Liquidation (also known as ‘winding up’) is a process by which a company is brought to an end. Its assets are liquidated and used to pay off any creditors and outstanding expenses. Any remaining amount is distributed among the company shareholders.
There are two types of liquidation: compulsory and voluntary.
This takes place when a company cannot afford to pay its debts and a creditor or creditors take legal action to recover the money owed. Instances where a company may be forced into compulsory liquidation include:
This also occurs when a company is not able to pay its debts. However, the key difference is that the company’s directors make the decision to liquidate the company and pay off the debts before it is forced upon them by creditors. Motives for voluntary liquidation include:
In both of the above scenarios, liquidation is a result of the company being insolvent, meaning that it is unable to pay its bills when they are due and continuing to trade is not a realistic possibility.
The process of liquidation in the UAE is distinct for mainland companies and free zone companies. However, in both cases you should first ensure that you have the following necessary documents:
The following are other issues which must be taken care of in advance of the liquidation process. The government allows a 45-day notice period for these tasks.
When your company closes, it is important for all relevant government entities to know that you have ceased to trade so that you avoid incurring any fines or penalties when your trade licence is not renewed.
The following are the steps required to officially close a mainland company in the UAE. When following this process, it is necessary for all company partners to be available in the country or in their absence, their Power of Attorney, to sign the Shareholder Resolution to close the company.
The liquidation process can be more time-consuming for companies with multiple shareholders because shares must be liquidated and liabilities towards any partners or creditors must be released. Additionally, the following types of companies will require an official liquidator and liquidator report:
Terminating a free zone company can occur in three ways, depending on the Freezone authority rules. These are:
All free zones have their own requirements for company liquidation. However, in all cases, any visas attached to the company must be cancelled and all employees must be given a 2-month notice period and gratuity payment before the termination of their contracts.
If you need assistance with closing or liquidating your company in the UAE, or any other related company set up, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or Saudi Arabia, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at firstname.lastname@example.org or complete the contact form below and we will be delighted to assist you.
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