Step-by-Step Guide to Liquidate Your Company in UAE

UAE is a rising business hub that offers domestic and foreign business owners countless opportunities to expand and thrive in the land of opportunity. The tax system and policies are designed to provide a favourable environment for expansion and the creation of business opportunities. Even though it is a designated area for business startups, certain factors may make it less likely for businesses to succeed.

In these situations, company owners may consider closing their doors for personal or non-profit reasons. UAE offers a simple, organized procedure for business liquidations as well. In this blog, we will detail the various actions to assist the UAE's liquidation process.

What is Liquidation?

The process of winding up a business is called liquidation. When a company is about to close its doors and its outstanding debts are paid off, its assets are appraised and sold as part of the solvency process. The size of the enterprise will directly impact the company's liquidation process. Because there will be more assets and liabilities to manage, the more significant the company, the more difficult the liquidation process will be.

In the United Arab Emirates, the liquidation process is subject to stringent and well-organized rules and regulations. There are two types: mandatory and voluntary liquidation. Mandatory liquidation, or creditors' liquidation, occurs when the government compels the business to settle its debts and cease operations. A company enters a voluntary liquidation when it does not receive instructions from a third party to do so. The company's owners are responsible for winding up or liquidating the business.

Liquidation Process in UAE

The following documents must be in the company's possession to begin the liquidation process:

• A copy of your business license needs to be renewed before you can begin the process if it still needs to be renewed.

• A copy of any modifications to the Memorandum of Association (MOA)

• Attorney Power of Attorney (if applicable)

• Copies of each passport owned by a shareholder

• A copy of the Emirates ID

• Application for deregistration approved by the shareholders

Notice of Liquidation Period

The unpaid debts must be settled during the notice period. There is a 45-day window in which to pay off the debts. All issues about the company and its personnel must be resolved before starting the liquidation process. It is necessary to finish all outstanding tasks related to the fundamental business requirements, which are:

• Pay off all unpaid utility bills.

• Clear all pending phone bills.

• Obtain a bank account closure letter.

• Write a report regarding the audit of liquidations.

• Revocation of any visas acquired through their current business license is necessary.

• After this is finished, it will be simple to begin the liquidation process. The process differs for mainland and free zone companies.

Liquidation process for Mainland Companies

The liquidation process is necessary to ensure that all relevant authorities are aware that you are no longer in business and to avoid litigation or penalties.

Cancellation of a Business License

The process for cancelling a business license varies depending on the kind of legal structure you have selected for your enterprise. Obtaining the cancellation of business licenses is more straightforward if your legal system is that of a sole proprietorship or establishment.

Forms for clearance must be obtained from:

• Ministry of Human Resources and Emiratization

• Directorate of Residency and Foreign Affairs

• Their leasing entity Their pertinent water and electricity authority

If the company is founded on shares, further steps will involve paying off creditors, selling off shares, collecting past-due amounts, etc. Businesses must also appoint a liquidator. Businesses like:

• Private Joint Stock Company

• General Partnership

• Public Joint Stock Company

• Limited Liability Company

• Simple Limited Partnership

The liquidator is responsible for specific duties:

• Starting the winding-up process

• Liquidation Notice Publication

• Collection and Distribution of the Entity's Assets

• Preparation of Statement of Affairs

There are different phases of liquidation:

Phase 1

• I am getting a notarized MOM ready.

• The writing of an official letter from a liquidator stating that they have accepted the appointment from the company.

• Application for the business's cancellation.

• DED will issue a certificate of the company's liquidation.

• The business is now able to announce its liquidation.

Following the above, there is a 45-day claim period during which claims must be submitted.

Phase 2

• After 45 days, the liquidator will deliver a declaration letter to the DED. The letter must state that no new objections were raised during the grace period.

• The company will now request authorization to cancel its license from the relevant government departments.

• The Ministry of Human Resources and Emiratization will cancel the company's firm card.

• The company must also cancel all sponsored visas.

• All required documentation must be gathered and submitted to get the final cancellation approved.

• The DED will determine which fees are required to be paid.

• After all fees are paid, the company can receive a deregistration certificate.

The business license may be frozen if the partners or owners intend to continue the business. It can be reactivated when they decide to launch the enterprise. Once a fee has been paid, it can be frozen for three years.

Procedure for Freezone Companies' Liquidation

Three methods of business process closure are available to free zone companies:

1. Summary winding up: This refers to a situation where the business has no outstanding debts or can pay off any outstanding debts in less than six months.

2. Creditor winding up is the process by which a business decides to close and adopts a resolution. A meeting of creditors follows.

3. Bankruptcy: The court may handle bankruptcy in this manner by the United Arab Emirates Commercial Transaction Law 18/1993.

Businesses operating within the free zone must also notify the local government. Upon approval of the termination application, the relevant directors' entire authority and duties are terminated.