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How an LLC in UAE Files for Bankruptcy

For some limited liability companies (LLCs) in UAE, the time comes to end their business operations and terminate contracts with employees, creditors, and customers. Liquidating an LLC is a stressful time that involves a multi-step procedure. Here are the

What are the Steps to File Bankruptcy in UAE?

Step 1: Approve the company dissolution 

The owners of the LLC should approve the business dissolution. With corporations, stakeholders are the ones that approve the action while members do with limited liability companies. For small businesses in the country, members or shareholders are often involved with the daily operations. This means they already know the circumstances that are faced by the businesses. An LLC’s operating agreement and a corporation's bylaws typically outline the dissolution process and needed approvals. 

To comply with the formalities, a board of directors has to draft and approve a resolution for company liquidation in UAE and the appointment of a company liquidator. The board's decision should be documented with the approval of the majority of the members on the company dissolution. 

 Step 2: File the paperwork with the DED

After members have voted on the company liquidation, the legal requirements must be filed by the appointed company liquidator with the UAE Department of Economic Development. If the company has been transacting business in other emirates, then the legal paperwork has to be filed as well with the concerned local authorities. 

Although the LLC is ending operations, the company's tax obligations don’t cease immediately. The business closing must be formalized with the Federal Customs Authority and Federal Tax Authority, whichever the company is registered from. The local tax authorities have their own business closing checklists that indicate the necessary forms and other requirements. Take note that you may also have payroll reporting obligations. If so, then there will be additional requirements. 

Note: there may be a need to terminate the tax registration number of the business when it cancels the registration with the tax authority.

Step 3: Send notices to creditors for the company liquidation

The creditors of the company are to be notified on:

  • The fact that the LLC will be dissolved (attach the statement of LLC’s intent to dissolve);
    Mailing address for where creditors can send their claims; 
  • List of information which should be included with the claim; 
  • A statement that claims are to be barred when they are not sent by the deadline

In UAE, company liquidation has to be published in the local newspaper publications. 

Step 4: Settle the claims of the creditors

The claims of creditors can be rejected or accepted by the company. The accepted claims are to be paid. What usually happens with a bankrupt LLC that has creditors is they create satisfactory repayment arrangements. A creditor, for instance, can agree to settle claims for less than the amount originally owed. With a rejected claim, the creditors are to be advised in writing that the company is rejecting the claim. Ensure that the appointed company liquidator is assisting with this step as the professional will be able to advise on settling the claims of unpaid creditors and all related statutes. 

Step 5: Distribute the remaining assets

After paying the claims of creditors, the remaining assets will be distributed to the owners of the LLC in proportion to share ownership. If, for example, you own the majority of the business, you will receive the majority of the remaining assets of the company. The distribution has to be reported to the local authorities. If the LLC has several different stock classes, the corporate bylaws outline the process for the asset distribution to the shareholders. If you are unsure of how the assets of the business should be distributed, the company liquidator has to be sought. 

The Process for De registering A Company In UAE

Expert Company Liquidators in UAE  

When you hire a company liquidator to help you with the process of company liquidation in the UAE, you need to make sure that the expert is licensed. Only choose the firm that's fully licensed and accredited to avoid issues with the legislation. 

Additionally, make sure that the business has experienced staff members. The last thing you want is for your LLC to suffer damages due to incompetent employees of your chosen company liquidation firm. If possible, make sure that you get the advice and assistance of a well-referenced company liquidator. At Farahat & Co, our seasoned professionals will help ensure you experience a smooth dissolution for your business. 

The firm advises a broad range of industries, so you know you’re in good hands. With over 30 years of experience, the company insolvency experts of the firm can help ensure your expectations are clear on the liquidation process. Call us today!

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.