The decision to close down a business from a financial perspective is never an easy one. However, it pays if the mechanisms involved are understood to enable better planning for the same. One fundamental question that businessmen ask in the UAE is how long the liquidation process really is.
The answer will depend on various factors including the kind of enterprise, responsibilities, and liquidation route chosen.
Let’s take a deep dive into the entire processes and timelines.
Understanding The Company Liquidation Process In UAE
Liquidation is the legal way of closing a business while settling its obligations. Upon liquidation, the company will cease all operations, except for the minimal steps required to close itself.
There are two primary forms of liquidation:
- Voluntary Liquidation: This voluntary process is initiated by shareholders of a business that is solvent and chooses to liquidate itself.
- Compulsory Liquidation: This occurs when a court orders the business to be liquidated and it is unable to pay its debts.
Each has a slightly different process and timing. The UAE Ministry of Economy states that the process is formalized to ensure the appropriate treatment of creditors and to ensure compliance with Federal Laws.
The steps in the process generally are:
- Board Resolution: The shareholders’ resolution to liquidate the company.
- Appointment of Liquidator: Typically, the liquidator is an accounting or business consulting firm that is licensed to perform liquidations.
- Settlement of Liabilities: All other debt obligations, including employee liabilities and other utility obligations, must be settled.
- Auditor and Report: The liquidator will then perform an audit and prepare the report.
- Deregistration: The final step is for the business to be deregistered by the appropriate licensing body.
Factors That Affect The Liquidation Timeline
In the UAE, the overall duration for closing a company can be as little as 45 days or as long as 6 months, depending on the specific circumstances and regulatory requirements.
The significant factors that affect the total time include:
- Company Type: Free zone, mainland, or offshore companies have different processes. A mainland company may require more approvals, while a free zone company may implement faster internal procedures. International documentation can take more time for an offshore company.
- Completeness of Paperwork: Missing paperwork will result in unnecessary delays. Even one clearance letter of the license being expired will result in weeks of delay. Getting all of this right to the best of your knowledge just deters time delays at a later point.
- Settling Employees: All end-of-service benefits must be settled before submission. Labour approvals and immigration approvals can often result in delays with the deregistration. Having a plan for employee exits will help streamline the process.
According to Gulf News, having a well-prepared documentation process can significantly reduce liquidation delays.
Common Challenges in Liquidation
While the procedure is fairly straightforward, there are roadblocks to the process that might result in delays.
- Outstanding Debts: Overdue loan payments or outstanding supplier accounts will bring everything to a standstill. The liquidators will need to confirm resolutions on each settlement, and delays by either the banks or outstanding creditors can cause ripples right across the process. Ideally, we do this in the pre-liquidation time.
- HR Employee Clearances: Employment clearance is to be obtained for de-registration purposes. This is not going to move forward if the end-of-service payments or visa cancellations are not completed. A good HR practice will avoid last-minute holdups that delay everyone.
- Pending Legal Action: Any active court proceedings will block closure. Even the smallest claims in court can lead to larger-than-expected delays. It is always best to clear legal claim(s) before submitting the intention to liquidate.
- Authority Delays: Some free zones may have a lengthier time frame for the authority-required approval. Usually, these delays are related to internal auditing or compliance procedures. Regular follow-ups with the department in question can keep things progressing in the meantime.
How To Speed Up The Liquidation Process
Would you like to expedite the liquidation process? These suggestions listed below will help:
- Prepare Documentation Ahead of Time: Keep all of your trade licenses, financial statements and approvals in order ahead of time. Make sure to review every document carefully before submitting it to avoid rejection or having to refile. The time saved on paperwork means you’ll complete tasks faster.
- Pay All Debts Promptly: Ensure timely payment to your suppliers, staff, and banks. And try to obtain written proof of payment whenever possible, to show you have paid your debts. This will facilitate a smooth audit by the liquidator.
- Use Experienced Liquidators: Professionals can save time and expedite the process by submitting documents accurately on your behalf. Their familiarity with authorities and legal processes means that the risk of rejections, errors, or delays is significantly reduced. Be sure to review their qualifications.
