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Compulsory liquidation in Dubai

Compulsory liquidation or “winding up” is a court-based procedure under which the assets of a company are realized and distributed to the company’s creditors. This procedure usually forced upon the company, rather than the directors complying with their duty to wind up the insolvent company in a formal manner. The winding up petition is usually made by a creditor, but a company director or shareholder can also issue a winding up petition to close the company down. The most common reason for a compulsory liquidation is when a company is insolvent.

Grounds for compulsory liquidation

The most common ground of winding up is when a company cannot pay its debts

The court may order for winding up on any other grounds as prescribed by the law.

Process of compulsory liquidation

Most common procedures of winding up of a company under compulsory liquidation are

  • Filing a winding up petition:

The first step of the compulsory liquidation process is to file a winding up petition in the competent court

  • Winding up order by the court:

Once the court is satisfied that the company should be liquidated, they will issue a winding up order.

  • Appointing a liquidator

The official liquidator will take over control of the company, meaning the existing directors will cease to have any influence over the day to day running of the business.

  • Company assets are sold:

The process of liquidating the company assets which may include all movable and immovable property of the company. The assets will be managed by the liquidator in order to repay the company’s debts.

  • Dissolution of the company

Following the sale of assets, the company will be officially shutdown and its name removed from the register of companies.

Outcomes of compulsory liquidation 

  • Compulsory liquidation for creditors

An unsecured creditor may receive all the outstanding debts at the end of liquidation of process of the company.

A creditor has to provide the liquidator with details of the claim (proof of debts). The liquidator will then assess all the proofs of debt. He may either accept a claim in whole or part or reject it.

  • Compulsory liquidation of employees

All workers of a company are automatically dismissed if a winding-up order is created. A former employee, may be entitled to a gratuity benefit as per UAE employment law.

  • Compulsory liquidation for directors

When a company goes into compulsory liquidation, the powers of its directors cease and they are automatically dismissed from office.

As a former director of a company that is being wound up, you may be required to assist the liquidator and to provide a statement of the company’s assets and liabilities

Risks involved

The risks of compulsory liquidation depend on how the administrators have run the company so there can be various issues that are exposed as a result of this method. If the directors are found to be guilty of wrongful or fraudulent trading and mismanagement of the insolvent company, they can further face consequence as mentioned below (but not limited)

  • Being made personally liable for company debts.
  • Disqualification as a director and of all future appointments as a director.
  • A fine.

Relief claimed

Most common reliefs claimed by the company under compulsory liquidation are as follows:

  • Paying the debts

When the company is in a situation to pay the debts of the creditors.

  • Enter into a mutual agreement.

The company can enter into a mutual agreement with creditors for voluntary winding up of the company.

HHS lawyers and legal consultants are one of the leading liquidators in the country. Our specialized and expert team deeply investigates the case and executes the compulsory Liquidation process smoothly. If you feel your business is heading into compulsory liquidation then contact us for further details.

M. Al Khairy, LL.B. is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Al Khairy also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators. Read more