Liquidating a holding company in the UAE is more than just shutting it down; it’s a legal and financial process. Companies choose to liquidate for many reasons, including restructuring, debt, or because their business has achieved its goals. In any case, it must be done in conformity with UAE commercial law so that it can be closed duly and entirely.
In this blog we will share everything you need to know about holding company liquidation in UAE, including step-by-step process, documentation, timelines and the importance of professional support.
Understanding Holding Company Liquidation
Liquidation is the legal process of settling up a business. It involves disposing of the firm’s assets, discharging all liabilities, and paying out any remaining money to shareholders once it is legally closed.
For a holding company, liquidation can occur in one of two general forms: voluntary or compulsory.
- Voluntary liquidation: It occurs when shareholders decide to close the company. This type of situation occurs for various reasons, often due to a change in business structure, unsatisfactory profits, or complete disengagement from the business altogether.
- Compulsory liquidation: On the other hand, it refers to a situation in which a UAE court orders the closure of a company, indicating that the company can no longer sustain its obligations.
In either case, liquidation under UAE company law is a regulated practice that requires severe adherence to all UAE company law to achieve a clean exit.
Legal Framework For Liquidation In The UAE
The liquidation procedures are prescribed in the Federal Decree-Law No. 32 of 2021 concerning Commercial Companies, which establishes a legislative framework for dissolution of entities in the UAE. Protection of creditors’ rights, listing of liquidators’ obligations, and determining the methodology for winding up a company are some of the features of this law. Depending on the jurisdiction of the company’s incorporation, differing authorities are responsible for the tribunal of liquidation.
The Department of Economic Development (DED) is suitable for mainland companies, while authorities in the Free Zones, including the Dubai Multi Commodities Centre (DMCC), Jafza, and Dubai International Financial Centre supervise companies established under their regime. The Ministry of Economy publishes liquidation announcements in the public domain, whereas UAE Courts deal with involuntary liquidation.
Step-by-Step Process Of Holding Company Liquidation In UAE
Holding company liquidation in UAE is a multi-step procedure that requires accuracy and coordination. Below is a detailed explanation of each step.
- Pass A Shareholders’ Resolution
Liquidation begins with a meeting of the shareholders to take a formal resolution to dissolve the company, which must be in writing, notarized, and submitted to the DED or Free Zone authority as necessary. The resolution will serve as the official approval to commence the liquidation process.
- Appoint A Licensed Liquidator
Following the resolution, the company must appoint a liquidator, and that liquidator must be a licensed person who the regulator has authorized. The liquidator will take responsibility for winding up the company’s finances, sell the assets, and pay the debts per UAE law. When appointed, the liquidator will issue a letter of acceptance stating they have been appointed and will manage the process.
- Submit Necessary Documents
The following stage is the preparation and submission of the required documents to begin the process. This includes the trade license, the Memorandum and Articles of Association (MOAs and AOA), a signed and notarized board resolution, the liquidator’s appointment letter, passport copies of any shareholders and directors, and any company-issued power of attorney.
These documents confirm that the company is appropriately formed and give authorization to begin the liquidation process.
- Publish A Liquidation Notice
After the documentation is submitted, liquidation must be public. A notice is publicized in two local newspapers, one in Arabic and one in English, to advertise that the company is in a liquidation process. Due to this notice, creditors or other parties can come forward with claims or amounts owed within 45 days.
- Settle Liabilities
Before you can do anything else, you must settle all outstanding obligations, including employee salaries, supplier invoices, business loans, and other liabilities. The company will then close all its bank accounts to ensure that all transactions have been settled and that there are no residual debts or obligations.
- Obtain Clearance Certificates
The company must obtain clearance certificates from multiple government departments before final approval. The Immigration Department will need to confirm all visas have been cancelled, the Labour Department will need to check on all employee settlements, and the utility authorities including DEWA, SEWA or FEWA will need to validate unpaid bills. The Federal Tax Authority will also check VAT deregistration.
- Submit The Final Liquidation Report
When the liquidator has finished completing all his tasks and satisfied all liabilities, he is required to prepare the final liquidation report. This report summarizes the liquidation process and confirms the liquidation and settlement of all legal and financial obligations, which can be submitted to DED or Free Zone authority for review.
- Cancel The Trade License
Once the authorities approve the liquidator’s final report, the company’s trade license is cancelled, marking the official cessation of the company in the UAE jurisdiction. Following the trade license cancellation, the company name will be removed from the register and the liquidation process is then considered completed.
Documents Required For Liquidation
Having complete documentation is very important to avoid future delays or penalties. Companies are required to have a complete set of legal and financial documents that are complete before the start of the process. Most of the documentation required will include:
- A copy of the company’s trade license.
