Liquidation of Company License

What is a Company Liquidation?

The official process of ending a company’s insolvency is called company liquidation. Another common phrase for company liquidation is “winding up” or “closing” a business. All of the company’s assets are liquidated, and the money raised from the sales of those assets is used to cover all outstanding bills and debts. Any remaining funds may then be distributed to the business’s stockholders.

A company that has been liquidated will no longer be in operation or hire staff. A company’s trade registry name is deleted and its business license is revoked upon liquidation. At that point, the entity is said to have vanished from existence.

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Under what circumstance a company liquidation is necessary?

The principal reasons for a company liquidation shall be on the below conditions:

  • The company's initial goal has been achieved, and it is no longer necessary for it to exist.

  • The company has become insolvent.

It is highly recommended that a company that is no longer in operation be formally liquidated rather than just having your trade license expire, even if there are no outstanding debts to creditors.

When a company is formally liquidated, there are several steps that must be taken. Ignoring these could result in a number of fines as well as the company, its directors, and its shareholders being placed on the government of the United Arab Emirates’ “blacklist.” This might hinder their ability to launch another business in the future or have an adverse effect on their participation in other ventures.

Who is a liquidator?

A liquidator is a company or agent that is registered in the United Arab Emirates. Usually, it is an audit or chartered accountancy firm that is tasked with acting on behalf of the company to sell its assets and raise the necessary funds to pay off any outstanding debts.

In the event of a compulsory liquidation, the courts may appoint a liquidator, or the shareholders may do so by resolution.

Upon appointment, the liquidator will first issue an official letter of acceptance. The liquidator will draft a statement of affairs and a liquidator’s report after completing all of its tasks. These documents are necessary to bring the liquidation process to a close.

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Which are the type of criteria to be noticed for a company liquidation?

Type of ownership

All that is needed for sole proprietorships or establishments is for them to apply to the appropriate Department of Economic Development for the cancellation of their business license and obtain the necessary clearances from:

  • Ministry of Human Resources and Emiratisation
  • Directorate of Residency and Foreigners Affairs
  • The relevant water and electricity authorities
  • The leasing entity

However, you are required to appoint a liquidator if the legal form of your business is one of the following:

  • General Partnership
  • Limited Liability Company
  • Simple Limited Partnership
  • Public Joint Stock Company
  • Private Joint Stock Company

Type of ownership

  • Voluntary company Liquidations

    A company's directors may decide to stop trading and sell off the company's assets in order to pay its creditors, or shareholders may decide to liquidate a solvent company.

  • Compulsory company Liquidations

    Creditors may ask the courts to liquidate a business in order to collect unpaid debts if payments are not made on schedule. A company may be ordered by the courts to sell its assets through a liquidation in order to settle outstanding debt.

Jurisdiction of registration

There is no general requirement to designate a company liquidator in the UAE Free Zones. Closing procedures for Free Zone Companies will change based on the guidelines established by the particular Free Zone Authority where the company is registered.The Free Zone Authority will publish a notice of liquidation if a Free Zone company is closing, and you must notify them in advance. No Objection Certificates (NOCs) from utility providers and other relevant government/free zone departments will be necessary for business owners to obtain.They will have to cancel work permits and employee visas, shut bank accounts, and cancel employee visas once this paperwork is cleared. Lastly, the Free Zone Authority ought to send business owners a formal letter of termination.

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