Setting up a company in the United Arab Emirates can be a very rewarding experience but for many people in business, this experience will not last long as they will have to close down the business due to some reason. It is very important for the management of the company to understand the threat of closing down a business is also an important part of the business as it may lead to various penalties.
- What is Company Liquidation Service?
- Why is Company Liquidation important for Companies?
- What are the different Types of Liquidation
- What is the Role of a Liquidator
- What is the Company Liquidation Process in Dubai, UAE
- What are the Documents Required for Company Liquidation in Dubai, UAE
- Liquidation of Companies established in Free Zones
- What are the Steps for Company Liquidation?
- What are the roles to be played by a Liquidator?
What are Company Liquidation Services?
The Liquidation of a company is a process in which the company seizes all the business activities and needs to shut down. A company needs to shut down when it has been ascertained that the company is unable to continue its services. This may happen due to a number of reasons.
The liabilities of the company could far exceed the assets of the company, which could plunge the company into losses. Unable to sustain the company will have to shut down. Liquidation of a company can be voluntary also when the management decided to shut down the company due to reasons known to them.
After the liquidation process, all the assets of the company are utilized to compensate for all the liabilities of the company. If even after all the liabilities of the company have been settled, some of the assets are left remaining, then these are sold, and then the profits are distributed among the directors and the shareholders of the company.
Why is Company Liquidation Important for Companies?
Company liquidation is the last resort which any management resorts to. This means that the business cannot conduct any more business and has to shut down. There are many benefits of company liquidation to the business, such as:
- It will allow the proper distribution of the assets of the company. In the liquidation process, all the assets of the company are first used up to compensate for the liabilities of the company, and after this, the remaining assets are then sold off, and the proceeds are then distributed among the shareholders.
- Liquidation can be done if the companies want to make a new start in the business or do not want to associate themselves with a certain brand in any way.
These two are the most important benefits of company liquidation, which are available to a business. But the management should keep in mind that these advantages can be availed only if they utilize the services of professional and reputed auditing services. These are some of the reason which is why the management should opt for Company Liquidation.
The Company Liquidation Services require certain steps which need to be followed by a business. They will also have an impact on the VAT and Tax of the company. If the company is registered as a tax group, in that case the management should never forget to deregister such business from a tax group as it may create problems in the future.
What are the Types of Liquidation
There are two different types of company liquidation which a business may adopt. These are:
1. Voluntary Liquidation
In the case of voluntary liquidation, the shareholders of a company will decide to wind up the company as they have no money to pay for creditors. In this type of liquidation, priority is given to the creditors at the time of distributing the proceeds from the assets.
2. Compulsory Liquidation
Compulsory liquidation is a type of company liquidation that is put forward by a court order. Here, the assets of the company are distributed to the creditors and contributors based on the priority of claims.
What is the Role of a Liquidator
A liquidator is a person who is responsible for the complete liquidation process of a company. The management needs to be very careful while selecting a liquidator. This liquidator should not make any mistake in conducting the process, or the company will have to face penalties and problems in the future.
Here is a list of the roles which the liquidator should play. These are:
- Assess all the assets and liabilities of the company. He will be responsible for all the assessments for the claims made. He will also be responsible for the distribution of the leftover profit after selling off the assets of the company.
- Provide information to the creditors of the company from time to time.
- Oversee the collection and distribution of the company assets.
- Prepare the statement of affairs and the final liquidators report.
A liquidator is a chief decision-maker in a liquidation process. A liquidator has a number of duties to perform. Some of the duties of a liquidator are described as below:
1. Assess all the assets and liabilities of the company
He will be responsible for all the assessments for the claims made. He will also be responsible for the distribution of the leftover profit after selling off the assets of the company.
2. Initiating the Winding-Up Process
Once the Board of Directors/Shareholders pass a resolution for the liquidation or winding up, and the appointment of a liquidator, the liquidator, upon the receipt of such resolution, issues an acceptance letter. This acceptance letter will also enumerate the process to be followed and also the name of the liquidator.
3. Publishing the Liquidation Notice
Once the liquidation process is initiated, the liquidator publishes the liquidation notice, both in Arabic and English, in 2 local newspapers so that the news of the liquidation can reach to the maximum number of people.
