IS IT POSSIBLE CONTINUING TO TRADE WHILST THE COMPANY LIQUIDATION?

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Company Liquidation

IS IT POSSIBLE CONTINUING TO TRADE WHILST THE COMPANY LIQUIDATION?

Attempting to retain a struggling company viable could result in a negative impact on you and your family’s physical and emotional well-being. However, Company Liquidation is the only alternative for that very same failing company. We can assist in answering a few of your questions for your ease.

First and foremost, know the contexts of Insolvency V/S Liquidation?

Insolvency refers to a state in which a business is unable to pay its debts. In order to get out of it, there are a few options, and if none of these options are viable, the company will be forced to liquidate. Liquidation refers to the complete shut-down of a company’s operations.

Therefore insolvency, in a nutshell, is the catalyst for bankruptcy and liquidation.

To develop a better understanding regarding Company Liquidation

Liquidation is the legal process by which a company and its assets are dissolved. Company liquidation may be a feasible alternative for them to improve their financial circumstances and minimize their personal culpability. All of the company’s assets are liquidated and distributed to secured creditors in a legally sound and equitable manner. Outstanding creditors are perhaps compensated if resources are available after all the other debts have been paid.

Reach out to NUFCA: 04-325 8361 for a professional consultation of Company Liquidation in Dubai.

 

Our expert will evaluate your specific circumstances and guide you on whether Company Liquidation is the preferred option for your company or not. Once you opt to liquidate your company, you must appoint a liquidator to regulate the company’s activities, including all the assets.

 

The Legal Liquidator is considered to be a representative for the company for the process of the company liquidation. The Federal Law No. 2 of 2015 on Commercial Companies (the “Companies Law”) has specific rules for the appointment of the liquidator and the powers assigned to him. A liquidator may be appointed by the partners or the general assembly, or the court, depending on the type of liquidation is concerned. After his appointment, the liquidator must take the necessary steps to wind up the company’s business taking into account his responsibilities, duties, and obligations to all the relevant parties.

 

What is the Company Liquidation process?

Article 306 of the company law provides that unless the Memorandum of Association or Articles of Association of the company provides for the method of liquidation or the partners agree otherwise upon the dissolution of the company, the provisions of the Companies Law shall apply to the liquidation of the company.

 

Depending on who initiates the liquidation, perhaps it would be either voluntary or involuntary.

 

Voluntary Liquidation

The company may enter into voluntary liquidation in the following instances:

  • The termination of the specified period for the company unless the General Assembly decides to extend it.
  • The completion or absence of the purpose for which the company was initially established, or the impossibility or absence of the company’s goals.
  • If a decision to dissolve and liquidate the company is issued by the company’s general assembly.
  • In any other cases which may be stipulated by the company’s statute.

Involuntary Liquidation

A company may be involuntarily liquidated in the following cases:

  • If the company commits violations of the law or its articles of association.
  • If the company fails to fulfill its obligations.
  • If it stops its activities for a year without a justified or legitimate reason.
  • If the company’s total losses exceed (75%) of its subscribed capital unless its general assembly decides to increase its capital.

.In the event when the company takes the decision of ending the provision of its products and the services to the market, or when the order of liquidation has been imposed on the company, the company has to proceed with the appointment of a liquidator. Once the liquidator is appointed, he or she will have entire control through all corporate matters, thus choosing a credible, competent, and reliable liquidator is crucial. A liquidator’s duty is to eventually materialize, acquire, and liquify the company’s assets in order to distribute the sale proceeds to verified creditors. A qualified liquidator will be willing to walk business owners and directors through the whole liquidation process, explaining each step and its implications.

For both mainland and free zone companies in the UAE, dissolution needs the same set of documents. The documentation at times varies with the type of free zone jurisdictions. Here are the important documents required for the purpose of company liquidation:

  • Copy of the license of the company
  • Copy of memorandum of association (if there were any changes made in it, they should be there too)
  • Power of attorney (if any)
  • Resolution of the shareholders of the company
  • Passport copies of all the shareholders
  • Copy of the Emirates ID
  • Application form for the deregistration of the company
  • The notice period for the company’s liquidation.

Our professionals at NUFCA will be happy to advise you throughout this process and would guide you with detailed answers whenever required.

 

Generally, this very commonly asked question arises- Is it possible to continue to trade whilst the Company Liquidation?

 

The answer to this is a direct, NO. Because a company is in liquidation, they do not have to stop trading immediately. Once the decision has been made to force towards the liquidation of the company, there is very little to no way back for the company and its directors. Directors should cease trading immediately; although there may be some special exceptions where the completion of contracts can aid the collection of debts from the company. But absolutely no further credit should be taken in this circumstance.

 

During the period following the commencement of the winding-up but prior to the appointment of a liquidator, the powers of the Directors shall not be exercised except:

(a) with the consent of the Registrar; or

(b) to secure compliance with Company law of UAE; or

(c) to protect the Company’s assets.

 

On the appointment of a liquidator, all the powers of the Directors cease, except so far as the Liquidation Committee (or, if there is no such Liquidation Committee, a meeting of the Creditors) permits their continuance.

 

If your company stands in any such circumstances, please do feel free to contact us for additional information 04-325 8361, or visit the NUFCA website for further Company Liquidation guidance in Dubai.

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