The UAE is a vibrant business region, teeming with business hubs and free zones that foster entrepreneurial activities. Companies and investors from around the globe flock here to set up businesses and pursue opportunities. In such a business-friendly environment, new companies are constantly emerging. However, this doesn’t guarantee that every company in the UAE will succeed.

The survival and success of a business rely on several factors. Many businesses struggle to meet these demands and ultimately fail. A failing business can quickly become a liability for its owner. You cannot simply walk away from a business when it underperforms. Just as there is a formal process for establishing a company, there is also a formal procedure for closing one. This process, known as liquidation, is quite important in the UAE.

Liquidation

Liquidation refers to the winding up of a business. Essentially, it is a solvency process in which a company’s assets are appraised and sold to settle any outstanding debts. The larger the business, the more complex the liquidation process becomes, as more assets and liabilities must be accounted for. In the UAE, the process can be particularly challenging due to the numerous authorities, each with its own rules for liquidation. It is crucial to understand the specific regulations that apply to your company.

There are two types of liquidation: mandatory and voluntary. Mandatory liquidation, also known as creditor’s liquidation, occurs when a company is forcibly dissolved to pay off its debts. Voluntary liquidation, on the other hand, is initiated by the company itself to settle its debts and is not imposed by a third party.

The Process of Liquidation in the UAE

Before initiating the liquidation process, you must first organize and prepare the following documents:

• Copy of your business license. If your business license has expired, you will have to get it renewed before you can begin the process
• An MOA (Memorandum of Association) with a copy of any changes that have been made
• Power of Attorney (if there is any)
• Copies of all shareholder’s passports
• Copies of emirates ID
• Shareholders’ resolution
• De-registration application form

Notice Period for Liquidation

The government provides businesses with a notice period of 45 days to address any outstanding debts. Before starting the liquidation process, it’s crucial to handle all essential tasks related to your business and employees. In addition to preparing the necessary documents, the following tasks must also be completed:

• Pay off all pending utility bills
• Pay off all pending telecommunication bills
• Obtain bank account closure letter
• Prepare a liquidation audit report
• Cancel any visas that have been obtained under their current business license

Liquidation Procedure for Mainland Companies

In Dubai, for company liquidation, regardless of your company type, it is essential to apply for the cancellation of your business license to initiate the closure process. This step notifies the relevant authorities that your business will cease operations, preventing potential fines and penalties associated with an expired business license. Shareholding companies must ensure they settle all liabilities owed to partners and creditors, while also safeguarding their shares and interests.

Cancellation of Business License

The process of cancelling a license depends on the legal structure of your business. Sole proprietorships and establishments have a straightforward procedure. They can apply for cancellation by obtaining the necessary clearance forms from:

• Directorate of Residency and Foreign Affairs
• Ministry of Human Resources and Emiratization
• Their relevant electricity and water authority
• Their leasing entity

If a company holds shares, it must liquidate those shares, settle debts, and pay off creditors before it can proceed with the cancellation process.

Appointing a Liquidator

A liquidator assumes the role of decision-maker throughout the liquidation process.

Phases of Liquidation

The liquidation process for mainland companies comprises two stages.

Phase-1

• Preparation of notarized MOM (minutes of the meeting) in which the decision to liquidate the company is taken and the appointment of a liquidator is decided on (if needed).
• Arrangement of an official letter issued by a liquidator, stating that they accept being appointed by the company.
• Application for cancellation by filing all required forms.
• At this point, the DED (Department of Economic Development) will issue a certificate of liquidation to the company.
• The company will now publish its liquidation notice as required.
• Once the notice has been published, the liquidation notice period will begin. During these 45 days, debtors shall have a grace period in which they can submit claims.

Stage-2

• Once the 45 days have passed, a declaration letter from the liquidator will be submitted to the DED. The letter shall state that there are no further objections from anyone during the grace period.
• The company will now collect approvals from relevant government authorities in order to cancel their license.
• The firm card of the company will be canceled at the Ministry of Human Resources and Emiratisation.
• All visas sponsored by the company must be canceled as well.
• After all the required documents have been collected, they must be submitted in order to gain approval for final cancellation.
• The DED shall determine all fees that must be paid.
• After all the fees have been paid, a certificate of de-registration can be received by the company.

In the mainland, the liquidation process differs for civil works companies. They are required to:

• Fill the relevant cancellation form.
• Cancel its firm card at the Ministry of Human Resources and Emiratization
• Cancel visas of all partners and sponsored people that were issued on behalf of the company.
• Collect relevant approvals from government bodies.
• Draft a contract of partnership cancellation that must be authenticated by the notary public.
• Submit all of the documents mentioned above and submit them for their cancellation.

If a company is being dissolved but its partners or owners intend to resume business in the near future, they can choose to suspend their business license instead of terminating it. A business license can be suspended for up to 3 years upon payment of a freezing fee. The process to freeze a business license involves the following steps:

• The company or institution must issue a letter requesting the temporary freezing of their business license.
• The Ministry of Human Resources and Emiratization must issue a letter confirming that there are currently no sponsored individuals under the license.
• A report must be obtained from the inspection division of the Department of Economic Development (DED).

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