When a firm or business cannot continue operating, it must liquidate its assets and cease all activities. For liquidation, each zone has a particular process and set of rules.
Compared to different zones, the DMCC has unique liquidation procedures and restrictions. Much paperwork and legal labor are needed to wind up a business, which is challenging. The Liquidator at DMCC streamlines complicated duties and aids the business in liquidation. The business’s winding up is carried out by the DMCC approved liquidators, who follow UAE company legislation. Either the Court or the stakeholders may appoint a liquidator. This Process is called License Termination or Cancellation.
Types of Liquidation
The Regulations provide specific regulations for the liquidation of a Company in DMCC. According to the Regulations, the liquidation of a company may appear in one of four different ways:
1. Solvent Liquidation
A method of Liquidation of a DMCC company in which the director(s) declares that the Company’s affairs may be finally wound up within twelve (12) months of the liquidation process’s start.
Requirements:
I. Declaration of solvency
● A declaration of solvency must be submitted through a form signed by the directors to begin a solvent liquidation.
● Following a thorough investigation of the Company’s financial situation, the declaration of solvency must state whether the Company:
(a) has no assets and no liabilities;
(b) has assets but no liabilities;
(c) has liabilities but will be able to fully satisfy those liabilities within a year of the start of the liquidation.
II. Appointment of Liquidator
In the event of a solvent liquidation, the Company must, at a General Meeting, designate one or more liquidators to wind up the Company’s affairs and distribute its assets.
III. Submission of Progress Report
If the firm is still wound up after more than a year, the Liquidator must provide a progress report detailing his actions and deals every three months until the process is finished. He must give the progress report a copy to the Registrar and the shareholders.
IV. Summary report of liquidation in Final Meeting
The Liquidator must provide a summary of the liquidation those details how it was handled and how the Company’s assets were distributed as soon as the Company’s affairs are entirely closed off but before the Company is dissolved.
2. Summary Liquidation:
A method of liquidation of a DMCC company in which the director(s) declares that the Company’s affairs may be finally wound-up within six (6) months of the liquidation process’s start.
Requirements:
I. Declaration of solvency
● The Directors must sign a statement of solvency in the form provided by the Registrar from time to time when a summary liquidation is contemplated.
● The declaration of solvency must state one of the following after a thorough investigation of the Company’s affairs:
(a) the Company has no assets and no liabilities;
(b) the Company has assets and no liabilities; and
(c) the Company’s affairs can be finally wound up within six months of the start of the summary liquidation.
Before approving the resolution for liquidation, the declaration of solvency must be made within a window of twenty business days.
II. Appointment of Liquidator
In a summary liquidation, the Company should, at a General Meeting, designate one or more Liquidators to wind up the Company’s business and distribute the Company’s assets.
III. Conversion to a voluntary liquidation of a solvent
Suppose the Liquidator, in a summary liquidation, has not made an application for the Company to be dissolved within six months of the date of the Directors’ declaration. In that case, the summary liquidation converts into a solvent liquidation.
IV. Summary report of liquidation in Final Meeting
If the Liquidator (s) determine that the Company won’t be able to pay its obligations in full at any stage after being appointed, they must immediately summon a creditors’ meeting.
3. Insolvent Voluntary Liquidation:
A method of DMCC Company liquidation in which the Company’s creditors participate.
I. Resolution of Insolvent Liquidation in General Meeting
To offer a resolution for an insolvent liquidation, the corporation must first summon a general meeting of creditors. A signed statement of the Company’s financial condition must be presented to the creditors by the Company’s directors.
II. Appointment of Liquidator
After examining the same, the creditors and the corporation may each appoint one or more individuals to act as liquidators; these people will be chosen using a simple majority based on the value of claims. All directors’ authority terminates as soon as the Liquidator is chosen.
III. Progress report by Liquidator
The Liquidator must prepare a progress report summarizing his actions and transactions every three months until the process is through.
IV. Summary report before Liquidation of Company
The Liquidator should provide a summary reflecting the essence of the procedure, setting up how it was carried out, as soon as the Company’s affairs are completely wound up, but before the firm is dissolved. The Liquidator must hold a general meeting of the firm in front of the creditors after receiving the documents to tie up any loose ends in the most transparent way possible.
4. Involuntary liquidation by the Competent Court:
A method of liquidation of a DMCC Company whereby the Registrar of DMCC submits a petition to the Court for the liquidation of the Company after determining that:
● The Company has been struck-off; or
● The Company has committed a serious or repeated violation of the DMCC free zone.
Voluntarily dissolving circumstances
A company may voluntarily dissolve:
● Under the conditions set for in the Company’s Articles; or
● If the Company decides unanimously at a General Meeting to voluntarily wind up; or
● If the Company suffers a loss.
Consideration before liquidation process starts
There some condieration must be taken before moving forward with DMCC company liquidation ;
● For DMCC Company Liquidation appointment of the liquidator is required. Any reputable chartered accountants or auditors registered in DMCC, UAE, should be considered for the position of Liquidator. In DMCC, UAE, they had to be authorized and registered.
● The Director of the Company shall have their obligations and duties terminated upon filing the Company’s application for termination.
● Except for a few services directly linked to company liquidation, no services will be provided to a company in the process.
Commencement of Liquidation
A voluntary liquidation is considered to begin when:
● In the event of a solvent or summary liquidation, when the Company passes the resolution for voluntary liquidation and
● In the event of an insolvent liquidation, when the notification of the appointment of liquidators is certified.
Effect on the Company’s status
● If a company chooses voluntarily wind up, it must stop doing business as soon as the process starts, with the possible exception of what may be necessary to complete the liquidation.
● The Company’s position and authority shall remain in effect until the Company is dissolved, notwithstanding anything to the contrary in the Company’s Articles.
For entrepreneurs to avoid any penalty or entry ban in the future, the company closing must be carried out right away by complying with the legal regulations of UAE Free Zone jurisdictions.
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