As the UAE continues to grow, expats continue to move here for a better life and better opportunities. Guidance is offered for expats who wish to start their own businesses in the UAE, and the various options available for them. However, there is not much guidance for business owners who no longer wish to remain in the UAE. If you are planning on closing down your business and returning back home, there are a number of administrative and legal matters which you must attend to prior to your move.
Winding up Your Business
Many business owners who no longer wish to operate their businesses in the UAE will just cease paying their trade license fees and hope to be struck off the commercial register. However, this method is inappropriate for the cancellation of a license and may subject the shareholders and directors to liability and other serious consequences. The directors are liable for existing debts and liabilities of the company until the company is officially dissolved or struck out.
Article 295 of the UAE Companies Law (Federal Law no. 2 of 2015) states that a company may be dissolved for a number of reasons including:
- The term of the company has ended,
- The purpose for which the company has been set up expires,
- The company loses a significant amount of funds,
- The company merges with another company,
- If all the partners agree to terminate,
- A court order to dissolve the company is issued.
Part eight of the UAE Companies Law stipulates various other provisions for dissolution of a company depending on the company type.
If you wish to leave the UAE and close down your business, the best method is to dissolve the company by agreement of all the shareholders. It is important to ensure that there are no debts to be paid off by the company or any existing claims prior to commencing the process of winding up the company, this evidenced by virtue of Article 304 of the UAE Companies law which states that unless the debts are paid off, no partner is entitled to any part of the company’s share capital upon dissolution. Once all the company’s commercial affairs are in order, then the process for liquidation may commence. The directors must ensure that all assets of the company are transferred, and all commercial contracts are terminated mutually by the company’s customers or clients. The shareholders must sign a resolution stating their intention to dissolve the company. Such a resolution must be notarized or fully legalized. The shareholders must also appoint a liquidator in the same resolution, this step is mandatory. Articles 306-326 of the UAE Companies Law stipulates the various rights and responsibilities of the liquidators. Thereafter, the parties or authorized representatives can then approach the Department of Economic Development (DED), or the relevant free-zone authority (if the company is incorporated in the free zone), to submit all the documents and pay the fees. A public announcement is made via a newspaper advertisement for an average of 45 days for the purposes of providing more time for potential creditors to come forward.
Another essential process, and most likely the costliest, is to ensure all employees’ visas have been cancelled (including the managers and shareholders who are sponsored by the company), and all their dues have been paid- i.e. notice periods, and end of service. A no-objection certificate must be obtained from the Ministry of Human Resources and Emiratisation (MOHRE) to prove that there are no employees left under the company’s license.
Further approvals may be required from external authorities, depending on the business activities. In addition, all utility bills must be cleared off, and accounts with the Dubai Electricity and Water Authority (DEWA) as well as Etisalat and/or DU must be cancelled. The company’s bank account must also be closed, and all funds transferred. Please do note that each bank will have their own requirements and so therefore it would be best to clarify with the company’s own bank which documents are required and what the procedure entails for closing of a bank account.
A final application is then made to the DED (or the relevant free zone) upon submitting the liquidator’s report, the newspaper announcement, visa cancellation papers, NOCs from the MOHRE, and other authorities, bank account closure letter, as well as the resolution from the shareholders. The DED or relevant free zone authority will then issue a certificate of cancellation, evidencing the dissolution of the company.
The above procedure may differ slightly for different types of companies (such as sole establishments or branches of foreign companies) or companies incorporated within the free-zones. Some free zone authorities might have their own regulations surrounding the dissolution of companies, which would be very similar to the process for companies incorporated in the mainland. If the free zone authorities fail to regulate a certain aspect of the dissolution process, then reference is made to the UAE Companies Law.
Writing Off the Company
Article 303 of the UAE Companies Law states that a company may be struck off the commercial register if the Ministry of Economy or the DED determines that a company has ceased to conduct its business or that it conducts such business in contravention of the UAE Companies Law or the regulations issued thereunder. In relation to the process, the Ministry of Economy or the DED (as applicable) will notify the company of its intention to strike off the company within three months from the date of the notice, unless a good reason is submitted by the company for not being struck off. If the Ministry of Economy or the DED, receives upon the expiry of the three months, a confirmation that the company’s business is still under suspension or if the company fails to provide a reasonable justification for such suspension, the matter will be referred to the competent court to initiate the necessary procedure to liquidate the company.
Liability of the directors, managers and shareholders of the company struck off in accordance with Article 303 of the UAE Companies Law shall continue as if the company has not been dissolved. As such, they will be personally liable for any liability that may devolve upon the company. Therefore, it is essential for business owners not to rely on Article 303 for the dissolution of their businesses as it carries some serious consequences. Furthermore, such directors or partners of a company might face a ban if they exit the UAE and ever decide to return to the UAE, even as a tourist. They would be held at the airport until all debts have been cleared.
The New Bankruptcy Law
If your company is unable to clear its debts and wish to dissolve for this purpose, it is essential to take into account the provisions of the new UAE Bankruptcy Law (Federal Law no. 9 of 2016). The new Bankruptcy Law came into effect in December 2016 and encompasses companies incorporated under the UAE Companies Law as well as free-zones. The old law offered few options other than liquidation to companies that faced insolvency and was regarded as outdated. The Bankruptcy Law expressly repeals UAE’s insolvency regime which was set out in Chapter V of the Commercial Transactions Law, and introduces several progressive provisions.
Companies struggling with financial losses and debts may now apply for restructuring or insolvency and liquidation which involves a court order, depending on the debts of the company. This comprehensive law also replaces several bankruptcy-related crimes under the UAE’s Penal Code. Under the old regime, a defaulting debtor was required to apply to be declared bankrupt within 30 days. Failure to do so exposed the company to hefty fines and potential imprisonment. This encouraged many business owners to abscond, rather than try to restructure their businesses. A significant change under the new law is the de-criminalization of non-declaration. Now, a failure to declare bankruptcy can disqualify the debtor, but will not be regarded as a criminal offence. In addition, the new law prevents creditors from bringing criminal charges against executives of insolvent companies for bounced cheques while a court ordered restructuring is underway.
The new Bankruptcy Law paves the way for companies struggling to pay off their debts, and offers suitable alternatives which companies should take into consideration.
It is clear from the above that there are various methods available for business owners to close down their companies. Different procedures will apply for different types of companies. It is essential to follow the relevant rules and regulations when winding up your business in order to avoid facing hefty penalties or other administrative issues. There are also many law firms or business consultants who will be able to assist with dissolving your company. Otherwise, the authorities themselves can provide some advice as to the best ways to dissolve your business.
Click here to download the article.