the joint liability company disappears with the completion of liquidation, and what matters here is the actual termination of the liquidation and not the formality that the partners may carry out with the liquidator with the intention of harming the company’s creditors, as the partners and the liquidator can appeal the formality of completing the liquidation.

Farahat & Co is considered the most prominent office specializing in corporate liquidation and bankruptcy-related matters in the UAE.  It is staffed by the best legal liquidators.

Read More: A Guide to Compulsory Company Liquidations in UAE

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.