Liquidation or deregistration, the arduous process by which a company is brought to an end, is not a situation that any organisation wishes to find itself in. But preparing for the worst-case scenario, especially in turbulent times like these, should be a critical part of a company's strategic planning, a business consultant said yesterday.
While liquidation might not have been a familiar term in the UAE just a few years ago thanks to the skyrocketing economy, it is now an everyday phenomenon ever since the global crisis hit home.
"Most companies are shocked and surprised by the lengthy procedures involved in closing up a company in the UAE," said Jitendra Gianchandani, Managing Partner of Jitendra Chartered Accountants, a business and financial consultancy.
"But all it takes is some advance planning about the liquidation process during the business plan stages itself, and most of the ordeal can be avoided."
While the UAE's business environment does encourage entrepreneurship and is significantly devoid of red-tapism compared to other world business markets, there are certain aspects of the law and procedure that business houses need to take note at an early stage of their business plan.
For example, even after announcing liquidation by placing a notice in newspapers for the same, directors need to have a clean bill from government agencies concerned, such as labour, immigration and the municipality, stating that they have no pending renewals of licences.
Companies should also be aware of the fact that their licences should be active while applying for closure.
Awareness of small but crucial aspects of the law such as these can save companies a lot of time, money and trouble during liquidation, he said.
Citing another example, Gianchandani said most flexi-desk companies are often surprised to find out that the directors need to be physically present and submit their passports to close a company in the Ajman Free Zone.
"The Ajman Free Zone requires investors to deposit their passport or $50,000 until a notice period of 15 days. In the case of an LLC, it takes two to three months, and the auditor's liquidation reports need to be submitted. Besides a 60 days notice in newspapers, the board resolution has to be notarised in court, and there are also labour issues and visas to cancel. So it is not a simple procedure and has to be planned in advance," he said.
Numerous other matters such as personal appearance of the shareholders, no-objection certificates from the ministries concerned, due clearances and visa fees also have to be considered. These factors vary depending on whether the companies are located in free zones or on the mainland, and between limited liability and public companies.
"I have personally dealt with companies that have undergone liquidation that have reaped the benefits of having a solid business plan that take liquidation into consideration well in advance," said Gianchandani.
Apart from liquidation, companies in the UAE are also advised to plan their expansion in advance, as it involves the same closure procedures in many cases.
"Opening a small company in one free zone and then thinking of expanding operations by shifting to another is not an easy task," said Gianchandani. "The process needs to follow a lengthy procedure. Companies with expansion plans are free to open a second company in another free zone, provided they pre-register and pay the cost of closing the first company. They also need to transfer or cancel their visas before closing the company in the first free zone," he said, indicating that those with an eye on expansion also need to be well aware of the liquidation rules, in case their plans involving closing down a smaller unit and opening up a bigger one.
Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here.