In the UAE, private liquidation is the legal process by which a business is formally dissolved, and its operations cease. There are specific conditions and procedures that must be met for a company to undergo this process successfully. In this blog, we will dive into these conditions, with a focus on what business owners need to know when considering private liquidation.
What is Private Liquidation?
Private liquidation refers to the voluntary closure of a company initiated by the owners or shareholders. This process involves selling off the company’s assets, paying off debts, and distributing the remaining funds among shareholders before formally dissolving the company. It is crucial for business owners to fully understand the conditions and legalities involved in this process, especially in the UAE, where strict regulations are in place.
Conditions for Private Liquidation in the UAE
There are several critical conditions that a business must meet before beginning the process of private liquidation in the UAE:
- The Licence Expiration Date Must Have Ended for More Than Two Years
One of the most important conditions for a company seeking liquidation is that the trade licence must have expired for more than two years. This ensures that the company has not been operational for a considerable period. Businesses whose licences have been expired for a shorter period may need to explore other forms of dissolution or renewal options before considering liquidation. - Emirati Partner’s Acknowledgment of Liability
In the UAE, companies often have an Emirati partner or sponsor due to local ownership laws. As part of the liquidation process, the Emirati partner must provide a written acknowledgment of their liability toward the company. This document signifies the partner’s consent and understanding of the dissolution, ensuring that there is no outstanding legal responsibility that could impede the process. - Supporting Documents Strengthening the Dissolution Request
The company must provide supporting documents to validate its request for liquidation. One such document could be proof that one of the partners has fled or abandoned their role in the company. The escape or absence of a partner serves as solid grounds for dissolution, as it can severely impact the company’s ability to function and make strategic decisions. - Ministry of Human Resources and Emiratisation Letter
A key document required for private liquidation is a letter from the Ministry of Human Resources and Emiratisation (MOHRE). This letter should state that there are no sponsored employees under the company’s trade licence. The absence of employees is critical because unresolved employee sponsorship issues can delay or even halt the liquidation process. The MOHRE letter effectively clears the company from any obligations towards sponsored staff, allowing the liquidation to proceed smoothly.
The Importance of Meeting All Conditions
Failing to meet any of these conditions can result in delays or complications during the liquidation process. It is essential for companies to ensure that all legal, financial, and administrative matters are settled before filing for private liquidation. Consulting with legal and financial advisors can also help ensure that the process is handled correctly, reducing the risk of future liabilities or legal complications.
What Happens After the Liquidation Process?
Once a company has successfully met the conditions and completed the liquidation process, it is officially dissolved. All assets are liquidated, debts are cleared, and any remaining funds are distributed among shareholders. Additionally, the company is removed from the relevant government and regulatory databases, and its trade licence is officially canceled.
For many business owners, this marks the end of their company’s legal existence, and they are free to pursue new ventures without any lingering liabilities.