Liquidation is the process of dissolving a company and distributing its assets to pay off debts or return funds to shareholders. It involves canceling business licenses, paying off creditors, selling off assets, and distributing any remaining funds according to ownership stakes. The liquidation process in the UAE requires appointing a liquidator, canceling employee visas, publishing liquidation notices, finalizing audits and obtaining clearance letters from relevant authorities. Completing the entire liquidation process takes around three months.

1. COMPANY LIQUIDATION IN
UAE
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2. Liquidation is one among the most complex procedures for a
business entity as it requires several formalities and the
involvement of third parties. What exactly does liquidation mean?
In short, liquidation is winding up of an entity and the selling of
its assets to distribute them, depending on the factor whether
the company is solvent or insolvent.

3. Liquidation as explained in finance and economics is the process
of dissolving a company and distributing its assets to litigants.
When a company is insolvent, its assets are used to pay the
obligations as it failed to pay when they were due. It is the usual
practice to pay the creditors and shareholders once the company
is dissolved, based on the priority of their claims. General
partners are subject to liquidation.

4. Liquidation occurs when a limited company decides to end their
business for one or the other reason. At this point, you might
consider liquidating your company; which in turn means turning
your assets into cash.
When a company undergoes liquidation, they sell their assets so
that they can pay back their debts/liabilities/obligations. Selling
of poor-performing goods at a price lower than the cost of the
business or at a price lower than the business’ expectation can
also be referred to as liquidation.
When a company is being liquidated in the UAE the assets and
properties of the company are distributed to the creditors and/or
shareholders.

5. The reasons for liquidation can be different: it can either be due
to the expiry of license/ duration mentioned in the articles of
incorporation/ association or the completion of the objective for
which the company was established; the loss of all/ most of the
company’s assets; merger; approval of the shareholders that the
company’s term of existence be brought to an end as per
stipulated majority, etc.

6. Who is a Liquidator?
A liquidator is the person who conducts the overall liquidation
process. They are appointed by the court or the shareholders of
the company depending on the type of liquidation.

7. Cancelling your Business License – why is it important?
Cancelling your business license is important in the process of
liquidating a company in UAE as it will inform the government
entities that you are no longer in business. This helps the
businesses from incurring any fines or penalties on the license
which are bound to happen if the licenses are not renewed. In
case of the shareholding company, discharging the liabilities
towards creditors and partners is mandatory before finalising the
cancellation process.

8. FORMALITIES FOR CANCELLING YOUR BUSINESS
LICENSE
The procedure for canceling a license is different for sole
proprietorships (single shareholder companies), and companies with
multiple shareholders. As for the former, cancellation must be applied
via licensing authority and all the required clearances must be obtained
from various departments depending on the activity;
• Ministry of Human Resources and Emiratisation
• Directorate of Residency and Foreigners Affairs
• The relevant water and electricity authority
• The Leasing Entity
• Customs
• Federal Tax Authority

9. As mentioned earlier, it is important to liquidate the shares of
the companies with shares, collect the existing debts and pay the
creditors before finalizing with the LICENSING AUTHORITY.
The below mentioned legal forms of companies need to appoint
a liquidator to carry out the liquidation process in the UAE;
• Mainland companies
• Free zone companies
• Offshore companies

10. THE PROCESS OF LIQUIDATING A COMPANY
The formal insolvency procedure in which a company is brought
to an end is called liquidation; the liquidation of all the assets of
the company is followed and the proceeds are used to repay the
creditors. There are two main types of liquidations for insolvent
companies– compulsory liquidation and creditor’s voluntary
liquidation (CVL).

11. Compulsory Liquidations: If a company fails to pay their debts on
time, the creditors may request the courts to liquidate the
company with which the dues can be cleared. When the courts
force a company to liquidate and pay the outstanding debt by
selling its assets, it is called compulsory liquidation.

12. Creditors’ Voluntary Liquidation (CVL): If a company does not
have any assets and cannot get back to its former state, then the
laws in UAE demand the liquidation of the company.

