About
Liquidation is a formal insolvency procedure in which a company is brought to an end (also often termed ‘winding up’ or ‘closing’ a company); all of its assets are liquidated and the proceeds from the sale of assets are used to settle debts, pay expenses and transfer any remaining balance to shareholders of the company.
Once a company is liquidated it will cease doing business and employing people. On liquidation, a company’s business licence is revoked, its name is removed from the Trade Registry and the entity is considered to have ceased to exist.
Why is liquidation required?
There are two principal reasons why the liquidation of a company may be necessary in the UAE:
Types of liquidation
Is liquidation necessary in the UAE even if there are no outstanding debts?
Even if there are no debts to be paid to creditors, it is highly advisable to formally liquidate a company rather than simply allowing your trade licence to expire. There are a number of procedures to be completed when formally liquidating a company. Ignoring these may attract various penalties and could also result in the ‘blacklisting’ of company, as well as its directors and shareholders, by government authorities in UAE. This may impact on their involvement in other businesses or damage their ability to set up another company in future.
What is the role of a liquidator?
A liquidator is a UAE-registered agent or a firm, typically a chartered accountancy or audit firm, that is assigned to act on behalf of the company to sell its assets in order to generate cash to discharge any outstanding liabilities. A liquidator may be appointed by shareholders via resolution or may be appointed by the courts in the case of compulsory liquidation. Once appointed, the liquidator will issue an official letter of acceptance at the initial stage. Once all its duties are completed, they will prepare a statement of affairs and the liquidator’s report, which are essential to finalise the liquidation process.
The liquidation process in the UAE
The liquidation process will vary depending on the following three criteria:
In general, however, the formal process of liquidation in Dubai, Abu Dhabi and the rest of the UAE is as follows:
- Copy of the company’s Trade Licence
- Copy of the company’s Memorandum of Association
- Powers of Attorney (if any)
- Copies of passport / Emirates ID for all partners, owners and shareholders
- Deregistration application form.
- Cancellation of work permits and visas for all employees and partners
- Clearance letter from Immigration Department
- Clearance letter from Labour Department
- Clearance letters from utilities companies – water, electricity and telecoms
- Clearance letter from leasing entity (landlord)
- Clearance letter from Road & Transport Authority (RTA) for any registered vehicles
- Clearance letter from Federal Customs Authority (FCA)
- Bank account closure letter
- VAT de-registration and VAT clearance letter from FTA
How can Sovereign Dubai help?
The liquidation process can be lengthy and costly because companies must liaise with a number of external parties/authorities to arrange everything in a timely manner. Missing out any step or document will cause unnecessary delay and complication. Sovereign offers liquidation services for all UAE entities – LLCs, free zone companies and offshore companies – from a complete liquidation to assisting with a part or parts of the process, as required by the client.
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Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.