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Liquidation in UAE
PUBLISHED: OCTOBER 28, 2024
Note: This material is for informational purposes only and does not constitute legal advice or consultation. The information contained herein may not be applicable at the time of reading.
Throughout its lifecycle, a company typically goes through several stages. In the event of an asset loss, a merger, or the unanimous decision of the general meeting, the company ceases to exist. Accordingly, there is a specific procedure for the dissolution of a company, referred to as liquidation, as outlined in Chapter 2 of Federal Decree-Law № 32/2021 On Commercial Companies.
The first step in such cases is to initiate the liquidation process and appoint a liquidator.
Two resolutions must be adopted by the managers or another governing body (such as the board of directors or a general assembly):
- one authorizing the termination of the company through dissolution,
- and the other appointing a liquidator and defining the terms of the liquidation, particularly the fee.
Until these resolutions are passed, the managers are considered to be acting as liquidators. Additionally, they must hand over the company’s books, documents, and accounts to the appointed liquidator.
Before appointing a liquidator, their eligibility for the role must be verified: the liquidator must not have served as the company’s auditor at any time during the preceding five years.
After the appointment, the liquidator's responsibilities are as follows:
- Preparing an inventory of all the company's assets and liabilities, which will serve as the basis for issuing a detailed list and balance sheet to be signed by the company’s managers;
- Maintaining a record of all liquidation procedures;
- Taking all necessary steps to protect and preserve the company’s assets and rights;
- Collecting any outstanding debts owed to the company from third parties and depositing these amounts into the liquidator’s bank account;
- Carrying out all necessary actions for liquidation, including representing the company in court, settling the company’s debts, and selling the company’s movable and immovable property through public auction or other methods;
- Providing the company’s partners with an interim report on the liquidation process every three months;
- Supplying any information or statements requested by the partners concerning the status of the liquidation;
- Within one week of appointment, notifying the partners to collect their dues within 21 days, with an announcement published in two daily local newspapers, one of which must be in Arabic.
However, the liquidator is not permitted to sell all of the company’s assets at once without the approval of the company’s partners.
A key point to note is that the company must settle all outstanding debts before its dissolution.
The next step involves settling with creditors. The liquidator must invite creditors to submit their claims within thirty days of receiving the notice (though an alternative deadline may be specified). This notice should also be published in two local daily newspapers, one of which must be in Arabic.
The liquidator is not exempt from liability. For example, if the liquidator mismanages the company’s affairs or makes professional errors that cause damage to third parties during the liquidation process, he or she can be held accountable.
After the liquidation process, the company’s remaining assets will be distributed among the partners in proportion to their shares. If the company’s net assets are insufficient to cover the partners’ shares in full, the loss will be distributed among them according to the agreed-upon proportion.
To ensure compliance with liquidation requirements and deadlines, it is advisable to seek advice from qualified legal professionals.
REGULEX is ready to provide legal consulting aimed to provide comprehensive legal support to businesses throughout the liquidation process, offering personalized solutions tailored to each case.