In the business area, company liquidation in Dubai can be an overwhelming and complex process, and you will need extensive information on legal requirements, and business practices, among other topics of interest to approach this topic in a good light.
In this article, we will see each of the legal procedures that you must follow, we will provide you with all the relevant information when it comes to company liquidation in Dubai, so you can do it in a successful, reliable, and dynamic way, let us see what we can expect from this complex but interesting topic.
Understanding the Company Liquidation Process in Dubai
Let us see what are the important points to understand what is company liquidation in Dubai, the steps to be able to do it, the required documentation, or other key aspects. In addition to understanding what liquidation is, also keep in mind that you must have all this clear at the time of liquidation as it goes hand in hand with several laws.
Introduction to Company Liquidation
Company liquidation in Dubai is a process in which a company closes all business operations. In addition, the assets of the company are sold and used to pay creditors and other obligations of the company, whether debts or liabilities.
Liquidation can be voluntary if you decide to close your own company, or it can be unnatural when an order is made by a court or other legal authority. Liquidation will always be accompanied by specific legal procedures depending on the jurisdiction in which your company operates.
Legal Framework for Company Liquidation
The legal framework for company liquidation in Dubai is governed by various laws and regulations. In addition to procedures established by the authorities, this is to ensure an organized liquidation firsthand. In addition, among the components of the legal framework we have:
- Commercial Company Law:
The Federal Law No. 2 of 2015 on commercial companies, gives a general legal framework for all operations and liquidation of companies in the UAE, in this framework enters also Dubai. The law describes the procedures for the liquidation of companies whether voluntary or compulsory.
This is the main regulator in Dubai responsible for being in charge of commercial activities. It plays an important role in issuing permits, licenses, and approvals necessary for the closing of businesses.
- International financial center laws:
This is for companies operating within the free zone. There is also the insolvency law and the company law which describe the procedures and requirements for the liquidation of companies within the free zone.
- Appointment of the liquidator:x
A liquidator must be appointed for the liquidation process of the companies. In addition, Liquidators must be licensed professionals which must be approved by the permitting authorities.
- Employee rights:
The laws address the rights of employees affected by the liquidation of the company, this includes end-of-service benefit payments, gratuity in addition to other benefits.
- Creditors’ rights and claims:
Throughout the liquidation process, creditors’ rights are protected. The creditors have the right to assert their claims against any of the assets of the company. They also have the right to participate in the distribution of the proceeds.
Types of Company Liquidation in Dubai
We must know that there are different types of company liquidation in Dubai, which are 2. Let us see the differences between each one and its definition.
- Voluntary liquidation:
This can occur when you or your shareholders decide to close the company. Liquidation could occur for many reasons. Such as changing market conditions, inability to maintain the operation of your company, or the completion of your company’s objectives.
- Voluntary liquidation by the members:
This could occur when the company is solvent, meaning that it can pay all debts within 12 months usually. In addition, this occurs when the shareholders want to withdraw from the business and want to look for other opportunities.
- Voluntary liquidation by creditors:
This happens when your company is insolvent, in other words, it will not be able to pay all its debts. In these cases, shareholders seek to voluntarily liquidate the company to avoid having to pay interest to creditors.
- Compulsory Liquidation:
This may occur when a company receives an order from a court or competent regulatory authority to close all operations of the company. It can happen due to insolvencies or the inability to meet financial standards. It can be initiated by creditors. to shareholders, to regulatory bodies, or to the company itself.
Steps for Successful Company Liquidation in Dubai
Let us take a look at the key steps you can take to make company liquidation in Dubai easy. Following a guide to better understand how to handle the closure of your company and comply with all the regulations.
Pre-Liquidation Preparation:
The preparation before any company liquidation in Dubai is important that you make a series of controlled decisions and actions. Here are some of them that you can keep in mind
- Decision Making
Whether you have already made the decision to liquidate or it is an unavoidable reality, it is better to do it with self-control and plan everything several months in advance.
- Gathering all documents:
You must gather all relevant financial and legal documentation of your company, such as financial statements, contracts, licenses, and cooperative records.
- Asset management:
You will also have the tax consequences, of transferring ownership and control of all company assets that you wish to retain in advance.
- Cost reduction:
Try to keep the cost of liquidation to a minimum. In addition to preparing all of your affairs for the handover of everything to the liquidator
- Minimal address details:
This can be coordinating all emails, phone numbers, contracts, etc.
