A construction company in the United Arab Emirates must formally close its activities, pay off all debts, revoke its licenses and visas, and deregister itself from the government as part of a multi-step legal procedure known as liquidation. If you’re willingly or unwillingly shutting down your company, here’s a guide for you.
This blog explains the legal criteria, procedural stages, timetables, and crucial advice to guarantee a seamless and lawful construction company liquidation in UAE, examining the subtleties of the liquidation process especially designed for construction businesses in the United Arab Emirates.
Understanding Construction Company Liquidation in UAE
The formal process by which a business shuts down and sells off its assets to pay off creditors, with any money left over going to shareholders, is called liquidation. For a construction company, this includes canceling permits associated with construction activity, resolving labor commitments, and terminating all project contracts.
Federal legislation, such as Federal Decree-Law No. 32/2021 on Commercial Companies, regulates company liquidations in the United Arab Emirates. Depending on the commercial jurisdiction, Mainland or any Free Zone, relevant economic departments supervise these proceedings.
Two primary categories of liquidation exist:
- When the business is solvent, the shareholders decide to start a voluntary liquidation.
- In situations of insolvency or legal problems, compulsory liquidation is enforced by a court order.
Some Key Legal Framework Of Company Liquidation
- Federal Law No. 32/2021 Concerning Commercial Enterprises: The general foundation for the dissolution and liquidation of businesses throughout the UAE mainland is provided by this law.
- Federal Law No. 51 of 2023 Concerning Bankruptcy and Financial Restructuring: This law, which went into effect on May 1, 2024, creates new processes for company restructuring services in UAE and insolvency. It encourages saving faltering businesses, with liquidation being the last option.
- Rules for the Free Zone: The company liquidation process in UAE is governed by particular free zone legislation for businesses formed in free zones such as the Abu Dhabi Global Market (ADGM) or Dubai International Financial Centre (DIFC).
Steps For Construction Company Liquidation
Here are a few essential steps to follow for a construction company liquidation in UAE –
- Preparation and Shareholder Resolution: To declare their intention to dissolve the business and choose a liquidator, the shareholders get together and adopt a liquidation resolution. After being notarized, this resolution is delivered to the appropriate authorities.
- Select a Licensed Liquidator: An auditing firm or registered liquidation specialist assumes control of the procedure and thoroughly examines the assets and liabilities.
- Public Announcement: To give creditors time to file claims against the company, the liquidator posts the notice of the liquidation in two newspapers, one of which is in Arabic, for a minimum of 45 days.
- Settle Liabilities and Contracts: The liquidator identifies, negotiates, and settles all outstanding bills, including supplier, subcontractor payments, employee dues, and any government fines or taxes. The terms of construction contracts must be fulfilled fairly and lawfully.
- Cancel Work Permits and Visas: The General Directorate of Residency and Foreigners Affairs (GDRFA) and the Ministry of Human Resources and Emiratisation (MOHRE) are responsible for canceling partner and employee visas. It is also necessary to cancel all related labor cards.
- Close Bank Accounts and Cancel Business Licenses: Following payment clearance, corporate bank accounts are closed. The business trade license and any other building-related licenses are turned in to the DED (Department of Economic Development) or free zone authority for cancellation.
- Obtain Clearance Certifications: Before ultimate deregistration, clearance certifications from a number of government agencies, including tax authorities, municipalities, landlords, and utilities (DEWA, Etisalat), must be obtained.
- Final Liquidation Report: The liquidator drafts a final liquidation report outlining asset distribution and liability settlements once all commitments have been fulfilled.
- Deregistration: The liquidator sends the documentation about the license cancellation and final report for evaluation. Following approval, a certificate of liquidation or deregistration is issued, and the business is formally deregistered.
Considerations for Construction Companies
Due to their sector-specific operations, a construction company liquidation in UAE encounters significant challenges.
- Project Contracts: All active construction contracts need to be transferred or terminated legally. Contracts with customers, suppliers, and subcontractors fall under this category.
- Labor Obligations: Since construction companies frequently have a large workforce, severance and labor rights must be strictly adhered to and resolved.
- Equipment and Inventory: Part of the process involves liquidating physical assets, including machinery, equipment, and building supplies, all of which need precise appraisal and sale.
- Regulatory Permissions: Safety, environmental, and municipal permissions are among the many that must be revoked in connection with building activity.
- Bonds and Guarantees: As part of winding down, performance bonds or bank guarantees retained for projects need to be handled and released.
To overcome these challenges, you can always resort to a professional. Xpert Advisory is a renowned business consultancy in the UAE and other GCC regions, streamlining the process for you. We are experienced in company liquidation, and our experts can help you with company deregistration and closure. Contact us and hire our professionals today!
Timeline and Cost of Company Liquidation
Depending on the size of the business, the complexity of the liabilities, and the jurisdiction, the company liquidation process in UAE may take three to six months. Smaller businesses that don’t have any significant unresolved problems might finish liquidation sooner.
Depending on free zone or mainland restrictions, costs may include publishing, license cancellation, clearing certificate processing, and liquidation services fees. Expert costs for liquidations often begin at AED 15,000*.
What Are the Benefits of Smooth Liquidation?
With a smooth and proper liquidation in UAE, you can enjoy the following benefits –
- Avoiding Future Liabilities: A proper liquidation shields directors and shareholders from future lawsuits.
- Regulatory Compliance: Prevents fines or penalties by ensuring that all government departments have clearance.
- Market Reputation: A transparent legal closure preserves goodwill and protects any future commercial opportunities.
- Asset Realization: Makes it possible to sell assets in an orderly manner to maximize profits for shareholders and creditors.
Conclusion
In order to safeguard the interests of all parties involved, liquidating a construction company in the UAE necessitates meticulous planning, close adherence to legal procedures, and expert handling. To successfully negotiate the complicated regulatory environment and guarantee a seamless and legal closure, it is essential to enlist the help of knowledgeable legal and financial consultants or liquidation specialists.
FAQs
If A Construction Business Has Outstanding Taxes, May It Be Liquidated?
No, liquidation cannot start until all outstanding tax obligations have been paid to the Federal Tax Authority and clearing certifications have been obtained.
If Conditions Change, Is It Feasible To Undo A Liquidation?
It is typically difficult to reverse the process once liquidation has been started and declared, since it is complicated and involves both legal authority and creditor consent.
How Do Construction Projects Fare In The Middle Of Liquidation?
To avoid legal ramifications, projects must be finished, legitimately turned over, or terminated with full payment of all contractual obligations.
