Winding up of a company might be required because of various reasons including the conclusion of business, misfortune, bankruptcy, passing endlessly of promoters, and so forth, the methodology for winding up of a company can be initiated intentionally by the shareholders or creditors or by the court.
A company can be liquidated for a variety of reasons, and different procedures must be followed to begin the liquidation of a company.
Conditions to be considered before commencing the liquidation process
Deregistration is not an established practice under a specific regulation in the UAE; however, it is a practical procedure created by a number of the concerned licensing authorities in the various Emirates, with the ultimate goal of cancelling a license and closing down a company. The advantage of deregistration is that it is a quick process with less stringent requirements when compared to the liquidation process, which is the normal and only way to close down companies at most licensing authorities under UAE law. As a result, it is critical to distinguish between the liquidation and deregistration processes and to understand the requirements of each. The internal guidelines and norms established by the appropriate licensing agencies often regulate the deregistration requirements. In general, the main requirements for registration are:
Once the completed application (as detailed above) and deregistration fees are submitted, the authority will issue a final certificate confirming the deregistration and cancellation of a company’s license.
According to the provisions of Federal Law No. 2 of 2015 on Commercial Companies (the “2015 Law”), the concept of liquidation is well established. Unless the company’s Memorandum of Association or Articles of Association specify special provisions or provisions contrary to the 2015 Law, the liquidation process should be carried out in accordance with the 2015 Law’s default provisions.
Liquidation can be voluntary or mandatory (through a court order). Through a shareholders’ resolution, the shareholders agree to liquidate the company and appoint a liquidator in a voluntary liquidation. If there is a disagreement between the shareholder(s), and the shareholder(s) request liquidation through the courts, the competent court shall select the method of liquidation to be used and formally appoint a liquidator. In any case, even if the liquidator is appointed by the partners, the task of the liquidator is not terminated by the partners’ death, declaration of bankruptcy, insolvency, or interdiction.
In the event that the liquidator submits the liquidation report to the relevant licensing authority after the liquidation process is completed, the latter will issue a liquidation certificate announcing the liquidation is complete and the company is closed.
Taking all of this into account, a company can be deregistered without going through a liquidation process, and in particular without appointing a liquidator who is required to notify creditors and prepare a liquidation report. But you seek legal aid from the most trusted lawyers to deal with this kind of sensitive matter.
A question arises regarding whether the appointment of a liquidator and, more broadly, the adoption of the dissolution and liquidation steps, will still be necessary even if the company is deregistered due to the lack of a liquidator and, consequently, the absence of a liquidation report in the deregistration process.
” Article 308 of the 2015 law states that “the liquidation shall be carried out by one or more liquidators appointed by the partners or by a Decision of the General Assembly or any other similar body, provided that the liquidator is not currently an auditor of the company or has audited its accounts within the five years preceding the appointment.”
The liquidator must arrange for a publication during the liquidation process, according to Article (316) of the 2015 law, which states:
” All debts owed by the firm become instantly due and payable upon its dissolution “By registered letters with acknowledgement of receipt, the liquidator must inform all creditors that the liquidation has begun and invite them to present their claims. Two regional daily newspapers, one of which will be printed in Arabic, will circulate the notification. The notice of liquidation must, in any circumstances, provide that creditors have at least 45 days from the date of the notification to submit their claims.”
It is critical that relevant government entities are aware that you are no longer in business in order to avoid any accumulated fines and penalties imposed on your license when it is not renewed on the expiry date. If you own a shareholding company, you must discharge your liabilities to creditors and partners while also protecting your interests and shares. It is also prudent to consider your goodwill and business reputation if you decide to reopen a business.
The process is simple for establishments and sole proprietorships because all you need to do is apply for cancellation through DED and obtain all relevant clearances from:
However, for companies with shares, the process takes longer because the shares must be liquidated, debts collected, and creditors paid before finalizing with DED.
The concept of deregistration arose from general procedural practice adopted by various licensing authorities in the UAE.
The deregistration path can be thought of as a way to expedite the cancellation of a limited liability company’s license and ensure its closure as soon as possible while leaving the decision about dissolution and liquidation formalities up to the shareholders based on the company’s circumstances. However, special consideration should be given to the fulfilment of the notification and publication requirements during the transaction; otherwise, the company’s managers and shareholders may be held liable for any (or all) business debts.