- The Memorandum and Articles of Association (MOA and AOA).
- A certified board resolution approving the liquidation.
- A letter of appointment of the licensed liquidator.
- A power of attorney is needed if any representative acts on behalf of the shareholders.
- The passport and Emirates ID copies of shareholders and directors.
- The most recent set of audited financials or a balance sheet.
- Confirmation of VAT deregistration with the Federal Tax Authority (FTA).
Having the correct and current documentation will ensure efficiencies in the liquidation process.
Challenges In Holding Company Liquidation
Regardless of the distinct process, many companies will experience difficulties with liquidation.
One of the common issues companies encounter is incomplete or out-of-date documentation, which can impede the approval process for their applications or delay the process for some time. What can make the challenge worse is having employee dues unpaid. Education companies must pay up all dues for employees before they can submit a labour clearance application. Also, the application will be delayed if the company still has outstanding bank loans or guarantees.
Another issue companies might have is VAT deregistration application errors. Or, the applicant may have neglected to submit VAT deregistration application before the required deadline, which often leads to penalties.
If the liquidation notice isn’t published properly, or, if it were not published in the time period required, the application would be further impeded.
Clearly, many issues could arise that would hurt the liquidation process. Companies and organizations would be better off seeking professional assistance as early as possible.
Tax And Financial Considerations
Before commencing the liquidation process one important aspect to include will be to settle all taxes timely, if the company is VAT registered you will need to apply for VAT deregistration through the Federal Tax Authority. The liquidator acts to ensure all tax returns are prepared and submitted and all taxes due or any penalties are settled. Once the FTA confirms VAT deregistration you can move forward with the liquidation process.
From a financial perspective, all remaining liabilities or obligations, such as suppliers, lease contracts and utility bills, etc., must also be settled and paid. Whatever else remains will then be distributed amongst shareholders based on their shareholding percentage.
Timeframe & Cost Of Liquidation
The total time to liquidate a holding company is influenced by jurisdiction and the complexity of company’s affairs. The liquidation timeline for Mainland companies is typically between 45 to 60 days. In comparison, it is usually more complicated for Free Zone companies and may take between 60 to 90 days, depending on how fast the various stakeholders’ clearances can be obtained.
The costs can also vary. The actual cost of liquidation is typically in the range of AED 8,000 to AED 20,000, depending upon the complexity of the company affairs, with this amount representing the overall costs, including the Government fees, newspaper publication fees, and liquidator fees. In cases where the company is larger with complicated financial records, additional auditing and clearance costs may arise.
Advantages of Proper Liquidation
Doing liquidation properly protects all relevant parties. It assures compliance with the laws of the UAE, which also reduces future legal disputes. It provides financial closure, with a proper accounting of the assets and liabilities of the company and beyond.
Formally closing the company, it also appropriately protects the personal reputations of individual shareholders, who might want to start a new business with no legal complications. Well-managed liquidation also stops future claims against creditors or employees and ensures transparency.
Why Hire Professional Liquidation Experts
Liquidation involves a lot of coordination between legal, financial, and regulatory departments. Handling it alone can be stressful and much more likely to fail.
Liquidation professionals do all of this work from start to finish: anywhere from communicating with authorities to preparing and reviewing documentation to issuing notices to the public to ensuring VAT cancellation and other worker clearances, to ensure everything is done on time.
With an experienced advisor, you can save time and money and eliminate non-compliance risks.
Conclusion
Carrying out a holding company liquidation in UAE is an essential legal and financial endeavour. From obtaining a shareholder’s resolution to receiving clearance from the final formalities, the entire outcome should be completed because it supports the requirements relative to UAE law.
Are you contemplating liquidating your holding company in UAE? Our team at Xpert Advisory offers you a forum of professional advisory services relative to your liquidation process from end to end. We can help facilitate the process in a way that is expedient, compliant, and mitigates the inconvenience you experience through the overall process.
Call us to speak with a professional for assistance relative to the de-registration or business liquidation process.
FAQs
1. What is the process of company liquidation in UAE?
This process will involve: passing a shareholders’ resolution; appointing a licensed liquidator; publishing notices of liquidation; settling all debts; seeking government clearance; submitting a final liquidation report; and cancelling a trade license.
2. How long does it take to liquidate a company in UAE?
Liquidation can take 45, and 90 days, depending on whether it is a mainland or free zone company, and how quickly all clearances are obtained.
3. Is it compulsory to appoint a liquidator in UAE?
Yes, due to UAE law, appointing a liquidator is a compulsory part of the process. The liquidator must be licensed and will lead the liquidation process, submit the final report; ensure all obligations are fulfilled in accordance with regulations.
