UAE is a growing business hub with immense opportunities for local and international entrepreneurs to grow and flourish in the land of possibilities. The policies and tax structure are devised in such a way that they incorporate a good ground for growth and the development of business opportunities. Now, even when it is an exclusive space to start businesses, there might be different aspects where the chances of companies flourishing might be an issue. In such cases, the business owners need to think about shutting down the business due to non-profitability or even personal reasons. UAE also provides an easy structured process for liquidating businesses as well. In this blog, we try to elaborate on the different steps that are being taken to support the process of liquidation in the UAE.
What is Liquidation?
Liquidation is the process of winding up businesses. The solvency process is the one in which the company’s assets are valued and sold off when the business is set to shut down and when the previous debts are cleared. The size of the business will have a direct impact on the liquidation process for the company. The larger the business, the harder the business liquidation process as there will be more assets and liabilities to deal with. The rules and regulations in the UAE for the liquidation process are very strict and structured. There are two kinds of liquidation processes: mandatory and voluntary. Mandatory liquidation, or creditors' liquidation, is a process where the authorities force the company to pay off its debts and shut down the business. Voluntary liquidation is when the company is not instructed by a third party to liquidate the company. The company owners themselves take on the responsibility to liquidate or wind up the business.
Liquidation Process in UAE
To start the liquidation process, the company needs to have certain documents in hand to process the same:
- A copy of your business license, which must be renewed if it hasn't already before you can start the procedure.
- An MOA (Memorandum of Association) along with a copy of any modifications
- Power of Attorney (if there is any)
- Copies of all shareholder’s passports
- Copies of Emirates ID
- Shareholders’ resolution
- Deregistration application form
Liquidation Notice Period
A notice period is to be served to pay off the outstanding debts. The time limit given to pay off the debts is 45 days. Before initiating the liquidation process, one needs to settle everything concerning the business and employees. All pending tasks with respect to the basic business needs have to be completed, which are:
- Resolve all outstanding utility bills.
- Pay off all outstanding phone bills.
- Obtain a letter of closure for a bank account
- Create a report on the liquidation audit.
- Any visas obtained through their current business license should be revoked.
Once this is done, you can start the liquidation process easily. The process is different for both mainland and free zone companies.
Liquidation process for Mainland Companies
The liquidation process is mandatory to make sure that all the relevant authorities are aware of the fact that you are no longer in business. It is essential that the liquidation process is conducted so that you do not have to face any litigation or penalties.
Business License Cancellation
Business license cancellation procedures differ from the type of legal structure you have chosen for your business. If your legal structure is a sole proprietorship or establishment it is relatively easier to get the cancellation of business licenses. Clearance forms have to be obtained from:
- Directorate of Residency and Foreign Affairs
- Ministry of Human Resources and Emiratisation
- Their relevant electricity and water authority
- Their leasing entity
If the company is constituted on the basis of shares, then the procedure will also include settling creditors, liquidating shares, collecting on debts, etc. Businesses also require the appointment of a liquidator. Companies like:
- Private Joint Stock Company
- General Partnership
- Public Joint Stock Company
- Limited Liability Company
- Simple Limited Partnership
The liquidator is responsible for certain 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:
- Preparation of a notarised MOM.
- The preparation of a formal letter from a liquidator confirming their acceptance of the company's appointment.
- Application for cancellation of the business.
- DED will issue a certificate for the liquidation of the company
- Now, the company can issue the notification of its liquidation
- A 45-day claim period starts after the above, and this is the time to submit claims.
- A declaration letter from the liquidator will be delivered to the DED following the expiration of the 45-day period. The letter must state that no one has raised any new objections during the grace period.
- The business will now seek permission from the necessary government agencies to revoke their license.
- The Ministry of Human Resources and Emiratisation will cancel the company's firm card.
- The company must also cancel all sponsored visas.
- Once all the necessary paperwork has been gathered, it must be submitted to get the final cancellation approved.
- All fees that must be paid will be decided by the DED.
- A certificate of deregistration can be obtained by the company once all fees have been paid.
If the business owners or partners plan to carry forward the business, there is an option to freeze the business license, which can be revived when they plan to start the business again. It can be frozen for up to 3 years after the payment of a fee.
Liquidation process for Freezone Companies
Freezone companies have three forms of closure of business processes:
- Summary winding up: Summary winding up is basically where the company doesn’t have any outstanding liabilities or can resolve the outstanding liabilities within a period of 6 months.
- Creditor winding up: when a company decides to wind up business and passes a resolution on the same. It is followed by a creditors meeting.
- Bankruptcy: According to the Commercial Transaction Law 18/1993 of the United Arab Emirates, the court may administer bankruptcy in this form.
The businesses in the freezone require notification of the local authorities as well. Once the termination application is approved, the complete authority and duties of the relevant directors are also terminated.
Kiltons Business Setup services can help you with the needed assistance and support when you plan to wind up or liquidate your business. The processes can be strictly followed and helped Kiltons experts effectively.