Every year, several businesses open and shut down in world. This is very normal in business world. There is a proper legal structure and procedure according to which company liquidation takes place. If it is managed other than this, it can generate serious issues. The shutting down of a business directly impacts a vast range of stakeholders. Therefore, it is very important, to manage company closures, liquidations. The legal process in business liquidation needs to be applied very carefully. The process of liquidation should be fair, transparent and just. The legal procedure helps the company close down its business activities. It touches matters like:
- Settling company-related Debts
- Distribution of Assets,
- License Cancellation
The company must adhere to legal requirements in order to avoid legal action. Legal requirements can also be understood with the support of professional lawyers. UAE has many good law companies and best professional lawyers. Furthermore, it also prevents penalties. Once the legal process is followed, it restricts the personal liabilities of directors and also disputes. Mainly, business liquidation in Sharjah is governed by federal and local laws. It includes:
- UAE Commercial Companies Law
- Regulations issued by the Sharjah authorities
- Standards set by free zone administrations
It is normally initiated by shareholders or directors of the company. Let’s find more about it:
Compulsory Liquidation:
It is mainly ordered by the courts. The prime reasons are insolvency or legal violation of laws and standards.
How to initiate the process of Liquidation:
There are certain steps required to initiate the process of business Liquidation in Sharjah. The companies should pass a formal board resolution. The approval of liquidation is done by the board. For this, a licensed liquidator is appointed to perform the task. Both will work together, and ultimately, the licensing authorities will be notified.
Appoint a Liquidator:
The foremost step is the appointment of a liquidator. He is preparing the legal documentation required to serve the purpose. They will prepare the statements and also make the necessary communication with the stakeholders. The appointment of a professional liquidator should be part of the official documents.
Notification to Authorities and Public Announcement:
Any business that is closing down must notify the concerned authorities in Sharjah. They also need to state the intention to liquidate. In several cases, a public announcement is mandatory. A public announcement is made in the local newspaper or in other electronic media to make the news in the public eye.
It is primarily done to inform the creditors. This will allow them to submit their claims. Furthermore, the public notifications are usually a legal requirement. If no public announcement is made, it may invalidate the process.
Creditors Submitting Claims:
Creditors may file claims after the public announcement. There are certain deadlines for submission. The liquidator may verify the validity. Moreover, he is also directly involved in negotiating to reach a settlement among business and creditors.
Outstanding obligations:
Usually, in the process, all the assets are sold out to settle the delinquent accounts. After that, the remaining funds are distributed among the shareholders.
First, the company must settle all its employees before the final closure. The authorities will carefully scrutinize the complaint. They will also prevent labour exploitation in the process.
Labour disputes may disrupt business closure. Therefore, it is always better to settle employee dues. Moreover, the company must clear the work permits visas prior to business liquidation in Sharjah. All work visas and work permits must be cancelled before finalization.
Disputes and Assets Valuation:
It is most likely that the disagreements and deadlocks arise over the valuation of assets. The liquidator is an independent individual who is engage into the process of asset valuation. He will determine the fair market price.
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Insolvency and Bankruptcy Procedures:
Most businesses face insolvency when they are about to shut down their operations. They are unable to pay off their debts on time. Therefore, the business must enter into insolvency proceedings. The courts will oversee the liquidation process and restructuring.
Mostly, insolvent businesses often seeks for the protections from creditors. They take help from the bankruptcy law to declare their insolvency and bankruptcy. This directly impacts economic stability, and the legal structure works to preserve the worth.
The companies can request financial restructuring. It is mainly court supervised restructuring option available to businesses for liquidation. The court will assess its viability as an alternative to liquidation.
License Cancellation Process:
It is the duty of the liquidator to obtain clearance from various authorities in Sharjah. They need clearance from several government departments.
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