Businesses, companies, and enterprises face several different challenges while running the companies. Henceforth, if the company plans to shut down its operations, this is also an equally daunting task. The liquidation may occur due to various reasons and causes. Liquidation is processed through court. Liquidation is the process when a company decides to discontinue it’s all the business operations fully. The most common reason for discontinuing the business operations is significant losses. Hire good liquidation law firms where the lawyers do know about the liquidation process. Liquidation with DUBAI courts might be a reason after DIFC. Therefore DIFC jurisdiction does not apply to DUBAI COURTS. But final liquidation is executed only in DUBAI Courts. Therefore the law firms and lawyers in Dubai, must be chosen very carefully. Lets go back to our primary subject now.
Types of Liquidation
There are generally 2 different types of liquidation. That is voluntary and involuntary liquidation.
Voluntary Liquidation:
Voluntary liquidation occurs with the proper consent and authorization of the company’s owners, shareholders, and others.
Involuntary liquidation:
Involuntary liquidation takes place due to the court orders. A company that is huge and has multiple branches, operations, and activities tends to face more challenges.
Causes of Liquidation and the Company Law of UAE:
The UAE Companies Law specifically deals with company liquidation and distribution of assets. The law clearly states that the Companies Law provisions will apply. In case, the company’s Memorandum or Articles of Association specify the liquidation method then that method is used. MOAs are drafted by lawyers. Some of the Common Reasons for Liquidation that lead to a company’s discontinuity are the following:
- The company’s terms and conditions may come to an end as per the document. Moreover, the company has achieved its goals and objectives stated in the mission statement.
- Additionally, the company may incur extensive losses. It may lead to exhausting half of its capital which makes it impossible for a company to continue its operation. Under such circumstances, it is unfeasible to run the company.
- Besides, all the shares of the company are owned by one person and the company has become a sole proprietorship. Nevertheless, the majority of capital owners are the deciding factor to liquidate or not.
- Moreover, in case the court orders the company’s dissolution this could be the prime cause of the company’s closure. The company even liquidates if the company merges with another and as a result, a new entity is formed.
- Some of the specific reasons leading to the company’s liquidation include the following: it can be due to the partner’s death or any of the partner’s withdrawal from the company. It can also be due to any partner’s bankruptcy or insolvency. The lawyers expert in liquidation can also be called as liquidation lawyers.
The Role of Legal Liquidator in the UAE
A legal liquidator is essential when liquidation takes place. He acts as the company’s representative during the process. The Federal Law on Commercial Companies states how liquidation will take place. This law comes under the umbrella of “Companies Law”.
Law outlines the appointment and responsibilities of liquidator:
- The law vividly outlines the appointment and responsibilities of the liquidator. Moreover, the liquidator is legal personnel who are appointed by the partners, owners, or shareholders. In special cases, it can also be appointed by the general assembly or the UAE court.
- Once the legal liquidator is appointed, he must manage all the activities regarding the winding-up of the company. Legal Liquidator has some crucial responsibilities to perform as per the law. According to the company law, the legal liquidator is responsible for preparing the inventory of the company.
- He will handle all the transactions concerning the assets and liabilities.
Furthermore, he is creating a detailed list of assets and liabilities of the company. They will ensure that the company fulfills its obligations and also pays off its debts.
- Additionally, a legal liquidator is responsible for keeping detailed information about the company funds in a designated bank account. They will complete all the assigned tasks within the prescribed time frame according to the appointment document.
- They will be responsible for providing the company’s partners or the General Assembly with an interim account. The interim accounts of 3 months regarding the liquidation procedures are adequately prepared.
- The legal liquidator will notify all the partners to collect their dues. The period of 21 days is given to them. Ultimately, they need to submit the final liquidation account. It is handed over to all the partners, the General Assembly, and if needed to the courts in the UAE.
- As a result, the legal liquidator is liable for any kind of mismanagement, professional faults, or damage caused during the course of liquidation.
Professional Duties of the Legal Liquidator in UAE:
- The liquidator must adhere to professional standards as they have to hold regular meetings with shareholders and other stakeholders. Besides, they will provide all the necessary documentation to them.
- They must organize the company’s financial position that inculcates the assets and liabilities. Further, they will notify all the creditors by registered mail.
- The mail will explain the liquidation and also give a deadline for claims. It is part of their duty to Collect the outstanding funds and deposit them into the company’s account.
