Companies on a day-to-day basis face challenges in the execution of the strategies to reach goals. The factors can be both external and internal. Suppose the company fails to fulfil its financial obligations in matters of debts to its creditors. In that case, the company will be forced to either restructure its debts or liquidate and sell its assets to pay back the creditor’s dues.
What is Company Liquidation?
Liquidation by definition in subjects of finance and economics is a process of closing a business and distributing its valuable assets to different claimants. Company liquidation occurs when a company is deemed insolvent, meaning it cannot pay its dues. The process involves closing operations and selling the remaining assets to pay creditors and shareholders based on the priority of claims.
In UAE and its seven Emirates, company liquidation is undertaken under the different provisions of the Federal Law No. 2 of the year 2015 on Commercial Companies (commonly known as '2015 Law'). The 2015 Law is applied by default to all company liquidation proceedings except in cases where Memorandum of Association or Articles of Association company at the time of formation specify any relevant provisions or any provisions contrary to the 2015 Law. In the UAE, an appointed company liquidator will be responsible for executing the process of company liquidation.
The following pre-requisites are necessary before starting the Process of Company Liquidation in the UAE.
- Closure of all company bank accounts
- Clearing of company telecom bills
- Settling of electricity and other utility bills
- Cancellation of Visas under the company license
- Preparing the Final Audit report
Process of Company Liquidation in the UAE
The company liquidation process depends on the company type. It shall be executed under the provisions of either Commercial Companies Law for mainland companies following the Free Zone Regulations for free zone registered companies or Offshore company Regulations offshore companies. As there are many registration authorities in the UAE and its emirates, there are different rules and conditions for executing company liquidation. A company liquidation involves the following steps below:
- The company's management or board will pass a resolution for liquidation of the company and the appointment of a company liquidator. Further, the visas of the current employees are cancelled or shifted to another company). In cases where the company's shareholders reside outside the UAE/the owner is another foreign company. The resolution to be notarized and attested from the UAE embassy of that respective country, and the resolution has to be legalized by the Ministry of Foreign Affairs, UAE.
- The company applies for required clearances from the relevant authorities in the UAE (i.e., SEWA, telephone provider, Emirates Post, etc.
- The appointed company Liquidator uses the company liquidation certificate upon the completion of the process. The liquidator should give License Copy, Auditor registration certificate and Authorized signature certificate attested by Notary Public.
- An advertisement or notice on the company liquidation should be published in at least two local daily newspapers (one of which issued in Arabic) for a period of least 45 days. The advertisement will be served as a notification to any creditors of the company. In the absence of any claims from creditors in the 45 days, Liquidator and Partners confirm no objections or claims during the Ad period.
- At the end of the process, the appointed company liquidator prepares and submits a detailed liquidation report to the relevant licensing authority.
Parties Involved in Company Liquidation in the UAE
The parties involved in the company liquidation are:
- Company Management or Board
- Government Authorities
- Company Liquidator
What is the Role of Company Liquidator?
A company liquidator is an individual or UAE registered audit firm or chartered accountancy who the company's board has appointed to dissolve the business and terminate all its current operations. The company liquidation can be conducted by one or more liquidators appointed by the company's partners and the management or any other similar body. The condition that the appointed liquidator is not a current auditor of the company or not audited the company's accounts in the last five years.
Upon appointment, the company liquidator will issue a letter of acceptance to the company's management. At the end of the process, the company liquidator will prepare a statement of company affairs and a liquidation report to finalize the liquidation process.
The company liquidator is responsible for selling the assets to repay the company's internal and external liabilities. The company liquidator sells all necessary assets, except the cash and bank balances of the company. The primary responsibilities of the company liquidator include:
- Initiating the company liquidation process
- Overview of Collection & Distribution of Company Assets
- Publishing the company liquidation notice
- Preparing the Statement of Affairs of the company
How Can We Help?
Jaxa Chartered Accountants are one of the leading auditing company in the United Arab Emirates. Jaxa has served many local and international clients in the UAE for many years. Our expert advisors assist companies with any details and process regarding company liquidation. The services include- Bookkeeping, accounting, auditing and VAT related services. Please Contact Us to know more about the liquidation process.