4. Overview of Collection & Distribution of Company Assets
If needed, the liquidator may overview the collection and distribution of company assets, and the settlement of liabilities. The manner of the distribution of assets will be mentioned in the acceptance letter
5. Preparing the Statement of Affairs and the final liquidators report
As the last step in the liquidation process, the liquidator prepares the statement of affairs and the liquidator's report. In this all the details of the liquidation process are provided.
6. Provide information to the creditors of the company from time to time
Company Liquidation Process in Dubai, UAE
It is very important for a company to follow all the steps related to Company Liquidation in order to maintain compliance. Company liquidation in Dubai or the rest of the UAE comprises the following steps:
Note: Steps 2 to 6 above can be carried out simultaneously.
Company Liquidation Process in Free Zones
The liquidation process for free zone companies is similar to that of mainland companies, except with regard to the notice period and the time frame in which the company has to be liquidated.
What are the Documents Required for Company Liquidation in Dubai, UAE
The Dubai government sets out different types of documents to be submitted for the liquidation process. These documents are required for company liquidation both in free zones as well as the mainland. The essential documents are listed below:
- A copy of the license
- The copy of the Memorandum of Association (MOA), with any changes
- Power of Attorney (if any)
- Passport copies of all the shareholders
- Copy of the Emirates ID
- Shareholder's resolution
- Application form of de-registration
Liquidation of Companies established in Free Zones
In the United Arab Emirates, a company can be established in the Mainland as well as the Free Zone. It should be kept in mind that only the Approved Auditors are allowed to conduct an audit of the companies which have been established in the Free Zone. Every management should avail the services of reputed and professional auditors so that all the documents of the company are properly managed.
There are more than 37 free zones in the United Arab Emirates which cater different services to businesses. These free zones provide a platform to the companies and will help them to grow and develop in the Middle East.
Steps for Company Liquidation
Here are the steps for company liquidation, which should be followed by all the companies. The list of steps given below is not a fixed list and can be changed according to the needs and requirements of the company.
Step 1: Submission of notice to the concerned authority.
Step 2: All the company documents such as Company License, Formation Certificate, lease Agreement etc., need to be cancelled.
Step 3: The Company must obtain necessary clearances from the authorities.
Step 4: The liquidation of the company must be notified to the people in a Gazette.
JAXA Company Liquidation Services in Dubai, UAE
We provide the following company liquidation services in Dubai and the rest of the UAE:
- Assistance in preparing the Board of Directors/Shareholders resolution
- Auditing financial statements for the purpose of liquidation
- Preparing the Statement of Affairs and the Liquidator's Report, including No Liability Letter
- Liaising with the licensing authorities for the submission of documents and liquidation of the company
The liquidation of a company in Dubai is a complex and time-consuming process. At JAXA, we help our clients in following the procedures to wind up a company in Dubai, UAE, should the need arise. JAXA is a financial consultant in Dubai, offering a wide range of services including accounting, auditing, software consultancy, and management. We have been providing the best audit services in Dubai and the rest of the UAE for over a decade.
For any company liquidation services in Dubai, contact us – we’d be glad to assist.
What is the normal notice period for liquidation?
The liquidation period depends on the licensing authorities. For mainland companies, it is normally 45 days. For some free zones, it is 15/21 days. There is a 45-day notice required for certain free zones like Dubai Creative Clusters Authority, etc.
Is it mandatory to publish the liquidation notice?
Yes, it is mandatory to publish the liquidation notice in any 2 newspapers (one in Arabic and the other in English).
How long does it take to liquidate a company in Dubai?
Including the notice period, it may take 60-90 days to liquidate a company in Dubai.
Does a company need to cancel all company visas during liquidation?
Yes, a company must cancel all visas and get a clearance letter from Immigration Department to complete the liquidation process. The company has to pay end-of-service benefits and other statutory dues, such as unpaid leave salary, air ticket, unpaid salary, etc. to the employees.
Does a company need to de-register from the FTA during the liquidation process?
If already registered under VAT with the FTA, a company needs to de-register during the liquidation process.