Types of liquidation

Voluntary Liquidations: Shareholders of a solvent company may choose to voluntarily liquidate the business. Similarly, directors of an insolvent company may opt to cease operations and liquidate the company’s assets to settle outstanding debts with creditors.

Compulsory Liquidations: When a company fails to pay its debts on time, creditors can petition the courts to force the liquidation of the company. The court may order the company to sell its assets in order to satisfy the outstanding debts to creditors.

Is liquidation necessary in the UAE even if there are no outstanding debts?

Even if a company has no outstanding debts, it is highly recommended to formally liquidate the business rather than letting the trade license expire. The process of formal liquidation involves several necessary steps, and failing to complete them can lead to penalties.
 
Ignoring the proper liquidation procedures may result in the company, its directors, and shareholders being blacklisted by UAE government authorities. This could severely impact their ability to participate in other businesses or establish new companies in the future.

What is the role of a liquidator?

A liquidator is a UAE-registered agent or firm, typically a chartered accountancy or audit firm, appointed to represent the company in the liquidation process. Their primary responsibility is to sell the company’s assets to generate funds for settling any outstanding liabilities. A liquidator can be appointed by the shareholders through a resolution or by the courts in the case of compulsory liquidation.

Once appointed, the liquidator will issue an official letter of acceptance to confirm their role. After completing all the necessary tasks, the liquidator will prepare a statement of affairs and a liquidator’s report, both of which are crucial for finalizing the liquidation process.

The liquidation process in the UAE

The liquidation process can vary based on the following three factors:

  1. Type of Ownership
  2. Type of Liquidation
  3. Jurisdiction of Registration (whether in a mainland Emirate or a free trade zone)

Each of these criteria influences the steps and requirements involved in liquidating the company.