There are several forms of liquidation in business. It could be an involuntary, forced, or consensual liquidation. In business law, finance, and economics, the term ‘liquidation’ is frequently used to refer to the process of winding up a firm. It takes place when a business is unable to pay its creditors for its obligations. The business’s assets are either sold off at auction or sold immediately to the lenders.

In the coming sections, you will come across everything you need to know about liquidating a company, including the steps, timelines, and potential expenses.

What is the Meaning of Liquidation of Companies?

Liquidation of a company stands for when a company’s legal existence is terminated.

Company Liquidation meaning in other words; liquidating a business is an occurrence that typically takes place when a business is bankrupt or unable to make its debt payments on time.

It also refers; when corporate operations are completed, the leftover assets are used to pay directors and creditors in the sequence of their claims.

After knowing the term liquidation in business, let’s learn what business owners should know when they are being liquidated.

Who is a Liquidator?

A liquidator is a professional who is responsible for the winding up of a company. When there is a liquidation in business, they are appointed by the court or shareholders and their job is to sell off the company’s assets and distribute the proceeds amongst the creditors. Liquidators can also be appointed to investigate the affairs of a company if there is suspicion of fraud or misconduct.

Do you know how to liquidate a business? Read and learn the process.

Who is an Insolvency Practitioner?

Insolvency practitioners are individuals or companies who are authorised by the court to act on behalf of insolvent companies. They are in charge of overseeing the bankruptcy procedure and communicating with creditors. If a corporation becomes bankrupt, the directors are obligated to act in the best interests of the creditors.

This means that they must try to minimise the losses that the creditors will incur.

One of the ways that directors can do this is by appointing an insolvency practitioner.

Appointing an insolvency practitioner is not a decision that should be taken lightly. The directors must ensure that they appoint a reputable and experienced practitioner.

The insolvency practitioner will be responsible for:

  • Determining whether the company is insolvent
  • Advising the directors on their duties
  • Liaising with the creditors
  • Managing the process of insolvency
  • Providing a report to the court

The insolvency practitioner will have a significant amount of control over the company and its assets. It is therefore important that the directors choose someone that they trust. Do you know about company insolvency law and process? Read on to find out your queries.

Types of Liquidation

There are two types of liquidation that come into picture when there is an unfortunate stage to liquidate a company.

types of liquidation in business infographic

  • Compulsory Liquidation

Due to its inability to pay its creditors, the corporation in this case is forcibly liquidated. The board of directors is compelled to dissolve the business and settle the obligations.

In this case, the lender asks the court to liquidate the company’s obligations after presenting the court with convincing evidence of the company’s failure to pay off its debts.

The lenders provide evidence to the court demonstrating that the company’s financial resources have been depleted and it is unable to repay the loan. The court investigates the company’s financial structure and takes appropriate measures.

  •  Voluntary Liquidation

Contrary to a forced liquidation, the directors in this case decide to dissolve the business and sell its assets to settle the debts. It takes a more practical approach. The board decided to liquidate the firm when it can no longer make a profit or benefit those connected to it.

Unfortunately, if you liquidate a company on your own, following the process of voluntary liquidation may guide you.

The above are the two various methods to know how to liquidate a company.

Keep in mind that liquidation and dissolution of a company are not the same thing.

Here are the methods of winding up or dissolution of a company.

1. Compulsory winding up by the court

2. Voluntary winding up:

2.1 Member’s Voluntary winding up

2.2 Creditors voluntary winding up

3. Voluntary winding up under the supervision of the court. 

Also Read: All You Need to Know About the New Corporate Tax Law in UAE

Liquidation Process

In order to preserve compliance, it is critical for a company to execute all of the stages associated with company liquidation in Dubai.

The company liquidation procedure will differ depending on the three conditions listed below:

Ownership Structure Liquidation in Business Process

Ownership
Structure

Liquidation Method Liquidation in Business Process

The Liquidation
Method

Registration in Jurisdictions Liquidation in Business Process

Registration in
Jurisdictions

The process of liquidating a company can be a complicated and stressful one. If you are a shareholder or creditor of a company that is going into liquidation, it is important to understand the process and what your rights are. The Company liquidation Dubai, UAE involves the following points-

  • Liquidation is the process of winding up a company’s affairs and selling off its assets.
  • The proceeds from the sale of assets are used to pay off the company’s debts.
  • If you are a shareholder, you may be entitled to a distribution from.Any residual money are allocated to stockholders once all debts have been settled.
  •  The liquidation. However, the amount you receive will depend on the claims of the company’s creditors.
  • Creditors have a priority over shareholders when it comes to receiving payments from the liquidation.
  • If you are a creditor of the company, you may be entitled to receive payment from the liquidation. The amount you receive will depend on the nature of your claim and the priority of your claim.
  • Priority claims are claims that are given priority over other claims in the liquidation. These include claims for wages and salaries, superannuation, and taxation. Secured creditors take precedence over unsecured creditors.
  • The process of liquidating a company can be a lengthy and complicated one.
  • If you are a shareholder or creditor of a company that is being liquidated, it is important to seek professional advice to ensure you understand your rights and entitlements.

