All you need to know about Company Liquidation

The liquidation process in UAE requires the conversion of an organization’s resources into cash, paid to different contributors of the company. For instance, a company might be liquidated to pay the debts to the creditors; the lending agencies, or a bank from where loans may have been taken.

It is usually the last resort that investors opt for, as a company that is in ideal financial health is not obligated to process liquidation. But, if a company doesn’t show any suitable development & the debt cannot be paid off, then creditors choose to opt for liquidation.

In this process, the assets of the company; land, machinery, raw material, products, & other commercial items are auctioned or sold to a prospective buyer. The cash, which is attained from the selling of all the things, is then distributed among the lenders.

Liquidation requires certain actions which must be followed by a business. This will impact will also affect the VAT & Tax status. If the company is registered as a tax group, in that case, the management cautiously remembers to deregister the business from a tax group as it may create problems in the future.

What are the Types of Liquidation?

There are two different types of company liquidation that a business may implement:

  1. Voluntary LiquidationHere the investors of a company will decide to liquidate the company as they have no money to pay the creditors. In this type of liquidation, importance is given to the creditors at the time of distributing the earnings from the assets.

  2. Compulsory LiquidationThis type of company liquidation is put forward by a court order. Here, the assets of the company are distributed to the creditors & contributors based on the priority of claims.

 

What is the Role of a Liquidator?

A liquidator is a leading decision-maker in a liquidation process. A liquidator has several responsibilities to take care. Some of the duties of a liquidator include:

  1. Initiating the liquidation process:
    Once the stakeholders give a resolution for the liquidation, & the appointment of a liquidator, the liquidator can then issue an acceptance letter. This acceptance letter will also compute the procedure to be followed & also the name of the liquidator.
  2. Publish the Liquidation Notice
    Once the liquidation procedure has been initiated, the liquidator distributes the liquidation notice, both in Arabic & English, in two local newspapers so that the news of the liquidation reaches maximum people.
  3. Overview of Collection & Distribution of Company Assets
    If required, the liquidator may outline the collection & distribution of company assets, & the settlement of liabilities. The approach of distributing assets will be stated in the acceptance letter.
  4. Preparing the Statement of Affairs
    As the final step in the liquidation process, the liquidator arranges the statement of affairs & the liquidator’s report. In this, all the details of the liquidation process are provided.

 

Documents primarily required for company liquidation

  • Trade License Copy
  • Memorandum of Association Copy with all the modifications
  • Power of Attorney if any
  • Shareholders Resolution
  • Shareholder’s passport Copy
  • Emirates ID Copy
  • Deregistration Application Form

 

Actions required to be taken during the notice period

  • Authorization from Immigration Department
  • Authorization from Labor Department
  • letter from Electricity and Water Departments
  • Authorization letter from Telecom Authority (DU or Etisalat, etc.)
  • Authorization letter from Landlord
  • Bank account closure letter

 

Benefits of Company Liquidation

  • Debt is paid to the creditors & there are no complications with partners related to money.
  • The management & directors are saved from probable legal actions.

 

Drawbacks of Company Liquidation

  • The drawback of the procedure is that the company seizes to exist. As a result, it causes the present staff to lose their jobs.

 

How can we help?

The liquidation of a company in the UAE is a complex & and exhausting process. At Spicer-Pegler, we assist our clients hassle-free with all the procedures required for company liquidation. We at Spicer-Pegler offer are financial consultants & we offer a wide range of services including, auditing, accounting, VAT consultation, UBO consultation, Anti-Money Laundering services, financial dispute services, ESR services, Corporate Tax consultation, company formation, liquidation & insolvency, etc. We have been providing the best audit services in the UAE for over a decade.