Liquidation is the process by which a company as separate legal person is brought to an end of its life through a formal process specified by the related jurisdiction. All the assets of the entity are sold to repay its creditors, staff dues and any other outstanding liabilities to close down the business formally.
Types of liquidation:
A liquidation can either a voluntary liquidation or a compulsory liquidation.
A voluntary liquidation is a self-imposed wind-up and dissolution of a company that has been approved by its shareholders. Such a decision will happen once a company’s leadership decides that the company has no reason to continue operating.
A compulsory liquidation is an insolvency procedure, initiated most commonly by a company’s creditors by way of a winding up petition. If a winding up order is granted, the court will place the company into compulsory liquidation and generally appoint the official receiver as liquidator to carry out a full investigation into the conduct of the board members.
Liquidation process in UAE
Different terms are used for liquidation including winding up, license cancellation and insolvency of a company or business winding up. Every jurisdiction in UAE has its own set of requirements to liquidate a business but we will focus only on the most common requirements across all jurisdictions:
- The business should ceases to operate all kind of commercial,
operational and financial activities - All the shareholders of the business should agree to close down
its operations by a resolution - All the third-party services should be cancelled including utilities (Tenancy, DEWA, FEWA, Etisalat etc.)
- All the expat staff visas under business sponsorship and immigration file should be cancelled
- VAT registration should be cancelled with Federal Tax Authority
- All the bank accounts of the business anywhere in the world should be closed and bank account closure letters should be issued by bank
- A UAE registered firm of auditors should be appointed as official liquidators to issue a liquidation report and liquidated financial statements for the final period of the business. Some jurisdictions have their own list of registered auditors and liquidators
A newspaper publication is required to be done in almost all the jurisdictions which is arranged either by authorities or by the shareholders personally.
The average time period for most of jurisdictions range between 2-4 months depending upon the complexity of operations, jurisdiction and response time from related departments.
There are three major types of teams or experts involved in a liquidation process including:
- Corporate team is responsible for taking care of corporate matters including preparation of corporate documents, BOD resolution, immigration matters and direct dealing with related jurisdiction.
- Taxation team is involved with VAT cancellation and related VAT related matters.
- Official liquidator is responsible for the issuance of liquidation report on all the matters discussed above and also for the audit of financial affairs to make sure all the assets and liabilities have been settled.
We always suggest to get the services of related consultants to make sure all the requirements and documents prepared are in line with the requirements of related jurisdiction and to avoid any errors and noncompliance with the requirements, failure which could result in additional cost and wastage of time and money.
Authors
ASIF MAHMOOD
Associate Director