In the United Arab Emirates, closing a business, settling debts, and distributing any remaining assets to shareholders is known as liquidation. Many businesses wonder if they can be liquidated if they have debts. In brief, the UAE legal system permits the liquidation of businesses with unpaid debts, while also mandating formal processes to protect stakeholders and creditors.
However, here the process might be handled a little differently. This blog comprehensively answers your question: Can you liquidate a company with debt in UAE?
Let’s begin —
What is the Legal Framework for Company Liquidation?
Federal Decree-Law No. 32 of 2021 on Commercial Companies, which lays out the grounds, processes, and obligations governing company dissolution, is the main law controlling liquidation in the United Arab Emirates. The law permits liquidation for a number of reasons, such as when a company’s term is up, when its goals are met, when assets are lost, when a merger occurs, or when all shareholders agree. Furthermore, liquidation may be prompted by insolvency or nonpayment of debts, either voluntarily or by a mandatory court order brought by creditors.
With restructuring given precedence over rapid closure and liquidation as a last resort, the UAE’s contemporary insolvency system provides a business-friendly approach.
Types of Company Liquidation
Here are the two major types of company liquidation in UAE –
Voluntary: When a business is unable to continue operating normally or decides to close, its shareholders may initiate voluntary liquidation to wind up its affairs.
Compulsory: When a business defaults on payments or violates legal or contractual requirements, creditors may file a court petition to force a compulsory liquidation. In order to safeguard the interests of creditors, the court then mandates liquidation.
How to Initiate Liquidation With Debt?
Can you liquidate a company with debt in UAE? Well, liquidation continues when a business has unpaid debts, but there are additional responsibilities to guarantee that creditor claims are resolved. The company’s board and shareholders formally decide to liquidate the business at the start of the process. A notarized resolution that details the appointment of a licensed liquidator to supervise the full winding-up procedure, including debt settlement, serves as documentation of this decision.
The company liquidation process in UAE for those in debt might be a little different –
Selecting a Liquidator with a License
According to UAE legislation, liquidation must be handled by a licensed liquidator, which is a company or individual that has been authorized by the appropriate authorities. Creating an inventory of assets and obligations, informing creditors, gathering claims, and allocating assets appropriately are all part of the liquidator’s job description. To prevent conflicts of interest, the liquidator must be impartial and not a current or former auditor.
Notification of Creditors and Settlement of Claims
When the company liquidation process in UAE starts, the liquidator notifies creditors of the liquidation by publishing a public notice in the local media (usually two, one in Arabic and one in English). According to the law, creditors have a minimum of 45 days to file claims. The business should stop all operations during this period, including avoiding taking on new contracts or financial commitments.
In accordance with legal requirements, the liquidator evaluates claims, settles disagreements, and sets debt payment priorities. Before any leftover assets may be transferred to shareholders, debts, including taxes, government fees, supplier payments, employee salaries, and loan repayments, must be paid off. Legal action against directors, shareholders, or liquidators may result from improperly informing creditors or failing to pay debts.
The Bankruptcy Court’s Function
The creation of a separate UAE Bankruptcy Court, which has been in operation since May 2024 and handles insolvency and liquidation matters more effectively, is a noteworthy step. This court offers a specialized venue for businesses that are unable to fulfill their obligations, guarantees the fast resolution of debtor insolvency situations, and enforces judgments.
Procedure Restructuring
A business may start formal restructuring procedures if the preventive settlement doesn’t work out or if it has already stopped making payments. A trustee designated by the court is in charge of this process:
- The trustee keeps an eye on how the company and its assets are run.
- A restructuring plan is created and presented to the creditors for a vote.
- The business can go on while paying off its debts, provided the plan is approved.
Deregistration and Completion
The liquidator creates a final liquidation report for shareholder approval after paying off all obligations and allocating any leftover assets. The business is then officially deregistered from the appropriate authorities, its license is revoked, and staff visas are terminated. Company deregistration without adequate liquidation may result in unsettled liabilities, putting managers and stockholders at risk of continuing debt obligations.
Additional Considerations When Liquidating a Company With Debt
Here are some additional considerations if you are considering company deregistration in UAE. These are –
- Complete Transparency: To prevent disagreements, all stakeholders and stockholders must be aware of the debts and liquidation status.
- Legal Compliance: Lawful liquidation and debt settlement are ensured by adherence to Federal Decree-Law No. 32/2021 and associated regulations.
- Professional Liquidator: For seamless procedures and creditor protection, hiring a qualified, licensed liquidator is crucial.
- Timely Notifications: Publicizing notices and correspondence with creditors guards against future liabilities and keeps claims from going unnoticed.
- Court Intervention: Creditors may request court-ordered liquidation to recoup debts when a debtor is unable to satisfy their obligations willingly.
If you need help with your company’s liquidation, you can always turn to experts for well-guided assistance. Xpert Advisory in the United Arab Emirates and other GCC regions can help you navigate the ways to initiate a formal closure process even when you’re in debt. You can contact our experienced professionals to know more about our services!
Final Takeaway
We hope you found your answer to – Can you liquidate a company with debt in UAE. In the UAE, it is possible to liquidate outstanding debts under well-defined legal procedures that protect creditors and permit business closure. Liquidation, whether voluntary or mandatory, necessitates strict adherence to legal procedures, involvement of creditors, and cautious liability management, guaranteeing that the interests of all parties are taken into account at every stage.
FAQs
Can Creditors Force a Company into Liquidation if It Has Debts?
In order to collect their debts, creditors that owe AED 200,000* or more may ask the UAE courts to start a compulsory liquidation.
What Happens If a Company’s Assets Aren’t Enough to Pay Off Debts?
In accordance with the law, the liquidator gives priority to debt payments; but, if assets are insufficient, creditors may only receive a portion of the money, and any outstanding debts could result in legal action against directors or shareholders, depending on the specifics of the case.
Can A Company In A Free Zone With Debt Be Liquidated In A Different Way Than A Company On The Mainland?
The rights of creditors and debt settlement duties do not change, even if liquidation procedures may differ slightly between mainland and free zone countries.
