Company liquidation is the process of shutting down a company and its operations for voluntary and involuntary purposes. It is a crucial process that must take an organized and peculiar legal route. In the United Arab Emirates, company liquidation guarantees that each stakeholder’s rights are conserved. The legal procedure of company liquidation in the UAE will be discussed further in the scope of this article.
The two types of company liquidation are voluntary and involuntary liquidation. Voluntary liquidation is the most common type. It is the process of shutting down a business due to the desire of the shareholders. Involuntary liquidation happens when a company fails to pay its debts and is legally bound to shut down through court or the creditor.
Voluntary Liquidation
The steps taken by a company’s board to initiate a voluntary liquidation are as follows.
First, the company’s board must pass a resolution in support of liquidation. The board must also appoint a licensed liquidator responsible for overseeing and managing the process in the most organized manner.
After the liquidator is appointed, he must notify the creditors of the company of its intent to go through with the liquidation process. This notice should be made public through two local newspapers, and based on the notice the creditors will have a specific time frame to submit their claims.
In addition to that, the liquidator should study closely any liabilities standing in the way of the company that will affect the process of liquidation. This step calls for the settlement of liabilities by which all debts, taxes, and employee salaries must be paid.
After all liabilities are settled, the distribution of remaining assets should also be managed by the liquidator according to the shares of the stakeholders.
The final legal step to be taken in the case of voluntary company liquidation is related to canceling the licenses given by authorities, such as trade licenses, and simultaneously notifying the government of the company’s decision.
Involuntary Liquidation
When it comes to involuntary liquidation a different legal procedure should be actioned.
The first step is to file a petition by the creditor or company alongside the court. Evidence of the company’s failure to pay its debts must be presented to court as well. If this evidence is granted by the court, a liquidation order will be appointed, and the liquidator will be chosen by the court.
In this case, the liquidator also must manage and oversee the process of liquidation. The liquidator takes the role of the settlement of liabilities, and distribution of assets to creditors after selling the assets of the company.
Here, the distribution of assets happens after a meeting where the creditors present their claims and agree on the distribution process.
The liquidation process should take into consideration the laws of the UAE Commercial Companies Law and abide by it. It is vital to take into consideration employees’ salaries and rights including end-of-service benefits and bonuses. No liquidation process can look past tax obligations, settling these payments is obligatory before moving further with any step. Lastly, any issues that may arise among the company’s board or creditors need to be resolved using negotiations, mediation, or arbitrations.
Company liquidation is a process that can be voluntary or involuntary. In both cases, companies must initiate liquidation in an organized legal manner that respects the laws of the UAE. The legal steps for each type of liquidation have been explained including the importance of settling liabilities, distribution of assets, and protecting the rights of employees and creditors. Every business and company is recommended to follow these steps for a safe and successful operation. If you want to learn more about company liquidation in the UAE, feel free to reach out to us for a personalized consultation.
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