Company Liquidation & License Cancellation in Dubai, Sharjah, Abu Dhabi – United Arab Emirates
The United Arab Emirates has evolved into a major international business region. Several business-friendly “free zones” offer quick and easy business formation combined with tax free regulations. In such business friendly environments, thousands of businesses are sure to pop up. Starting a business does not always result in the expected profits. Business environments change; partners become involved in other projects; owners may need to recover their investment for some reason. There are many reasons for liquidating a Company. It is not as simple as disconnecting the phone and locking the door. There are legal requirements in place to guarantee that all involved parties are fairly treated and that required fees are paid as well as dues & liabilities settled. In the UAE it is also important that UAE citizens are not treated wrongly as a business is liquidated. There are regulations in place governing company liquidation. Failure to observe the regulations can result in penalties.
What is Company Liquidation?
When a Company ceases its operations, all the assets of the company are distributed to the Shareholders of the Company after the settlement of dues to creditors and lenders. However, there is much more to the company liquidation process. The regulations are in place to ensure all parties involved are treated fairly – that one party does not benefit at the expense of others involved.
Company liquidation can be voluntary (instigated by the business owners) or compulsory (where authorities force the business to cease operating). Voluntary liquidation commonly results from continuous losses, a bank call on a loan, or changes in the business environment causing the business to be impracticable. In some circumstances, creditors can call for voluntary liquidation. Authorities may force a business to liquidate for several reasons. A forced liquidation will occur when a company no longer has liquid funds required to maintain daily operations; creditors are not being paid, or the company commits a serious offense against established laws and regulations. Ignoring the company liquidation rules has some significant penalties for Company owners and top managers so it is important to properly end the company operations. The first step is to designate a liquidator. The duties of the liquidator are set forth in official regulations and only approved firms may be designated as liquidators.
Reasons for Liquidation
There can be a variety of reasons to make a company liquidation a viable option, the most common being:
- Your company’s total debts and liabilities go beyond the total value of your assets
- Your company has become insolvent
- Your company has not been able to conduct any trading activities for a year after being incorporated
- Your company has not been registered as a public or private entity
- Continuous losses from business operations
- Liquidity issue due to lack of cashflows management
When a business begins showing signs of insolvency, it is recommended to conduct an internal audit. This can help shed light on the reasons behind a company’s poor performance. Internal auditors dive deep into your company’s operations and identify areas that need improvement. Studies show that companies with established internal audit departments are 10 times stronger than those without an internal audit department.
The Liquidation Audit?
There are several reasons for a liquidation audit. Anytime a liquidation of the Company is called for irrespective of the reason it is important that all the Company’s assets are accounted for. It is just as important to discover and list all of the Company’s obligations. A liquidation audit report will list the assets and liabilities of the Company and should preclude any objections from creditors. As the liquidation progresses, all the Company’s assets are converted to cash and distributed to the creditors or assigned to other Company obligations. There are specific rules concerning the way the assets are distributed. It is extremely important that all the relevant information is available to the liquidator. The liquidation audit helps assure the information is accurate and complete.
As a 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 understand what occurred and how the funds (if any) they received from the liquidation were calculated. This report will reduce the chances that a creditor might question the liquidator’s actions.
Why a Liquidation Audit is Required?
Liquidation audits are required before any company can be 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 Center (DMCC), and Dubai Silicon Oasis (DSO) all require liquidation audit in their respective authority regions whenever a Company is closing its operations and canceling its license. Abu Dhabi, Sharjah, Hamriyah Free Zone, and SAIF Zone also have regulations concerning Company liquidation and for liquidation audits very similar to other regions within UAE. For up-to-date information on liquidation audit, an authorized UAE Audit Firm can be contacted to determine the actual requirements for a specific region.
Who is Authorized to Perform Liquidation Audit?
Auditing Firms holding official certification from UAE financial authorities are approved for liquidation audit in mainland and within the Free Zones. Authorities for each Free Zone also approve the Audit Firms to conduct financial and liquidation audits for companies in the respective Free Zones. Our Audit Firm is approved by DED and all the Free Zones of UAE to conduct the liquidation audit. The liquidation audit report 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.
Audit Firms are required to maintain their professional qualifications and to keep current with International Auditing Standards to remain approved by the Free Zones as well as the Dubai Economic Department (DED). They also must be familiar with the liquidation process and employ qualified auditors.
Requirements for Liquidation Audit of a Free Zone Registered Company
Main requirements for the liquidation audit of a Free Zone registered company includes:
1. Trial Balance including all transactions up the liquidation date. This document and other required accounting information up to the liquidation date of the Company is required. An alternative to a Trial Balance can be up to date records of transactions on an Excel spreadsheet.
2. The Company’s board must create a Board Resolution stating that the Company is to be liquidated on a specific date. The resolution must state a liquidator was appointed. The liquidator is the name of the Audit Firm appointed.
3. The Shareholders of the company must issue a letter on the Company’s letterhead stating that Audit Firm has been appointed as Liquidators. This letter must be signed and stamped by the Shareholders.
4. The Company must issue a signed No Liability Certificate printed on Company letterhead.
5. If there were any bank loans the bank(s) must issue a No Liability Certificate after the settlement of their respective bank liabilities. Bank closure letters are also required for the liquidation audit.
6. Verification of gratuity calculation and relevant payments.
7. No Objection Certificate (NOC) is required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for utility clearance of the Company where applicable.
Requirements for Liquidation Audit of a Dubai Mainland (DED) Registered Company
Main requirements for the liquidation audit of a DED (Dubai Economic Department) registered company includes:
1. Trial Balance including all transactions up the liquidation date. This document and other required accounting information up to the liquidation date of the Company is required. An alternative to a Trial Balance can be up to date records of transactions on an Excel spreadsheet.
2. 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.
3. 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.
4. A letter on the company letterhead naming the audit firm as a liquidator must be signed and stamped.
5. The company must issue a signed No Liability Certificate printed on Company’s letterhead.
6. 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.
7. Verification of end of service benefits calculation and respective payments.
8. No Objection Certificate (NOC) is required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for utility clearance of the Company where applicable.
Contact us for the Quickest Liquidation Audit of your Company
Arqaam Global Chartered Accountants is an approved Audit Firm and Liquidator by all the Free Zones of UAE as well as DED (Dubai Economic Department). We have over a decade of experience in company liquidation services in Dubai as well as all the other states of the UAE. Please contact us for more information.