13. CANCELLATION OF THE BUSINESS LICENSE
FROM THE LICENSING AUTHORITY IS THE
FIRST ACTIVITY TO BE DONE IN THE
LIQUIDATION PROCESS, FOLLOWED BY
THE PROCEDURES GIVEN:

14. The first procedure is the cancellation of all existing employees’
visas. Prior to the company liquidation, all the active UAE
resident visas should be canceled in case the employees have to
shift to the sponsorship of another company or leave the
country.

15. The second Procedure: The board of director’s resolution with
the liquidation decision, which is attested by the Notary Public,
must be issued. This is then followed by the appointment of the
liquidator.

16. The third Procedure: Once the liquidation process is complete,
the liquidator issues the company liquidation certificate. The
liquidator is in charge of submitting the License Copy, Auditor
Registration Certificate and Authorized Signature Certificate
attested by Notary Public.

17. The fourth Procedure is the publication of liquidation
advertisement in two local Arabic newspapers for one day; giving
an opportunity for the creditors to submit their financial claims if
any for a period of 45 days from the day of publication.

18. Procedure number five is to get confirmation from the liquidator
and partners that no objections or claims have been received
from the third party during the advertisement period.

19. Procedure number six: A final audit report of the company must
be prepared and submitted to the registration authority, once all
the previous five conditions are met.

20. Procedure number seven is to cancel the visas of the investors
and partners that are still active and associated with the
company.

21. And the final and eighth procedure is obtaining the clearance
letters from the Ministry of Labour, Immigration, and utility
providers.

22. Process may slightly vary depending on the regulator however,
the basic requirements of liquidating the company more or less
the same.
The time span required to complete the process would be 3
months or more depending on the type of license and legal
status of the company.

23. CONSEQUENCES OF LIQUIDATING A
COMPANY
When the company is liquidated, all its functions will be ceased
and it cannot do any further business or employ candidates. The
company will no longer exist once it’s been removed from the
companies register at the Companies House. The assets of the
company are used to clear its debts and any money left will be
distributed among the shareholders after liquidation.

24. ASSETS OF THE COMPANY
The assets of the company after liquidation upon payment of the
debts shall be divided among all the partners. Each partner shall
obtain an amount equal to his share in the capital, and the rest
shall be divided among the partners at the pro rate of their
shares in the profits. If a partner fails to collect his share, the
liquidator has the authority to deposit the share in the treasury
of the Competent Court.
If the net funds of the company are not sufficient to pay the
shares of the partners in full, the loss shall be distributed among
them according to the prescribed rate for the distribution of
losses.

25. EMPLOYEE’S SITUATION WHEN A COMPANY
DISSOLVES IN UAE
If a company dissolves or shuts down, the employees are still
entitled to outstanding holiday pay and gratuity but the
involvement of the Ministry of Labour would be necessary. The
employees are also allowed to transfer their sponsorship to a
new employer. In case they fail to find a new job then it is
mandatory to cancel the visa and leave the country.

26. Liquidation process marks the end of an entity in every possible
way, it affects the employees, shareholders and everyone
associated with it. It is important to have someone to guide you
throughout the liquidation process, as there are scopes
fraudulent practices. A business consultant can help you
complete the tasks smoothly and can even help you get the
certifications done. They can also help you in choosing the
liquidator.

27. HLB HAMT is one of the leading auditing and business
consultancy firms in Dubai and the whole of UAE. Our
professionals will ease your task with their prowess in attaining
the documents and also aid you with any accounting or auditing
service you require. We provide every service related to
liquidation from preparing the board’s resolution to the
complete process of liquidation.

28. CONTACT US
HLB HAMT
Level 18, City Tower-2,​
Sheikh Zayed Road​
PO Box 32665​
Dubai – United Arab Emirates.Tel: +971 4 327 7775
E-mail: dubai@hlbhamt.com
www.hlbhamt.com