The UAE is home to thousands of businesses and most of them are helmed by visionary investors from foreign countries. Though the UAE, especially Dubai, is the perfect ground for every business to start, thrive, and grow, some companies may miss the target and withdraw from the race due to reasons including debt. Such companies end their operations through a procedure formally known as company liquidation. The UAE companies can be liquidated in two ways the voluntary liquidation and compulsory liquidation. In the former type of liquidation in the UAE, the shareholders of the company make a decision to wind up the company through a board resolution while compulsory liquidation is a court-based procedure usually initiated by the creditors.
Also read: How to liquidate an LLC Company in Dubai?
What is the Difference between Compulsory and Voluntary Liquidation in Dubai?
Both compulsory liquidation and voluntary liquidation are methods of winding up a company but both are different and voluntary liquidation offers more benefits to the directors. Opting for voluntary liquidation in Dubai gives a considerable level of control for the directors over the process. The directors can appoint an official liquidator for the process. There are a number of companies that offer liquidation services and the directors can have the benefits of choosing the right one from the best company liquidators in Dubai. In Compulsory Liquidation, the power of the directors is taken away and the court dictates the whole procedure.
Who Can Start the Process of Compulsory Liquidation in the UAE?
The process of voluntary liquidation in the UAE is generally initiated by the company’s directors or other shareholders. However, the compulsory liquidation process is initiated by a frustrated creditor through a court order. Compulsory liquidation is the final measure a creditor can take against a company that fails to settle the money it owes. The creditor decides for compulsory company liquidation in Dubai as his last available option to get the money back and it should not be considered as a move engendered by spite.
The Process of Compulsory Company Liquidation in Dubai
The most common procedures of winding up of a company under compulsory liquidation are
1. Filing Winding Up Petition
The first step in compulsory liquidation in Dubai is the filing of the petition for winding up at the competent court. The court will then issue a winding-up order if it is satisfied that the company should be liquidated.
2. Appointing a Liquidator
The court issues the order for winding up the company and appoints the official liquidator. The liquidator once appointed takes over the control of the company. The powers of the existing directors of the company will cease after the official liquidator takes charge of the company. The directors will no more have any decision-making power over the day-to-day operation of the company at this time.
3. Selling of Company Assets
The liquidator will initiate relevant liquidation procedures to sell off the company’s assets including movable and immovable assets. At this stage, the liquidator will control and manage the assets to repay the company’s debts.
4. Dissolution of the Company
After the assets are sold off, the company will officially wind up and the name of the company will be removed from the registrar of companies. The creditors will receive the outstanding dues after the company liquidation process is completed. However, the creditor needs to provide the liquidator with the details of the claim or proof of debt. The liquidator after assessing the claim will accept or reject the claim either wholly or partly.
5. Compulsory Liquidation of Employees & Directors
All the employees of the company will be dismissed by default when the winding-up order is issued. Former employees, however, are eligible for the benefit of gratuity as per the relevant UAE labour laws. In the same vein, the powers of the directors will cease once the winding-up order is issued and they will be automatically dismissed from the office. The former directors, however, are required to assist the official liquidator and also provide the statement of assets and liabilities.
Challenges and Risks Involved with Compulsory Company Liquidation in Dubai
Depending on the way the company’s operations were conducted, there are chances of risks involved while opting for compulsory company liquidation in Dubai. Since the compulsory liquidation in the UAE is initiated through a court order, there are chances that the issues in the company may be exposed during the liquidation process. The directors are vulnerable to the risk of finding to be guilty of fraud or mismanagement of the insolvent company. If found guilty, the directors could face consequences including (but not limited to) the following:
- Directors may be held personally liable for the company’s debts
- A guilty director may be disqualified and the disqualification extends to his future appointments as director
- A fine may be imposed
The Best Company Liquidators in Dubai
Bad debts are one of the most potent reasons that may lead a company into liquidation in Dubai, UAE. The directors or shareholders of the company should realize certain early warning signs such as debts, late payments, and the inability to chase payments on time that may eventually lead to the liquidation of the company. The company’s inability to pay off the debts may force the frustrated creditors to initiate compulsory company liquidation in Dubai. Compulsory liquidation is often perceived as a last-ditch attempt made by the creditors to get back his money through a court order.
The best company liquidators in Dubai such as Jitendra Business Consultants (JBC) recommend the companies avoid the situations that lead to compulsory liquidation. A compulsory liquidation involves inherent risks including the shareholder being held personally responsible for the debts. JBC’s company liquidators are highly experienced in company formation as well as liquidation and are in the best position to advise the companies on how to deal with the liquidation process. Consult with JBC’s company liquidators in Dubai for any expert advice regarding the liquidation process.