To maintain compliance, a corporation must complete all steps of company liquidation UAE.  The liquidation method will change depending on the three factors outlined below:

The following are the steps of company liquidation in UAE:

  • The shareholders must draught and approve a dissolution resolution.
  • Employing a lawyer and receiving the liquidation’s formal letter of acceptance
  • Following receipt of a preliminary insolvency certificate, the business may proceed to issue a notice of closure in a public press.
  • Submitting of the investors’ resolution with the appropriate licencing agency, together with all necessary documents and fees.
  •  45-day notice provision will be necessary where,
    • Work visas and passports for all employees and partners will be revoked.
    • Clearance letter from the Immigration Department
    • Dept. of Labour authorization memo
    • Letter of permission from the Road and Transport Authority (RTA)
    • Letter of clearance from the Federal Customs Administration (FCA)
    • Account closure letter
    • FTA has provided a VAT de-registration notice as well as a VAT clearance letter.

What Happens When a Company Goes into Liquidation?

The company will face many problems if they have to liquidate their business but on the other hand it revelves the pressure from the directors and company owner. The Company liquidation in Dubai, UAE involves the following points –

  • When a business enters into liquidation, it stops doing business, fires employees, and no longer exists in the legal sense.
  • Your authority as a director will end, and you won’t have access to company financial accounts anymore.
  • Liquidation is a tax-effective option for firms with assets to sell and no obligations for solvent corporations.
  • If you are insolvent (debt-ridden), a certified insolvency practitioner will plan the liquidation of your company’s assets, with the proceeds going to your creditors. Claimants are referred to as creditors.

The firm will thereafter be removed from relevant authority’s registration. The business will be dissolved.

How Does Liquidation Work?

The company liquidation is as follows:

  1. The liquidator is chosen to be an insolvency practitioner.
  2. Once the directors’ authority lapses, the IP takes command of the company’s business.
  3. The resources of the business are then evaluated and sold.
  4. If there are creditors, they are subsequently paid in order of precedence.
  5. The stockholders receive any excess cash.
  6. The corporation is eventually dissolved and removed from the register of businesses (Companies House).

A liquidation of company means selling all of its assets and shares to pay off its debt. The remaining capital, however, is divided between creditors and stockholders.

What Happens if I Can’t Afford to Liquidate My Company?

If you’re considering liquidating your company, it’s important to understand the process and the implications. 

Liquidating your company can be a difficult and costly process, so it’s important to make sure you’re prepared.

There are a few things you should keep in mind if you’re considering liquidating your company. 

First, you’ll need to ensure that all of your debts and liabilities are paid off. This can be a difficult and time-consuming process, so it’s important to be prepared.

Once your debts are paid off, you’ll need to file for bankruptcy. This can be a complicated and costly process, so it’s important to make sure you’re familiar with the process and the implications.

After you’ve filed for bankruptcy, your company will be dissolved and all of your assets will be sold off. This can be a difficult process, so it’s important to make sure you’re prepared.

If you’re considering liquidating your company, it’s important to understand the process and the implications. Liquidating your company can be a difficult and costly process, so it’s important to make sure you’re prepared.

What’s the Difference Between Liquidation and Dissolution of a Company?

When a company is no longer able to continue operating, it may choose to liquidate or dissolve. Liquidation is the process of selling off all assets and using the proceeds to pay creditors. Dissolution is the process of officially closing down the company.

There are several key differences between liquidation and dissolution. First, liquidation is typically used when a company is insolvent, meaning it cannot pay its debts. Dissolution, on the other hand, can be used even if the company is solvent.

Second, liquidation is a process that is overseen by the court. Dissolution, on the other hand, does not require court approval.

Third, in a liquidation, the company’s assets are sold off and the proceeds are used to pay creditors. In a dissolution, the company simply stops operating and any assets are distributed to the owners.

Finally, once a company has been liquidated, it cannot be revived. A dissolved company, however, can be restarted if the owners choose to do so.

Choosing between liquidation and dissolution can be a difficult decision. If you are unsure which option is best for your company, you should consult with an experienced business attorney.

Do Employees Get Paid During the Liquidation Process?

Liquidation in business is uncertain and it is a critical issue for any organisation to pay its employees. But, because they are classified as preference creditors, employees are provided protection under all three jurisdictions (the DIFC, and the ADGM, onshore UAE). Payments to workers are subject to a restriction of three months’ wages as a maximum under the new bankruptcy law.

Takeaway

In a metropolis like Dubai, company liquidations occur rather often. The firm is liquidated when it is unable to make a profit or create adequate benefit. Large corporations are the target of legal actions, not any particular individuals, but the organisation as a whole. Individual members are not held accountable for the legal decisions; rather, it is the central governing body.

FAQs

What Happens to Stakeholders When a Company is Liquidated?

The company is out of business if it is liquidating, and its stockholders are almost definitely out of luck. It may make a return if it’s attempting to avoid liquidation, and if it does, the value of its shares might rise along with it depending on the legal procedure the organisation goes through.

How Long is a Business Allowed to Be in Liquidation?

Upon the liquidation of the corporation, all outstanding obligations become due immediately. The liquidator must send registered letters with receipt acknowledgements to all of the creditors informing them of the start of the liquidation and asking them to make claims. Two local daily newspapers must print the notification, one of which must be published in Arabic. Investors must always be informed that they have at least 45 days from the date of the notice to submit their claims in the notice of liquidation.