Company Liquidation in Dubai, Abu Dhabi, Sharjah – UAE

The UAE provides a vibrant and diverse business environment with many free zones and business hubs which actively support and encourage new businesses. Companies and investors from every corner of the globe are drawn to the UAE for the purpose of starting businesses and looking for opportunities. Undoubtedly, it is one of the most appealing and friendly countries for starting a business, where new companies are formed daily. However, it doesn’t mean success will be guaranteed to everyone: success in the UAE is largely dependent on a variety of factors, including proper planning, understanding of the market, and responsiveness to the reasons for starting a business. In cases where businesses fail to succeed and are no longer going concern, company liquidation becomes a key step to formally shut down the business and fulfil legal responsibilities. 

The success of any business depends on multiple factors. A lot of businesses ignore these factors and as a result they end up failing. When a business starts failing, it quickly becomes a burden for the shareholders. You can’t just close your business when it starts failing. There is a proper formal liquidation procedure for company closure. It’s similar with the procedure we take while forming the company.

What is the Process of Company Liquidation

Liquidation represents the closure of a business. Liquidation is a process whereby a company’s assets are evaluated and sold for the purpose of repaying creditors. The larger the company, the more complex it becomes due to the larger number of assets and creditors. This means a more cumbersome process, especially in the UAE, since there are different authorities that will have different rules and procedures. That’s why it is essential for all business owners to understand the requirements for their company type and location.

There are two kinds of business liquidation

1. One is required by law i.e. compulsory company liquidation
2. The other is done by choice i.e. voluntary company liquidation

Mandatory liquidation, also known as creditors’ liquidation, occurs when a court or creditors force a company to liquidate its assets so that creditors of the company can be paid off.

Voluntary liquidation isn’t forced upon a company by anyone, it’s a decision taken by the company itself to close its operations.

Preparing for Company Liquidation in UAE

Before you step into company closure, ensure to compile the below documents.

1. Valid business license (if expired, you may need to renew it)
2. The Memorandum of Association (with any amendments or updates)
3. Power of attorney (if applicable)
4. Personal documentation, including copies of all shareholders’ passports and Emirates IDs
5. Clearance certificates from relevant government entities which include:

• Ministry of Human Resources & Emiratisation
• Ministry of Interior
• Utilities service providers
• Leasing authority
• Federal Tax Authority

Liquidation Notice Period

The company must follow a public notification period after submitting its business liquidation application. Mainland companies operating in the UAE must observe a standard 45-days period. Please note that a business can start its corporate dissolution process only after its owners fulfill the necessary requirements. These requirements are listed below:

1. Pay all of your pending utility bills
2. Pay all of your pending telecommunication bills
3. Obtain official confirmation of your business bank account closure
4. An audit report of liquidation, issued by an approved audit firm in UAE
5. Cancel all visas issued under the company’s trade license

Liquidation Process for Mainland Companies

If you are going to close your company in Dubai, no matter the type of your business, you must cancel your business license first in order to go further for closure of the business. This step is essential to inform the authorities that your company is shutting down.  If you don’t do it, then you’ll face fines and penalties after your license expires. If you have a shareholding company, you must settle any debts with your partners and creditors, and make sure everyone’s shares and interests are properly handled.

Approvals or NOC from Different Government Departments: The cancellation of a license varies on the company’s legal form. This usually means getting official approval from different government departments including:

1. Ministry of Interior
2. Ministry of Human Resources & Emiratization (MOHRE)
3. Electricity and water authorities
4. Tenancy/landlord
5. Federal Tax Authority.

