Closing down a business is a process wherein an existing company is brought to an end. It is considered to be an intricate procedure especially in UAE, where the registered companies become large, with passage of time and such event shutting them can be either voluntary or by an order of the court. If establishing a company means brining the organization into reality, than shutting it down is the way toward stopping the presence of that supposed company? An organization has a perpetual identity. It has an inconclusive life term regardless, if such reasons have happened which makes it inevitable to come into resolution to its corporate life, in such circumstances vital legal provisions must be placed into activity to complete the process of closing the business and such process is commonly referred to as liquidation. It is a procedure by which the properties of the organization are managed to serve its creditors such as employees, outside vendors and banks. The individual who is designated for dealing with the assets and liabilities of an organization is called “Liquidator‟.

Steps into Liquidation

The primary step towards liquidation of an LLC in Dubai is to inform the board of directors of the company or the shareholder. The Commercial Companies Law of UAE confirms that in an event if the company is suffering from losses exceeding to 50% of the company’s value, it is obligatory for the board of directors to propose liquidation of the company through a general meeting. Additionally, in case is 75% of the company’s capital has been re-invested causing significant loses to the company, the shareholders holding 25% or more of shares can propose for the liquidation of the company. In another event, where the shareholders are at dispute concerning the liquidation, either shareholder may propose liquidation before Dubai courts by registering an application for winding up of the business. In such circumstances, the courts of Dubai may order for liquidation at their own discretion and post reviewing the audit reports prepared by the liquidator or the auditor of the company.

Secondly, once the proposal for liquidation is accepted between the shareholders, the company shall than appoint a liquidator who is well qualified and registered within the country or courts of Dubai. The liquidator is responsible for reviewing the assets and liabilities of the company, determine the number of creditors of the company, the debt owed by the company, the outstanding salaries of all the employees of the company and to ultimately draft a audit report which will be used to close down the business by terminating license and other permits obtained by the company for undertaking necessary activities of the company. It is the responsibility of the liquidator to attempt all demonstrations fundamental in the portrayal of the organization during the procedure of liquidation, liaising with the courts or legal representatives, paying all the obligations and selling every single moveable asset of the company.

Thirdly, an application for liquidation duly notarized and signed by all shareholders, directors/manager shall be submitted before the Department of Economic Development in Dubai along with following relevant documents:

• Shareholder’s resolution duly notarized by public notary;
• Letter of appointment of the liquidator;
• Trade license of the company;
• Commercial certificate;
• Lease agreement, if required.

The Department of Economic Development, upon receiving the aforementioned documents will give a notification illustrating that the organization is going into liquidation and welcoming any claim(s) against the organization to be made to the Economic Department within a time of forty five (45) days (the notification time frame through two newspapers that is in English and in Arabic.  Post completion of the foregoing period, the company shall submit a declaration form from DED signed by the liquidator and the shareholders of the company stating their no-objection from any creditor or third party amidst the notification period.

Fourthly, the company shall obtain other relevant approvals from the governmental authorities such as Ministry of Economy or other authorities for cancelling the license as required by depending upon the type of activity conducted by the company or as requested by DED, Dubai.

The next step involves cancellation of the labor card of the firm before Ministry of human Resources and Emiratization and to seek the security deposit for issuing visas. Simultaneously, the company shall cancel all the visas of the employees and the foreign partner in the company through General Directorate of Residency and Foreign Affairs in Dubai.

The sixth step involves submission of all the aforementioned documentation again with Department of Economic Development in order to get final approval for cancellation of the trade license and pay the requisite fees as order by the Economic Department. Upon payment of the fees, the authority will issue the cancellation certificate to the company.

Important Facts

Whilst undergoing the process of liquidation, the liquidator and the shareholders shall be informed of the fact they cannot conduct or take any new business or clients. Importantly, if the liquidator continues with new work, he/she shall be held responsible at all times. Another very significant duty of the liquidator is to send notification to all the creditors of the company via email informing them about the liquidation and to simultaneously invite them for presenting their claims from the company, which are unpaid and due for settlement. However, if the details of such creditors are unknown, such creditors can approach the company during the notification procedure of liquidation notification through newspapers.

In the event, when creditors present their claims to the company and the assets of the company are insufficient to fulfill the claims of the creditor, the liquidator shall settle the claims in a proportionate manner in order to preserve the rights of all the creditors of the company. In occurrences where a few lenders neglect to express their cases, the amount of the debt owed to them shall be kept in the organization’s treasury.

Lastly, the time span within which the liquidator needs to perform his obligations is to be set out in his appointment record, if additional time is required to finish the procedure of liquidation the liquidator shall present a report to show the reasons why the procedure has not been finished. The period can be stretched out by the shareholder’s resolution or by the General Assembly. In the event that such a period isn’t so indicated, each partner may elude the issue to court to fix a time period. In the event that the court fixes a period, just the courts may expand this period should they may deem fit. The liquidator needs to present a report on the procedure of liquidation to the General Assembly at regular intervals, and will give any data mentioned by the shareholders.

To conclude, it is apparent that the process for shutting down a company is quite intricate and would require top commercial lawyers of Dubai to help you with the process of liquidation.