Company Liquidation in UAE
Company Liquidation is a process through which a company ceases its operations and as a result all the assets of the company are distributed to the shareholders after settlement of balances due to creditors. A lot of factors need to be considered when executing the process of liquidating a registered company. A company is required to be liquidated in accordance with the rules and regulations that are applicable in the region or country in which the company operates its business activities. The purpose of these rules and regulations is to ensure that all the parties involved in the liquidation process are treated fairly and that no party gets preference over the other party involved in the process.
Company liquidation can either be voluntary (approved by the company owners) or compulsory (where the company is forced by the authorities to cease its operations). A voluntary liquidation takes place with the mutual consent and approval of the company’s shareholders. A compulsory liquidation takes place where the company is forced by the court or the government authorities to liquidate its operations. A forced or compulsory liquidation mainly occurs due to circumstances where the company does not have liquid funds to conduct its day to day business operations, payments of creditors are not being released due to cash flow problems or company commits an offense with serious implications on the company’s operations.
It is important for the companies to close their operations in accordance with the applicable rules and regulations as in most jurisdictions ignorance of these rules can cause the company owners and senior managers to pay hefty amounts as penalties. The company that is initiating the liquidation process first needs to nominate a liquidator to carry out the liquidation. A liquidator basically acts as a representative of the company to the court and the general public. Only approved firms by the free zone authorities and Economic Departments can provide liquidation services in Dubai and other emirates of the UAE including the free zone areas.
Why a Liquidation Audit is required in the Free Zones, Dubai and in other Emirates of the UAE?
Authorities governing rules and regulations in the Dubai free zones and in the mainland Dubai require the companies wanting to close their operations to conduct a liquidation audit before officially ending their business operations and cancelling their business license. Free zones like DAFZA, JAFZA, DMCC/JLT and DSO along with Department of Economic Development in Dubai require a company operating within their region to submit a liquidation audit report before ending its operations and cancelling its business license. The regulations relating to the liquidation process and the liquidation audit in other emirates such as Abu Dhabi and Sharjah, and also in SAIF Zone and Hamriyah Free Zone are very similar to the ones that are applicable to companies operating within other regions of the UAE.
There are many reasons for conducting a liquidation audit. Whenever a company is to be liquidated then it is important that all the assets and obligations must be accounted for and acknowledged by all the parties involved in the liquidation process. One of the main benefits of a liquidation audit report is that it provides a list of all the assets and liabilities of the company. The liquidation audit performed by an approved firm also assists in preventing the creditors from raising any objection on the liquidation process.
In the free zones and in other emirates of the UAE there are specific rules and regulations that govern the way in which assets are distributed during liquidation of a company and how the overall process is conducted. It is very important that the liquidator is provided with all the information that’s required to carry out the liquidation process in the UAE. The liquidation audit provides assurance to the parties involved in the liquidation process that the information provided to the liquidator is complete and accurate and can be trusted to make decision regarding the company’s liquidation.
Once a company is liquidated then a post liquidation audit can also be performed to ensure that all the company’s assets and obligations were properly valued and distributed fairly in accordance with the relevant laws and regulations in the UAE. The report resulting from a post liquidation audit will assist all the stakeholders in understanding what actually happened and how the funds (if any) distributed to them were calculated. This type of audit report will definitely reduce chances that a company’s stakeholders might raise questions regarding the actions of the liquidator during the company’s liquidation process.
Requirements for Liquidation Audit of a Company Registered in Mainland Dubai
Information/Documents required for the liquidation audit of a company registered with the Dubai’s Department of Economic Development (DED) includes the following:
- 1. Trial Balance including company’s transactions along with other accounting information up to the date of liquidation is required. Updated records of the company’s transactions on an Excel spreadsheet can also be used as an alternative to the Trial Balance
- 2. The minutes of the general meeting must be attested from notary public where the decision regarding the company’s dissolution was made and a liquidator was appointed by the company.
- 3. An advertisement relating to the company’s liquidation must be published in two local newspapers (Arabic) for at least one day. Creditors are provided with 45 days period to submit any claims against the company or its liquidation.
- 4. The company must issue a letter using the company’s letter head stating the name of the firm appointed as the company’s liquidator. The letter must be properly signed and stamped by the company.
- 5. The company must issue a No Liability Certificate on its letterhead.
- 6. If the company previously had any loan obtained from bank then in that case the bank must issue
- a No liability certificate to the company after the settlement of the bank loan.
- 7. Bank Account closing letter
- 8. The company is also required to provide No Objection Certificate (NOC) from DEWA and Etisalat or DU.
Requirements for Liquidation Audit of a Company Registered in the Free Zones
Information/Documents required for the liquidation audit of a company operating within the Free Zone area includes the following:
- 1. Trial Balance incorporating all the transactions performed by the company up to the date of its liquidation. If the Trial Balance is not available then in that case all the records of company’s transactions on an excel sheet can also be used as an alternative to the company’s Trial Balance.
- 2. Board Resolution stating the name of the liquidator appointed to perform the liquidation process. It must also state the date at which the liquidation will take place.
- 3. The company must issue a letter signed and stamped by the shareholders on the company’s letterhead mentioning the name of the Audit Firm appointed as Liquidator.
- 4. The company must issue a No Liability Certificate on its letter head.
- 5. If the company previously had any loan obtained from bank then in that case the bank must issue a No liability certificate to the company after the settlement of the bank loan.
- 6. Bank Account closing letter
- 7. The company is also required to provide No Objection Certificate (NOC) from DEWA and Etisalat or DU.
Firms Approved to Perform Liquidation Audits in the UAE
Only the Audit Firms that hold professional license/official certification from the UAE financial authorities can provide liquidation audit services to companies registered in mainland and in the free zones. Relevant Authorities in Free Zones maintain a listing of approved audit firms that can perform liquidation audit. Audit firms performing liquidation audits for companies registered in the free zones and in the mainland are required to produce and submit liquidation audit reports to the relevant authorities. After submission of the report the authority will then make decision regarding the closure of the company’s operations In order to remain approved and certified the Audit Firms are required by the free zone authorities and the department of Economic Development to provide evidence regarding the participation of their staff members in professional development and training programs. The purpose of these programs is to make sure that the knowledge of the firm’s employees remains updated in accordance with the changing accounting and auditing standards. The firm’s employees must also be familiar with the process of liquidating a company registered in the UAE.
How NUF Chartered Accountants can help your company in the Liquidation Process?
Nadeem and Umendra (NUF) Chartered Accountants is an approved Audit Firm that performs LLC company liquidation, Free zone company liquidation and liquidation of companies in other Emirates of the UAE. We have specialized staff at our disposal to provide our clients with liquidation audit services in Dubai and in other regions of the UAE. We have vast experience of liquidating companies that are operating in various industries. Please contact us for a non-obligatory meeting so that we can explain what we bring on the table.