Liquidation Of Companies – United Arab Emirates
Liquidation Of Companies – United Arab Emirates
A company comes into being through a legal process and also comes to an end by law. Liquidation is the legal procedure by which the company comes to an end. Thus, a company being a creation of law cannot die a natural death. A company, when found necessary, can be liquidated.
Company liquidation can be voluntary (initiated by the owner himself) or it may be compulsory (where authorities force the business to cease operating). Voluntary liquidation commonly results from continuous losses and insufficient funds. Authorities may force a business to liquidate for several reasons.
Liquidation rules has some significant penalties for Company owners and top-level management. So, it is important to properly end the company operations. When a business shows signs of insolvency, it is recommended to conduct an internal audit.
This can help to find out the reasons behind a company’s low performance. Internal auditors would dive deep into your company’s operations and identify areas that need improvement.
The first step is to designate a liquidator.
The duties of the liquidator are as determined by rules and regulations. Only approved firms may be designated as liquidators.
Reasons For Liquidation:
There can be a variety of reasons to make a company to go through the process of liquidation. They may be one of the below listed cases;
● When the company’s total debts and liabilities go beyond the total value of assets.
● When the company has become insolvent.
● When the company has not been able to conduct any trading activities for a year after the date of incorporation.
● When the company has not been registered either as a public or private entity.
● When the company faces continuous losses from business operations.
Liquidation Audit:
A liquidation audit can be performed irrespective of any reasons or circumstances. After all it is important that all the Company’s assets should be accounted.
A liquidation audit report will list the assets and liabilities of the Company and should consider the objections from creditors. During liquidation process, all the Company’s assets will be converted to cash and distributed to the creditors or it will be given to other Company obligations.
The company’s top-level management should provide all the relevant information to the liquidator. The liquidation audit helps to assure that the information is accurate and complete.
When the Company’s liquidation is completed, a post liquidation audit may be performed to verify all assets were valued and distributed properly. This post liquidation audit report will help creditors to understand what happened and how the funds (if any) they received from the liquidation were calculated.
Why a Liquidation Audit is Required?
Liquidation audits are required to be performed before any company is closed in Dubai or any of the Free Zones in Dubai. Dubai Economic Department (DED), Jebel Ali Free Zone Authority (JAFZA), Dubai Airport Free Zone Authority (DAFZA), Dubai Multi Commodities Centre (DMCC) and Dubai Silicon Oasis (DSO).
All require the liquidation audit to be performed in their respective authority regions whenever a Company is closing its operations and cancelling its license. Auditing Firms holding official certification from UAE financial authorities are only the authorized persons who can perform Liquidation Audit in UAE.
The liquidation audit report will be is submitted to the relevant authority where the company is registered as part of the liquidation process. The authority will then officially close the company and cancel the business license.
Requirements for Performing the Liquidation Audit of a Free Zone Registered Company;
The main requirements for the liquidation audit of a Free Zone registered company includes:
✔ Trial Balance including all transactions up the liquidation date is required. Accounting information up to the liquidation date of the company is required.
✔ Company’s board should pass a Board Resolution stating that the Company is to be liquidated on a specific date. The resolution must state that a liquidator was appointed. The liquidator here is the name of the Audit Firm appointed for liquidation purposes,
✔ The Shareholders of the company must issue a letter on the Company’s letterhead stating that Audit Firm has been appointed as Liquidators. The letter must be signed and stamped by the Shareholders.
✔ The Company must issue a signed No Liability Certificate printed on Company letterhead.
✔ If there were any bank loans the bank(s) must issue a No Liability Certificate (NOC), after the settlement of their respective bank liabilities. Bank loan closure letters are also required for the liquidation audit.
✔ Verification of gratuity calculation and relevant payments.
✔ No Objection Certificate (NOC) is required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for utility clearance of the Company if required.
Requirements for Performing the Liquidation Audit of a Dubai Mainland (DED) Registered Company;
The main requirements for the liquidation audit of a DED (Dubai Economic Department) registered company are as follows:
✔ Trial Balance including all transactions up the liquidation date is required. Accounting information up to the liquidation date of the Company is also required.
✔ There must be notarized minutes of a general meeting where the decision to liquidate was made; a liquidator was appointed and the audit firm acting as liquidator was named.
✔ A public notice of liquidation must be published in two local Arabic newspapers for at least one day. Creditors are given 45 days to submit claims.
✔ A letter on the company letterhead naming the audit firm appointed as a liquidator must be signed and stamped.
✔ The company must issue a signed No Liability Certificate printed on Company’s letterhead.
✔ If there were any bank loans the bank(s) must issue a No Liability Certificate after the settlement of their respective bank liabilities. Bank account closure letters are also mandatory for the liquidation audit.
✔ Verification of end of service benefit calculation and respective payments.
✔ No Objection Certificate (NOC) is required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for utility clearance of the Company if required.