Appointing a Liquidator: Certain company types need to designate a licensed liquidator to oversee their closure procedures. These companies include:

• Partnership Companies
• Joint Stock Companies (Public & Private)
• Limited Liability Companies

The liquidator acts as an independent officer responsible for managing the entire business closure process. Typically, a liquidator performs the following tasks:

• Initiating the Winding-up: The liquidator issues an acceptance letter after being appointed by the shareholders.
• Publishing Notice: Liquidator ensures that the winding up notice is published in both English and Arabic in at least two local newspapers.
• Asset Collection and Settlement: If required, the liquidator also manages the company’s customer debt collection and supplier debt settlement process. The liquidator also collects and sells company’s assets and uses the money to pay off its debts in the correct order.
• Final Reporting: At last, the liquidator prepares a statement of affairs and a detailed report of all transactions.

Stages of Liquidation

Mainland liquidations occur in two stages:

Stage 1:

• Prepare a notarized Minutes of Meeting (MOM) that declares the company is closing down and if appointing a liquidator is necessary.
• Obtain a letter of acceptance from the liquidator confirming their appointment as the company’s liquidator.
• Complete and submit the required forms for cancellation.
• Upon submission, the Department of Economic Development (DED) will issue a certificate of closure.
• The company then must publish a notice that it is closing down.
• After the company publishes the notice, the 45-day liquidation period will commence, during which any creditor of the company can submit a claim.

Stage 2:

• After the 45 days’ notice period ends, the liquidator will submit the declaration to Economic Department stating that no claims remain unresolved.
• The company will secure final approvals from all the relevant authorities.
• The Ministry of Human Resources and Emiratization (MOHRE) will cancel the company’s labor card.
• All company-sponsored visas need to be cancelled.
• Now that all the documents are ready, submit them for final approval and cancellation.
• The Economic Department will determine all the payments that need to be cleared before the company closure process is complete.
• Finally, the company receives a Certificate of Deregistration (or liquidation completion certificate), and now the company is officially liquidated.

Special measures exist for civil construction companies in mainland:

• Fill out the form to cancel your business.
• The company’s labour card will be cancelled by the MOHRE.
• Cancel the visas of all partners and anyone sponsored by the company.
• Get approval letters from the required government departments.
• Prepare a partnership cancellation agreement and get it signed by a legal witness.
• Gather all these documents and submit them to complete the cancellation process.

If the owners/partners plan to restart the business in future, the UAE gives them the option to freeze their business rather than terminating it. A business license can be frozen for up to 3 years. But before a business license can be frozen, the below steps must be completed:

• The company must issue a formal request letter for the temporary freezing of its license.
• Provide proof from the Ministry of Human Resources and Emiratization confirming there are no sponsored employees under the license.
• Submit an inspection report or other official forms as required by the Economic Department.

Liquidation Process for Free Zone Companies

Free zone companies also follow similar steps but with the procedures set by each free zone authority. Free zone companies follow these three routes for closure:

Summary Winding Up: A company chooses this option if it doesn’t have any unpaid debts or can pay them off within six months. They usually need to provide a statement confirming they can pay.

Creditors’ Winding Up: The company decides to close and arranges a meeting with its creditors to get their approval.

Bankruptcy: If the company can’t pay its debts, it can be closed through a court process under the UAE law (Commercial Transactions Law No. 18 of 1993).

Typically, the following steps are followed in almost all the free zones:

• The company submits the termination application through the free zone’s online portal.
• Once the termination application has been approved, the director’s commitments, roles and obligations will be terminated.
• After this, the free zone authority reviews the application and publishes an announcement (mostly in Arabic in local newspapers) of the closure and issues final termination certificates after all the conditions are met. If your business is in Jebel Ali Free Zone Authority (JAFZA), the formal winding up notice must be given at least 3 months in advance (and 6 months for a land plot).   
• Pay off final gratuity payment to employees.
• Once NOCs from all the relevant departments and approvals are obtained, the company will complete the paperwork and close the license in the free zone authority’s system.

How We Can Help You

Vertix Auditing provides end to end company liquidation services for mainland business and free zone corporate entities. Our licensed team of professionals will handle your entire liquidation process seamlessly and on time. We ensure that all steps are carried out within the legal timeframe, helping you save time, reduce stress, and meet all regulatory requirements.