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company liquidation

Understanding Company Liquidation

Understanding different processes of company liquidation, that could benefit the company is important. Being able to provide details on terms and procedural on liquidation will help in easy closing of a business and provide the best options available for liquidation. It will also highlight the significance of liquidation and help those who are entering into liquidation.

The cause of liquidating a company are different depending on the circumstances. these causes include (not limited to)

  • When court may order for liquidating the company
  • When the company cannot pay its debts
  • The company is being dismantled while in the interests of creditors directors and members
  • The company cannot commence the business for a long period of time
  • The company is being used for the purpose against public interest or national security

Understanding the options for liquidation

choosing a liquidation process will ensure a clean end of business without any legal troubles.

Solvent liquidation

In this case, the business in fact is able to make payments on time, but it is the choice of partners to windup. This process is also deemed to be a huge benefit to the directors as it provides the chance to dissolve a company in the correct way and not leave any unattended issues.

Insolvent liquidation

This occurs when the director of a company realizes that the business is not able to pay off the debts and can begin the process of liquidation If the majority of shareholders agree to liquidate then the process can start.

Court led liquidation

This situation the company is completely unable to make payments to its debts and the director applies to the court to request that the liquidation process is implemented.

Significance of liquidation

Liquidation is inevitable for a company when it finds itself insolvent. When a company is in the undesirable situation of liquidation, the business owner needs to be proactive in placing the company into liquidation as soon as possible. This action can help to prevent insolvent trading and its associated hardships.

There are risks involved when a company fails to place a company into liquidation when it is appropriate to do so. A business owner may become personally liable for debts incurred by the company if the company is insolvent but not placed into liquidation.

Steps for Company Liquidation in the UAE

Involvement of liquidator

When an insolvent company is wound up as decided by its members or creditors or, is wound up by a court, a liquidator is appointed.

If a court determines that the company should be wound up, the applicant is required to prove that the business is insolvent. Upon satisfactory fulfillment of this requirement, a liquidator is appointed. There are circumstances when a dispute that exists between shareholders or members cannot be resolved, a court can be given the right to resolve the dispute.

Understanding the effect of liquidation on the company

  • When appointed liquidation to take control of all the companies’ assets
  • The director may lose their power when a liquidator is appointed
  • The company’s assets will be disposed of by liquidator who will ensure that the proceeds of the sale are provided to the creditor
  • When liquidation is completed the company is removed from the company’s registrar.

Understanding the hierarchy for distributing assets

There is a hierarchy that determines the order in which a company’s assets must be distributed in a liquidation process. This may be strictly enforced by the Courts. Any secured creditors have the first right to the claim assets and are usually paid out before there is a distribution. After this is paid out, any remaining debts can be paid as per the priority claimed

Time is taken for liquidation.

There is no specific time period in which liquidation of business will occur. Some liquidation cases can be complex and may result in the liquidation process stretching across for the number of years.

Company liquidation in UAE requires an experienced approach with strict adherence to all the procedures. Only a complete understanding of the existing legislation can help you understand company liquidation. HHS Lawyers has been providing highly specialized Liquidation Services in UAE. With many successful closures under our belt, we have the expertise to guarantee hassle-free liquidation procedures to our clients.

Our specialized services include determining a solution and advise you on objectives such as costs, time and help in finding a quick-fix solution. During the process, we liaison between you and him governmental authorities to find an easy and mutually acceptable exit strategy.

Hassan Humaid Al Suwaidi., LL.B. is a Senior Partner in HHS Lawyers. He has 20 years of experience dealing with high-value and complex cases. Frequently featured in local and international legal directories and commended for his ability to attain favorable outcomes for clients, Hassan has been involved in some of the largest legal settlements. A major part of his work is providing expert legal advice on UAE legislation and acting for individuals and businesses during disputes and litigation. Read more