In the UAE, the concept of company deregistration or licence cancellation is frequently employed by licensing authorities to facilitate the closure of limited liability companies. Despite debates over its definition and legal underpinnings, we will explore the practical application of deregistration, paying close attention to the significant liabilities involved.
The first part of the discussion will address the practical steps for company liquidation in the UAE, while the second will examine the associated legal and liability issues.
Steps and Strategies for Effective Liquidation
This section explores the key requirements for deregistration and contrasts them with liquidation.
Although deregistration isn’t specifically codified under UAE regulations, it is a practical approach adopted by certain licensing authorities across the Emirates. Its primary goal is to cancel a licence and shut down a company swiftly, with fewer formalities compared to liquidation.
Liquidation, by contrast, is the standard and legally recognised method for closing companies at most licensing authorities. Therefore, understanding the distinct requirements and implications of each process is crucial.
Legal Considerations in Company Deregistration
The deregistration process in the UAE is primarily governed by the internal rules and guidelines issued by the relevant licensing authorities. While specific requirements may vary between Emirates, the general steps include the following:
Key Requirements
- Company Resolution
- A formal resolution must be issued by the company, approving the cancellation of its licence and closure.
- Clearances from Relevant Authorities
- The company must obtain clearances from various entities, such as:
- Telecommunication providers (e.g., Etisalat or Du)
- SEWA (Sharjah Electricity and Water Authority) or other utility providers
- Emirates Post or other relevant service providers
- The company must obtain clearances from various entities, such as:
- Cancellation of the Memorandum of Association (MoA)
- The company’s MoA must be officially cancelled as part of the deregistration process.
Final Steps
- Once the completed application, along with the required documents and deregistration fees, is submitted, the licensing authority will process the request.
- Upon approval, a final certificate will be issued, confirming the company’s deregistration and the cancellation of its licence.
This streamlined procedure ensures the proper closure of a company while fulfilling all legal and administrative obligations.
The Liquidation Process in the UAE
The liquidation of companies in the UAE is thoroughly governed by the Federal Law No. 2 of 2015 on Commercial Companies. Here’s a streamlined guide to understanding both voluntary and compulsory liquidation processes under this framework:
Legal Framework
- Default Provisions: Liquidation should align with the 2015 Law unless the company’s constitutional documents specify otherwise.
Types of Liquidation
Voluntary Liquidation:
- Initiated by a shareholder resolution.
- Involves appointing a liquidator to manage the process.
Compulsory Liquidation:
- Ordered by the court in cases of disputes among shareholders or other triggers.
- The court dictates the liquidation method and appoints the liquidator.
Key Requirements for Voluntary Liquidation
- Shareholder Resolution: Formal agreement to liquidate and appoint a liquidator.
- Clearances: Necessary from utilities and service providers like SEWA and Emirates Post.
- Public Notice: Publication in two local daily newspapers, one in Arabic, for at least 45 days.
- Liquidation Report: Prepared by the liquidator and submitted to the licensing authority.
Finalisation
On successful completion of these steps and submission of the liquidation report, the licensing authority issues a liquidation certificate, marking the formal closure of the company.
Managing Legal Risks and Liabilities During Deregistration
In light of the regulatory framework, a company in the UAE can opt for deregistration without the necessity for a formal liquidation process. Here are the key points:
- No Liquidator Required: Unlike liquidation, deregistration does not necessitate appointing a liquidator.
- Creditors and Reports: There is no obligation to notify creditors or prepare a liquidation report during the deregistration process.
This streamlined approach allows for a more direct and less cumbersome closure of a company.
Initiating Dissolution and Selecting a Liquidator
The lack of a liquidator in the deregistration process brings up legal queries about the necessity for typical dissolution and liquidation steps, even after a company has been deregistered. According to Article 308 of the 2015 law, these considerations require careful legal evaluation to ensure compliance with existing regulations and to clarify whether these traditional steps remain mandatory in the absence of formal liquidation.
“The liquidation shall be conducted by one or more liquidators appointed by the partners or under a Decision by the General Assembly or any other similar body, provided that the liquidator is not an auditor of the company at the time being or has already audited its accounts within five years preceding the appointment“.
Examining Roles and Responsibilities in Liquidation
Stakeholder Involvement
- Managers and Shareholders: Their roles and liabilities become a focal point, particularly in relation to compliance and decision-making during the liquidation or deregistration processes.
- Licensing Authority: The extent of the authority’s involvement, including its approval rights in liquidation activities, is critical.
Regulatory Permissions
- Required Approvals: Certain liquidation actions, such as public announcements in newspapers, necessitate permissions from the licensing authority, indicating a significant level of regulatory oversight in these proceedings.
This structure highlights the complexity of roles and the need for regulatory compliance in the liquidation and deregistration processes.
Engaging with Creditors During Deregistration
During the liquidation process, the liquidator is required to make a publication per Article 316 of the 2015 law:
”All the debts payable by the company shall become immediately outstanding upon its dissolution. The liquidator shall notify all the creditors by registered letters with acknowledgment of receipt of the commencement of the liquidation, inviting the creditors to present their claims. The notice shall be published in two local daily newspapers; one of them is issued in Arabic. In all events, the notice of liquidation shall include a period granted to the creditors for at least 45 days from the date of the notice to present their claims”.
Deregistration does not mandate notifying creditors, which raises potential concerns about the liabilities of managers and shareholders towards the company’s creditors post-deregistration. It is crucial to navigate the deregistration process with great care to prevent situations where shareholders and managers might remain liable to creditors or third parties. This careful approach helps to mitigate risks associated with unresolved financial obligations.
Closing Your Business Legally and Efficiently with Davidson & Co.
Navigating the complexities of deregistration in the UAE without notifying creditors can expose managers and shareholders to unforeseen liabilities.
To ensure that your legal rights are fully protected, it’s crucial to consult with the top lawyers in Dubai. Connect with Davidson & Co. today for comprehensive guidance and expert legal advice tailored to your specific needs.
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