Business entities play a very significant role in developing a nation. Growing number of business entities have given birth to entrepreneurs in all possible domains. In a year, multiple ideas get implemented but very few are able to sustain in a long run. Business involves huge risk and it needs to adapt to the changing business climate. Sustenance in this competitive market is what ranks an organization. If the business is not able to do so, they might suffer losses that keep getting accumulated and at one point, demanding it to let in. This stage is stated to be a liquidation state where the insolvency procedures come into the picture and gets executed. By the end, you will get a clear idea as to why a company opts for liquidation and how the procedure takes place.
What Is Company Liquidation?
When a business fails to sustain itself and faces a continuous decline in growth, it gives rise to the winding up of a business entity. Company liquidation process is an officially conducted insolvency process where the assets are sold in order to clear the debts. Continuous business audit and better risk management practices avoid the liquidation scenario as it figures the gap that needs to be bridged. Now, just as incorporation, the liquidation process also involves certain criteria that are to be fulfilled to completely cease the company to perform any future trade. Before moving into the process, let’s have a look at certain symptoms or scenarios through which results in liquidation.
Scenarios That Give Birth to Company Liquidation
- Total debts and liabilities exceed the value of the total assets
- Unable to pay debts
- The higher rate of attrition in the company
- The company has failed to register itself as a private or public company with the registrar
- Fail to commence trading for a period of one year from the date of incorporation
If a business owner identifies the above signs, a company audit needs to be done. In spite of doing so, if the entity fails to improve its performance, it’s better to proceed towards the liquidation process. To initiate the process, one must submit certain essentials. Let’s have a look at them.
Documents Required for Liquidation Process in UAE
- License Copy
- Memorandum of Association copy with all the changes
- Power of Attorney (if any)
- Shareholder’s Resolution
- Shareholder’s Passport and Emirates ID
- De-resignation Application Form
According to the UAE Government rules, a notice period is given to the business entity where they can complete the required processes for successfully winding up the business.
Notice Period for Liquidation
A notice period is a span wherein the essential tasks could be performed within a limited duration. For a business entity who wants to liquidate, it needs to keep in mind that certain essentials are to be performed for both the business as well as the employees. Do check the required actions before you proceed towards the liquidation process.
Ratifications to Be Taken during Notice Period
- Approvals from the Immigration Department and the Labour Department
- Approvals from the Electricity and Water Department
- Clearance from the Telecom Authority
- Clearance letter from landlord
- Bank account closure letter
- Liquidation report
- Copy of Newspaper Advertisement
Now, let’s have a look at the complete liquidation process of a company in Dubai or the rest of the UAE.
Company Liquidation Procedure in the UAE
Dubai is a platform where maximum business incorporations take place. As the Government has set certain rules for the incorporation process, similar rules have been designed accordingly for the liquidation process. According to the set rules, a liquidator turns out to be a mandate in the case of the following companies to proceed with the liquidation process:
- General Partnership
- Limited Liability Company
- Simple Partnership Company
- Public Joint Stock Company
- Private Joint Stock Company
The Emirates has got different processes companies operating their business in the mainland as well as free zone. Let’s have a look.
Liquidation Process in Mainland
Irrespective of the type of business entity you hold, business license cancellation turns out to be a mandate. Now, it needs the approval of certain departments:
- Ministry of Resource and Emiratisation
- Directorate of Residency and Foreigners Affairs
- Water and Electricity Authority
- Leasing Entity
- Submit the notarized minutes of the meeting confirming company liquidation
- Arrange an official letter by a liquidator
- Apply for cancellation through DED approved channels and publish the news in a local newspaper
- The notice gives a grace period of 45 days to complete the remaining work
- Submit the declaration letter to DED
- Collect the required approvals from the main bodies
- Cancel the firm card at Ministry of Human Resource and Emiratisation
- Cancel the Foreign Partner’s visa
- Submit all the essential documents along with the cancellation fees
- Collect the Certificate of Liquidation
Liquidation Process in a Free Zone
When it comes to the closure of companies in a free zone, three types of closures can be initiated:
1. Summary Winding Up
This option is applicable to those companies who can clear their liabilities in the next 6 months or do not have any liability.
2. Creditors Winding Up
This is applicable when a company passes a resolution for winding up and then the decision becomes a concrete in a meeting along with the company’s creditors.
This can be done in court under the UAE Commercial Transactions Law.
One needs to apply for the winding process through the member portal. Once the company termination application is submitted, it will be processed. Once done, it will be published in a local Arabic newspaper. Then the DMCC authority will file, and issue the termination letters.
The authorities must get a notification before 3 months of winding up, and 16 months prior for plot facility.
In all the cases, the employees’ visas and work permits need to be canceled. Moreover, a paid notice period of two months is to be given to the employees before terminating the contracts.
Company Liquidation Process turns out to be a complex and time-consuming process. To ease the task, you can take the help of a consultant who is well-versed with the process and can help you complete the process in a hassle-free way. At JAXA, we take care of our clients and help them to complete the company liquidation process in Dubai within a short span of time. If you are looking for a company liquidation service, do contact us. We’d be happy to assist.