- Protect personal assets:
You will also need to protect your assets or other assets of the entity that will be held in one way or another with the assets of the company. This is because they could get caught in the liquidator’s net.
- Plan of Action:
You must have a fully detailed plan of action, which includes a timeline, allocation of all responsibilities, and resources that will be necessary to make the company liquidation in Dubai go quickly.
Appointment of Liquidators
The appointment of a liquidator is an extremely important step in the whole process as he/she will generally be in control of everything, let us see how he/she is appointed and what is his/her main role in all this:
- Appointment:
The liquidator will be appointed to you by some court. he can also be appointed by the unsecured creditors or by some shareholders of the company.
- Role:
After assigning the liquidator, he takes control of the assets of the person or company. He also groups and sells them one by one.
- Responsibilities:
This has the fiduciary responsibility and legality of everything. He is also responsible for the company, the court, and the creditors involved.
- Powers of attorney:
Additionally, the company can give full authority over the affairs, until it sells every asset and pays all debts.
- Duties:
The liquidator must defend claims against your company, collect outstanding accounts payable, pay all invoices and debt, and finalize corporate termination proceedings.
Distribution of Assets and Settlement of Liabilities
- Collection and evaluation of assets:
You must collect and evaluate all of your company’s assets. These also include physical assets such as property and equipment. Also including intellectual property.
- Liquidation of assets:
You must proceed to liquidate the assets that can be sold. These proceeds should be used to pay your company’s debts.
- Payment of all debts
You must also pay all debts and any obligations you have on behalf of your business. In addition to payments to creditors, suppliers, and employees.
- Distribution of remaining assets:
After you pay everything and the liabilities are liquidated, the remaining assets must be given to the shareholders. This is according to their participation in the company.
- Completion of all liquidation
Finally, after you pay all the remaining assets and any debts are completed, the process is finished.
Challenges and Considerations in Company Liquidation
You should keep in mind that when you do your company liquidation in Dubai you will be faced with several challenges. In addition to taking into consideration certain aspects that may affect the viability of the liquidation such as
- Interests of the parties involved
There may be issues with managing the interests and expectations of all shareholders, creditors, and employees or regulatory authorities.
- Legal and regulatory compliance
In addition, you must comply with all legal requirements and regulations for the liquidation of the company. including following applicable laws and procedures.
- Financial considerations:
You must also keep your finances in mind as you will need to evaluate and prioritize creditor claims, pay debts, liquidate assets, and manage cash throughout the process
- Employee rights and welfare
Ensure the rights and welfare of all your employees. You must provide fair treatment to those affected, with adequate notice, and bonuses, and help them find new jobs.
- Emotional
Not to mention the emotional challenge you may face, especially if your company has been in business for many generations or for a long time.
Common Challenges Faced During Company Liquidation
- Low profits: Some of the most common challenges are low profits that prevent them from keeping their operations active and they resort to company liquidation in Dubai.
- Underperformance: When companies fail to meet all the demands of the market or may underperform other companies. For this reason, they have no choice but to opt for company liquidation service in Dubai.
- Money constraint: Also Lack of money to pay suppliers, lack of loans and other obligations may force company liquidation service in Dubai.
- Zero growth: Some companies are always lagging behind the rest and not achieving the desired expectations hence they opt for liquidation.
- Lack of business: When a company has a different concept or business model and this does not end up pleasing the public, it is possible to go bankrupt and resort to liquidation.
Alternatives to Liquidation
When you feel that your company can give more and you do not want to resort to company liquidation in Dubai you have different alternatives to solve this problem, let us see what they are
- Negotiate a payment plan: You can communicate with your creditors and establish payment plans or agreements.
- Obtaining financing: You can choose to seek the help of an investor, who can provide you with enough capital to maintain your business.
- Profit improvement strategies: In addition to being able to evaluate the profitability of your business, you could adjust prices, reduce labor costs, or seek incentives.
- Change of business vision: You could choose to change your organizational structure, mergers, and acquisitions, or completely change the focus of your business.
Conclusion
In conclusion, we have to say that starting the process of company liquidation in Dubai can be a very exhausting and demanding issue, that is why we recommend you seek all the possible advice so that you can go hand in hand with the best experts.
Remember that if you want to read more about this and other topics of interest you can do it in our blog section. Also, if you want to call us you can do it at 0097143316688, we will be waiting for you.