- Stay Updated on Regulations: Different emirates have different rules; confirm everything before documentation. And regularly check the newest portals provided by the UAE government for updates.
- Regularly Communicate with the Authorities: Keeping a line of communication open with the responsible authorities can expedite or fast-track approvals. Quickly responding to questions or inquiries will keep files from sitting/work from being put ‘on hold’.
Importance Of Compliance During Liquidation
The timeline for a liquidation can be impacted heavily by compliance. If just one compliance step is missed, the authority may reject your applications. Here are a few compliance steps to keep in mind:
VAT Deregistration: Make sure you file and complete all your VAT filings. VAT deregistration tends to be incomplete, which usually leads to long delays and penalties, so always request a confirmation letter from the Federal Tax Authority.
Bank Account Closure: Ensure that all transactions are finalized prior to submission. Banks may take a number of days to finalize closure; it is best to submit early. Keep final statements for the liquidator’s files.
Labour and Immigration Clearance: You need approval from the Ministry of Human Resources and Emiratisation. As a part of the labour clearance process, you must cancel all employee visas and labour cards, which will confirm that there are no outstanding commitments.
Final Financial Audit: A certified liquidator must prepare and sign this. The financial audit will then evidence that the company has no outstanding debts. This is the official document you will use to obtain your deregistration approval.
If any of these steps are missed, the process may take weeks. If everything is done in due course the process will be smoother and more streamlined.
Why Timely Liquidation Matters
Failure to liquidate promptly can lead to penalties or legal issues. The Position taken by Directors or Shareholders can also be affected by Dilapidation. Liquidation done quickly and legally has the following advantages:
Liabilities of the Past will not Carry Forward: The Company will be fully released from financial and legal liabilities. Waiting for Liquidation may ultimately lead to fees and other associated costs.
Legal Compliance: Maintaining compliance will limit the possibility of future audits and government penalties. Authorities value prompt and transparent filings of Liquidation.
Protection of the Company’s Reputation: A timely and properly managed termination has the calculations to maintain credibility with employees, creditors, or regulators. It shows the final measures of the business were handled with civility and honour to everyone involved in the industry.
Clear Separation of Financials: Timely Liquidation allows the business owner to independently start new ventures with a clean slate and more precise separation from omissions or disputes related to prior accounts
Meeting deadlines minimizes the cost to you, protects your reputation, and provides you with peace of mind.
Conclusion
Are you thinking about closing down your business in the UAE? You don’t have to do it on your own. You can hire a liquidator to complete the process much faster than you could yourself. Liquidators will ensure you honour your obligations (legal and financial) in accordance with the law.
We at Xpert Advisory are with you every step of the way to make the process easier for you, from paperwork to the last notification to deregister your company. Our professionals have extensive knowledge of local laws, so you won’t need to research them on your own.
Are you ready to begin your liquidation process? Contact Xpert Advisory today and we will assist you step by step. We will ensure you honour your obligations while remaining compliant with UAE law throughout the process.
FAQs
1) When will my company be liquidated after filing to liquidate in UAE?
The typical timeframe varies between 45 days and six months depending on factors, including size of company, structure of business, and possible liabilities. In general, mainland companies will complete liquidation a lot quicker than offshore counterparts. If any documents are missing then it might cause some delay.
2) Which documents do I need to liquidate my company in UAE?
Every company undergoing liquidation must have a number of documents necessary to carry out the liquidation process; these include a trade license, memorandum of association and shareholder resolution, recent financial statements, liquidator appointment letter and several other supporting documents. Additionally, certain liquidation service providers require you to provide proof the business has paid all of its debts and canceled its VAT registration.
3) Can I complete the liquidation of my company in UAE before paying off all my debts?
No, it isn’t possible to start the liquidation of your company until you have settled all of your business’s debts; if you do not satisfy all of the financial and legal obligations of your business, the authorities will not process your application to deregister your business. Additionally, if you do not satisfy your debts, you may incur fines and attract legal repercussions which will only further delay the liquidation process.
