Liquidation Process - Why It Is Necessary To Follow When You Decide Not To Renew The License?

Liquidation is a process where a company is brought to an end, also known as winding up or closing the company. The firm's license is cancelled all of its assets are liquidated and the sale of assets is used to settle the debt pay expenses and at last transfer any balance among the shareholders and creditors accordingly. Liquidation is a great way to minimize the loss of a company that does not have funds to operate the business is suffering from a corporate crisis or simply closing the company.

Once the process is in place, the license is revoked, the company’s name is removed from the trade registry and the company is considered to have come to non-existence.

Types of Liquidation Process

• Voluntary Liquidation – It’s a process where a shareholder of the firm is voluntarily looking to wind up the company
• Compulsory Liquidation – if the company’s debt isn’t paid on time, the creditors will request liquidation, which will enable them to collect the dues after the assets are sold off. Upon the court's approval and decision to liquidate and pay off the creditors

Why is liquidation necessary?

• The liquidation is mandatory and can be proactive if the purpose of the company is fulfilled and the entity is no longer required, shareholders/decision makers have to cancel the trade license in order to avoid the fines and penalties by the UAE government authorities, if any.
• If the business fails and is unable to pay its debts, the value of the company’s assets is less than the amount of its liabilities. It becomes compulsory for the shareholder to go for liquidation, as it will enable them to pay off the creditors and take off the burden of business losses.
• Even if there are no debts to be paid to the creditors, it's vastly suitable to properly liquidate a company rather than simply allowing the company’s trade license to expire. Ignoring these may attract various penalties, which may also lead to blacklist the company, its director or shareholders. This will damage your involvement in other businesses and goodwill.

Company Liquidation process

The liquidation process is different depending on the various factors of ownership, type and jurisdiction. However, the general/basic process remains the same for all the emirates as below:

• The preparation of the board of resolution must be notarized by a notary public in UAE for LLC company as well as for free zone.
• Appointing the approved and registered liquidator for the Mainland as well as the Free zone (depending on the type of company).
• Submission of the shareholder's resolution, fees and all the documents of the company along with the deregistration application form
• After the issuance of the Liquidation certificate, the company can proceed to publish the liquidation notice in public newspapers, in English as well as Arabic (a number of notices are required as per the registered authority), (if applicable).
• All the existing employment visas, work permits and partner visas should be cancelled within the given notice period
• A clearance letter is required from the Immigration Department, Labour Department, utility companies (DEWA, etc.), Leasing entity, RTA for any registered vehicle, and Federal customs authority.
• Bank account closure letter is required (if applicable)
• VAT clearance and de-registration letter from the Federal Tax Authority (FTA)
• The liquidator will then prepare the Liquidation report and the completed report will be submitted with all the relevant documents to the relevant authority along with required cancellation fees. (if applicable)
• After review of the submitted documents, the authority will decide whether if approved, they will issue with “License cancellation certificate”

FlyingColour can run you through the exact procedure of the company liquidation. Normally this process is time-consuming and lengthy, as there are a number of external parties and authorities involved in it. Missing out any step or any documents will create unnecessary delays and complications. Experts like us offer services for companies registered all over the UAE.

This blog is written by Ms. Manali Chandegala, Partner Relation Executive at Flyingcolour Business Setup, VAT and Accounting Services, Dubai. If you are looking for any consultancy related to the liquidation process of a company in Dubai or anywhere across the UAE then please contact us at +971 4 4542366 or email us at info[at]flyingcolour[dot]com.

*Please Note: This article was published on 03rd January 2021. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.