Liquidating a company in Dubai is an important step that businesses may need to take for various reasons, such as insolvency, financial struggles or as a part of a business strategy. The process requires business owners to clear all outstanding debts to employees and creditors before officially closing down the company.

Liquidation marks the official end of a company’s operations and helps prevent business owners from leaving the country without meeting their financial obligations. All businesses can go through the liquidation process in Dubai, regardless of whether a business is set up offshore, on the mainland or in a free zone.

However, they must appoint a liquidator who will start and oversee the winding-up process. While the general steps for liquidation remain the same, the specific requirements may differ depending on the licensing authority overseeing the company. Although the process to dissolve the company is quite straightforward for business owners, they must follow the necessary steps, guidelines and conditions.

There are legal requirements, important considerations for all parties involved and different financial outcomes that need to be carefully managed. Companies like Asad Abbas & Co. handle all the aspects of company liquidation to make the process easier.

Continue reading the blog where we will discuss the liquidation of company meaning, the types of liquidation, the steps involved and the company liquidation services in UAE that can assist throughout the process!

What is liquidation of a company in the UAE?

Company liquidation, or winding up, is the process of closing a business and selling off its assets to settle debts. Once a company is liquidated, it no longer exists. Liquidation can happen voluntarily, when the business owner decides to close, or compulsorily, when a court orders it due to financial issues.

Simply put, it is a formal process in Dubai and the UAE, where the company stops all activities and divides its assets between shareholders and creditors.

Types of company liquidation

When a company decides to close, it can go through different types of liquidation. Each type depends on the company’s financial situation and the reasons for its closure. 

Compulsory liquidation

Company liquidation occurs when a court orders the closure of a company, usually after creditors file a petition because the company has failed to pay its debts. If the court agrees, it issues a winding-up order, and a court-appointed liquidator takes over the business.

The liquidator sells the company’s assets, pays creditors and eventually dissolves the company. Directors lose control of the business in this process. 

Voluntary liquidation

In voluntary liquidation, the company’s directors or shareholders choose to close the business. There are two main types:

Members’ voluntary liquidation (MVL)

Solvent companies that can pay off their debts use MVL. Shareholders decide to close the business, often because the company has achieved its purpose or owners wish to move on. The directors declare that the company can pay all debts, and an insolvency professional manages the process of selling assets and distributing any remaining funds to shareholders. 

Creditors’ voluntary liquidation (CVL)

CVL happens when a company is insolvent and can’t pay its debts. The directors recognize the financial difficulties and choose to close the business in an organized way. They appoint an insolvency expert to handle the liquidation, sell the company’s assets, pay creditors and dissolve the company. 

Reasons for liquidating a company

There are many reasons why a company might have to go through the liquidation process. Here are the main causes:

Business struggles

A business may fail if it cannot sustain its operations due to issues like low demand for products or services, poor management or economic downturns. 

Inability to pay debts

A common reason for liquidation is insolvency, where a company cannot pay its debts. It could happen due to high debts, poor cash flow or a drop in sales. 

Legal actions

Legal issues such as tax problems or failing to pay debts can force a company into liquidation. If creditors file a court petition, the court may order the company to liquidate. Other legal disputes can also lead to compulsory liquidation if the company cannot resolve them. 

Voluntary closure

Sometimes, a company chooses liquidation even if it is financially stable. The reasons might include retirement or wanting to pursue other opportunities. 

Company liquidation process in the UAE

The process of liquidating a company in the UAE involves a few key steps:

Shareholders’ decision to close the company

The company’s shareholders must agree to dissolve the company. They need to create and notarize a resolution for dissolution. If shareholders are outside the UAE, the resolution must be attested by UAE authorities.

Appoint a liquidator

Business owners hire a liquidator to manage the process, follow legal requirements and distribute the assets properly.

Submit required documents

The company must submit the resolution and other necessary documents (like the Trade license, identification papers and Memorandum of Association) to the relevant authorities. 

Publish liquidation notice

A liquidation notice must be published in local newspapers (both Arabic and English) to inform the public about the closure. 

Clearance actions (up to 45 days)

During this time, clearances need to be obtained from immigration, utility companies, labor, landlords and other authorities, including canceling employee visas and closing the bank account. 

Prepare liquidation report

After the notice period, the liquidator creates a report, and the necessary cancellation fees are paid. 

Obtain a license cancellation certificate

Submit the liquidation report to the authorities, who will issue the company’s final cancellation certificate.

Following these steps ensures a smooth liquidation process, which allows business owners to close their companies efficiently while complying with UAE regulations.

Also Read: How to Resolve Banking and Financial Disputes in the UAE

Final thoughts

The UAE’s company liquidation process has become more complex in recent years due to regulations like Economic Substance Rules, VAT and Ultimate Beneficial Ownership (UBO). Since delaying liquidation can worsen financial problems, timely decisions are crucial for a smoother outcome for employees, creditors and shareholders.

Business owners should seek professional advice to navigate liquidation or consider other options like restructuring. Asad Abbas & Co. specializes in offering company liquidation services in UAE. We handle the entire process to ensure a smooth and efficient closure. Contact us today for expert assistance!

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