When a company enters the final stages of its lifecycle, the journey is filled with uncertainty and legal complexities. It involves a lot of paperwork, facing creditors, and ensuring compliance with intricate legal regulations in the UAE. But what if there was a way to make this process less stressful? It is possible only with the help of a lawyer. You can execute this complex journey efficiently, minimize risk, and maximize protection with the proper legal counsel.
This blog will explore the legal framework, the company closure process, and how the lawyers can protect your interests, making the situation much more manageable.
What Is Company Liquidation in the UAE?
The legal process of winding up a company involves selling its assets and any outstanding debts. This process is typically triggered when a company cannot meet its financial obligations or if its owners or shareholders decide that continuing the business is no longer viable. It can take two forms:
- Voluntary Liquidation: When the company’s shareholders or directors voluntarily wind up the business.
- Compulsory Liquidation: When the courts order the closure due to insolvency or failure to meet legal obligations.
Legal Framework for Company Liquidation
- Federal Decree-Law No. 32 of 2021 on Commercial Companies: This decree establishes the legal procedures for winding down companies, whether started onshore or within one of the UAE’s free zones. The law outlines the process for voluntary and compulsory winding up, sets deadlines for various stages of the process, and ensures proper governance of the liquidation process.
- Cabinet Resolution No. 58 of 2020 on the Regulation of Procedures Related to Real Beneficiaries: This regulation requires companies undergoing closure to disclose their ultimate beneficial owners and provide a final report on their shareholding structure. The aim is to increase transparency, ensure compliance with anti-money laundering laws, and facilitate the proper identification of those with a controlling interest in the company.
- Federal Law No. 6 of 2018 on Arbitration: In cases where disputes arise during the process, arbitration may be a viable option for resolving conflicts. This law provides the framework for resolving commercial disputes outside the court system, making it an essential tool for parties who prefer to avoid lengthy litigation.
- Free Zone Regulations – Each free zone in the UAE, such as JAFZA, DMCC, and DIFC, has its own set of specific rules and procedures for companies winding up. These regulations vary from one free zone to another. Companies operating within these zones must comply with the respective rules.
The Process of Liquidation
It is a structured procedure that involves several key steps to ensure legal compliance and proper company closure.
- Appointment of a Liquidator: The company’s shareholders must formally appoint a licensed liquidator through a formal resolution. The liquidator oversees the entire process, including preparing the final audit report and settling all debts and liabilities.
- Financial Audit and Final Accounts: They conduct a financial audit, confirming that all outstanding debts, such as employee end-of-service benefits, taxes, and contractual obligations, have been cleared. This audit report is submitted to the relevant licensing authority.
- Clearance from Government Authorities: Before filing for closure, the company must secure clearance from various government bodies, such as the Federal Tax Authority (FTA), Ministry of Human Resources and Emiratisation (MOHRE), and the General Directorate of Residency and Foreigners Affairs (GDRFA), to confirm that all tax obligations, employee dues, and visa cancellations are addressed.
- Resolution and Cover Letter: The shareholders must pass a formal resolution to approve the closure, authorizing the liquidator to proceed. The licensing authority receives a cover letter that explains the purpose and compliance with legal requirements.
- Submission of Documents: The company provides original incorporation documents, such as the trade license and memorandum of association, along with scanned copies for submission to the licensing authority’s online portal.
- Filing the Request: It files a request for closure with the relevant authority, including the audit report, clearance certificates, and liquidator’s appointment letter. The authority reviews the request and issues a final decision confirming the liquidation.
The Role of a Lawyer in the Liquidation of a Company
- Expert Legal Guidance on Procedures
- Protect your interests by providing expert guidance on the legal procedures involved.
- Follow the instructions correctly. It will help you avoid mistakes leading to prolonged proceedings or asset loss.
- Help you with all necessary documentation and filings, informing the authorities, creditors, and stakeholders about the status.
- Ensuring Proper Asset Distribution
- Help establish the priority order for creditors and ensure that secured creditors are paid first.
- Advise on the valuation of assets to ensure that the company’s property is sold at fair market prices.
- Review and negotiate settlements with creditors to minimize financial loss for the company’s owners or shareholders.
- Navigating Creditor Claims and Disputes
- Lawyers can ensure that claims made by creditors are legitimate and adequately documented.
- If the company has multiple creditors, they can help negotiate more manageable settlements or payment plans that avoid legal battles.
- If a creditor tries to make an unfair or unjust claim, your lawyer can represent your interests and protect you from unnecessary liabilities.
- Ensuring Compliance with UAE Laws
- Adhering to deadlines for filing liquidation documents with the relevant authorities.
- Ensuring proper communication with the Department of Economic Development (DED) or free zone authorities, depending on where the company is registered.
- Handling the cancellation of licenses, visas, and other legal obligations that must be addressed before the company is officially closed.
- Guidance for Shareholders and Investors
- Advising on how the liquidation may affect their investment.
- Ensuring that they receive a fair share of the proceeds from asset sales, based on their ownership stake.
- Guiding potential tax implications ensures that taxes do not burden shareholders.
Ensuring a Smooth Liquidation Process with Legal Expertise!
A skilled lawyer must guarantee the fulfilment of all legal obligations, the efficient resolution of disputes, and the equitable distribution of assets. Their expertise allows you to focus on the bigger picture while they handle the complexities. A professional legal team can guide you through every phase, from submitting the initial liquidation request to managing creditor claims.
The process involves multiple parties, documents, and stringent regulations, so choosing the right legal partner who understands the local legal nuances is crucial. This is where Diana Hamade comes in as one of the top law firms in Dubai. Known for its reputation for professionalism, expertise, and results-driven approach, we offer comprehensive services, guiding clients through the intricacies with a clear focus on safeguarding their interests.
Contact Diana Hamade to seek efficient, transparent, and effective legal services!