Why is Company Liquidation Required?

About Company Liquidation:

Liquidation is a formal insolvency procedure in which a company is brought to an end (also often termed ‘winding up’ or ‘closing’ a company); all of its assets are liquidated and the proceeds from the sale of assets are used to settle debts, pay expenses and transfer any remaining balance to shareholders of the company.

Once a company is liquidated it will cease doing business and employing people. On liquidation, a company’s business license is revoked, its name is removed from the Trade Registry and the entity is considered to have ceased to exist.


Why is liquidation required?

There are two principal reasons why the liquidation of a company may be necessary in the UAE:

01- The original purpose for setting up of the company is fulfilled and the entity is no longer required;


02- The company is considered to be insolvent.


Types of liquidation

  • Voluntary Liquidations – Shareholders of a company may elect to liquidate a solvent company or the directors of an insolvent company may choose to cease further trading and liquidate its assets in order to pay its creditors.


  • Compulsory Liquidations: If a company’s debts are not paid on time, creditors may request the courts to liquidate the company in order for them to collect their dues. The courts may decide to force a company to liquidate and sell its assets in order to pay outstanding debt.


Is liquidation necessary in the UAE even if there are no outstanding debts?

Even if there are no debts to be paid to creditors, it is highly advisable to formally liquidate a company rather than simply allowing your trade license to expire. There are a number of procedures to be completed when formally liquidating a company. Ignoring these may attract various penalties and could also result in the ‘blacklisting’ of company, as well as its directors and shareholders, by government authorities in UAE. This may impact on their involvement in other businesses or damage their ability to set up another company in future.

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