The procedure for termination or dissolution of companies in the United Arab Emirates can be examined under the provisions Commercial Companies Law. This Article talks about termination of companies under this Law.
Companies located in Free Zones and Offshore companies are not governed by the Commercial Companies Law. Apart from Free Zone Regulations and Dubai offshore company, termination of companies is covered by the Commercial Companies Law (hereinafter referred to as ‘the law’).
The law provides that a company can be dissolved for any of the following reasons:
- a. expiry of its duration cited in the articles of incorporation or association
A company can be incorporated for a fixed period of time which is to be incorporated in its articles of association. On expiry of this fixed period the company dissolves automatically.
b. completion of the objective for which the company was established
Sometimes companies are incorporated only for specific projects or tasks and therefore they continue to be in existence only till the completion of the said project or task after which they are terminated.
c. loss of all or most of the company’s assets
In order to run, a company needs to have sufficient assets without which it is not possible for it to continue to function and needs to be terminated.
For the dissolution of the company to be effected, in case the share capital of a limited liability company is half, directors are to put the matter of dissolution before a general meeting. In case the losses suffered by the company amount to more than half of the capital, the partners who hold 1/4th of the capital may request dissolution.
Liquidation is to be carried out by one or more liquidators to be appointed by the partners or the general meeting approved by the majority by which the company’s decisions are taken.
Further a notice is to be given of the dissolution of a company by entry in the Commercial Register, and publication of dissolution notice in two Arabic newspapers.
A company has a legal personality only to the extent required by the liquidation process and it is thereby required that the name of the company should have the suffix “under liquidation” added.
Immediately upon his appointment and by agreement with the Board of Directors, the liquidator is to take stock of the company’s assets and liabilities, and the Board of Directors are to make available to the liquidator all ledgers, accounts and documents of the company. The Liquidator is then to undertake the following tasks:
- 1. Draw up a detailed list of the company’s assets and liabilities together with its balance sheet to be signed by him and the Directors. Keep a ledger to record the process of liquidation.
2. Do everything necessary to safeguard the assets and the rights and obtain all company’s claims and deposit the monies received into the company bank account as soon as received.
3. Perform all the tasks required by the liquidator, including settlement of the company’s debts and sale of the company’s movable and immovable property by public auction. However, liquidator cannot commence any new business, and if he does he will be personally liable.
4. Inform all the creditors by registered letter inviting them to present their claims. Notification shall be made in two Arabic daily newspapers. Time limit for submission of claims shall be not less than 45 days.
5. In case the company’s assets are not sufficient for the settlement of all debts, the liquidator is to discharge the debts proportionately without prejudice to the rights of the privileged creditors.
6. Liquidator is obliged to submit to the partners or the general meeting a provisional account every six months of the liquidation process.
7. Assets of the company resulting from the liquidation shall be divided among the partners after settlement of its debts and at the division each partner shall receive a sum equal to the value of the stake in the capital he contributed. Remainder of the company’s assets shall be divided between the partners in proportion to their respective share in the profit.
8. If the net assets of the company are insufficient to repay the partners stake in full, the deficit shall be distributed between them in accordance with the proportion laid down for the distribution of losses.
9. Upon completion of the liquidation, the liquidator is to submit a final account to the partners or the general meeting for the liquidation process. Such process is to be concluded with the approval of the final accounts. Furthermore, liquidator is to record the conclusion of the liquidation in the Commercial Register and request that the entry of the company be deleted from the Commercial register.
It is to be noted that liquidator is held liable to the company if its affairs are mismanaged during the period of liquidation. The authority appointing the liquidator also has the power to dismiss the Liquidator and appoint another liquidator as his replacement (Article 312).
Apart from the above mentioned procedure for termination of a company. A company can also be terminated due to it being declared bankrupt. Bankruptcy and composition with creditors are separately governed by detailed provisions of the Commercial Transactions Law.
A commercial company may be declared bankrupt if it ceases to pay its commercial debts at the time they fall due because of disruption of its financial operations. A company may be declared bankrupt even if it is in the process of liquidation.
In case of public joint stock companies and limited liability companies, if the declaration of bankruptcy is requested then the liquidation proceedings are suspended, and it may not be liquidated before completion of the bankruptcy.
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For legal advice regarding the subject, please call +971 4 4221944, or call 800-LAWYER (529937).