Navigating the Waters: Liquidation of a Company in the UAE and the Crucial Role of Liability Settlement

Company liquidation is the process by which a company in the UAE winds up its operations and ceases to exist.

Company liquidation in the UAE is a multifaceted process that businesses may undergo for various reasons. In the dynamic business landscape of UAE, understanding the intricacies of this process is crucial. The liquidation process in the UAE can vary based on the type of business entity (free zone company, mainland company, or offshore company) and the reasons for liquidation.

An overview of the liquidation process in the UAE is as follows:

1. a) Reasons for Liquidation:

• Completion of the business objectives;
• Insolvency or financial difficulties;
• Decision of shareholders or partners to dissolve the company; or
• Regulatory requirements.

1. b) Board Resolution:

At the outset, the company’s board of directors should pass a board resolution permitting the liquidation of the company.

1. c) Appointment of a Liquidator:

A liquidator needs to be appointed to oversee the liquidation process. The liquidator can be appointed by the shareholders, or it may be a court-appointed liquidator in case of insolvency.

1. d) Notification of Creditors:

Creditors need to be notified of the company's intention to liquidate. The company must settle its outstanding debts or make other financial arrangements with creditors.

1. e) Publication of Liquidation in Local Newspapers:

The company must publish a notice of liquidation in local newspapers to inform creditors and other stakeholders.

1. f) Free Zone or Mainland Authority Approval:

In free zones, approval from the relevant free zone authority is required. In the mainland, approval from the Department of Economic Development must be obtained.

1. g) Clearance from Government Authorities:

The company must obtain clearance certificates from various government authorities, including the Ministry of Human Resources and Emiratisation, the General Directorate of Residency and Foreigners Affairs, and the Federal Authority for Identity and Citizenship.

1. h) Settlement of Liabilities:

The company must settle all outstanding liabilities, including employee dues, before proceeding with liquidation.

1. i) Cancellation of Visas and Work Permits:

Cancelation of visas and work permits for employees, as well as the company’s establishment card is a crucial step in the liquidation process.

1. j) Liquidation Report:

The appointed liquidator is required to prepare a liquidation report, which must include details of the company’s assets, liabilities, and the distribution plan for remaining assets.

1. k) Shareholders’ Meeting:

A final shareholders’ meeting must be convened to approve the liquidation report and the distribution plan.

1. l) Cancellation of Trade License:

The trade license must be cancelled with the relevant authorities.

1. m) Publication of Liquidation in Official Gazette:

The liquidation notice must be published in the official gazette to make it public.

1. n) Dissolution Certificate:

After completing all necessary steps, the relevant authority issues a dissolution certificate, confirming the company's closure.

It is important to note that the liquidation process can vary slightly depending on the jurisdiction and type of business entity. Professional advice from legal and financial experts is highly recommended to navigate the complexities of the liquidation process in the UAE.

A paramount aspect of successful liquidation involves the meticulous settlement of liabilities, covering vendor agreements, client contract cancellations, and settlement of court dues. This article further delves into these challenges faced by companies during the liquidation process and presents specialized solutions provided by MBG Corporate Services (“MBG”), renowned for its expertise in legal, corporate secretarial, company incorporation, and PRO services.

3. Potential Issues

The liquidation of a company in the UAE demands a meticulous examination of financial obligations, presenting a formidable challenge. Key action items include:

• Equitable compensation for vendors;
• Careful cancellation of employee and client contracts;
• Appropriate dissolution of key stakeholder contracts;
• Settlement of outstanding court dues;
• Closure of any ongoing court cases involving the company (e.g., with employees or vendors etc.); and
• Cancellation of trade licence; and
• Obtaining clearance from government authorities and the free zone or mainland authorities.

Failure to address these critical aspects can lead to legal complications, tarnishing the company's reputation and affecting stakeholders.

4. Expertise

MBG, with its proven track record, specializes in facilitating seamless and efficient liquidation processes in the UAE. Our team of legal experts navigate the complexities of liability settlement with precision. We ensure transparent and fair vendor settlements, provide guidance on contract cancellations, and expedite the clearance of court dues in a timely manner. Leveraging our in-depth knowledge of local regulations and a comprehensive understanding of the legal landscape, we offer tailored solutions to overcome the unique challenges faced by companies during liquidation.

5. Conclusion

The liquidation of a company in the UAE demands careful consideration of liability settlement. MBG is poised to offer expert guidance and support, ensuring a seamless and legally compliant process for our clients. Trust us to navigate the complexities, safeguarding your company's reputation and facilitating a smooth transition during this crucial phase.