Companies can be wound up by Voluntary Liquidation. This shall proceed as initiated by shareholders or creditors of a company by passing a valid shareholder’s resolution. When a company’s financial mechanism fails, and the company is in financial distress and/ or becomes insolvent whereby it is unable to pay off its debts, the company may file a petition for winding up to the court.

There are two types of company liquidation, voluntary/compulsory liquidation and winding up/liquidation by the court.

1. Voluntary Liquidation:

Companies can be wound up by voluntary liquidation. This shall proceed as initiated by shareholders or creditors of a company by passing a valid shareholder’s resolution. At the shareholder’s meeting, an official liquidator must be appointed. Such liquidation may also be called compulsory liquidation.

Thereby, the shareholders resolution copy (notarized), a statement appointing liquidator and calling for liquidation, certified copies of the company’s directors and liquidator attesting liquidation, company’s registration certificate, its trade license, and the liquidator’s license with the letter of acceptance, must be submitted to the Dubai Trade Register/ Dubai Economic Dept.

Effect on Employees:

Employees are terminated and being considered as primary creditors; their pending dues may be paid off.

2. Winding up by the Court

When a company’s financial mechanism fails, and the company is in financial distress and/ or becomes insolvent whereby it is unable to pay off its debts, the company may file a petition for winding up to the court. This is normally initiated by the creditor of the company but maybe even at the behest of a company director or shareholder with a petition to close down the company.

Under this court-based procedure, the assets of a company are realized and distributed to the company’s creditors. This has an effect of compulsory winding-up which proceeds as per law effectually especially in cases where the company cannot pay its liabilities/debts. Under this type of dissolution, the company’s assets and liabilities are thoroughly studied.

However, there can be compulsory winding up under the provisions of the law as well. The company may seek to pay off its debts under this arrangement and come to terms with its creditors.

What about the employees?

Employees are terminated, and their end of service benefits attempted to pay off.

What about the Directors/ BOD?

They cease to operate and delve into the affairs except to provide clarification on any past or present state of affairs and offer assistance in dissolution.

What happens after filing a petition before the court?

Once an application for winding up is filed before the court, and an order passed by the court to that effect, a liquidator is appointed by the court. The liquidator will take over control of the company. Company assets are managed and sold by the liquidator in order to pay off the debts of the company. After the sale of assets, the company’s name will be struck off from the register of companies, and the company will be said to have officially wound up.