Introduction
Voluntary liquidation is the mechanism available to solvent limited liability companies in the United Arab Emirates (“UAE”) where the shareholders decide to bring the company’s operations to an orderly end. Unlike compulsory liquidation, which is triggered by insolvency or court order, voluntary liquidation reflects a decision of the shareholders to dissolve the company while it remains able to discharge its obligations in full.
This article primarily focuses on the statutory requirements and procedural steps that must be taken into consideration when shareholders of a solvent LLC in the UAE elect to liquidate.
Legal Framework
The Federal Decree-Law No. 32 of 2021 on Commercial Companies (the “Companies Law”) sets out the legal framework for liquidation. Under Article 302, a company may be liquidated upon the expiry of its term, the fulfilment or impossibility of its purpose, the depletion of all or most of its assets, a merger in accordance with the law, a unanimous resolution of the shareholders, or a court order.
In addition, Article 308 introduces specific rules for limited liability companies. Where losses reach fifty per cent of the share capital, the managers must place the question of liquidation before the shareholders at a General Assembly. A resolution for liquidation in such circumstances must meet the same majority as is required to amend the company’s Memorandum of Association. Under the Companies Law, this majority is seventy-five per cent (75%) of the share capital, unless the Memorandum prescribes a different rule. Where losses reach seventy-five per cent of the share capital, shareholders representing twenty-five per cent may call for liquidation.
Although Article 308 is framed in terms of financial losses, it reflects the broader principle that any decision to liquidate an LLC must be supported by shareholders representing at least seventy-five per cent of the share capital, unless the Memorandum provides otherwise.
The Obligation to Convene and Notify the General Assembly
The voluntary liquidation of a solvent LLC cannot proceed unless a General Assembly is duly convened and notified in accordance with Articles 92 to 98 of the Companies Law. The law imposes a duty on the director or the board of directors to invite all shareholders to the meeting.
The invitation must be issued at least twenty-one (21) days before the scheduled meeting and notified to the shareholders either by registered mail or by electronic means permitted in the Memorandum of Association. A copy of the invitation must also be provided to the competent authority. The notice must specify the agenda, time, date, and place of the meeting, and in the event of a lack of quorum, the date for the second meeting.
Unless the Memorandum prescribes a higher threshold, the quorum for the General Assembly is shareholders representing at least fifty per cent (50%) of the share capital. If quorum is not achieved at the first meeting, a second meeting may be convened within five to fifteen days, which will be valid regardless of the number of shareholders present.
The resolution to liquidate, however, requires the approval of shareholders representing at least seventy-five per cent (75%) of the share capital, unless the Memorandum provides for a different majority.
The General Assembly Resolution
At the General Assembly, the shareholders must adopt a resolution approving the liquidation of the company and appointing a liquidator to conduct the liquidation process.
If the required threshold of seventy-five per cent of the share capital is not met, the resolution cannot take effect. The law does not permit a solvent LLC to be dissolved where the requisite majority of shareholders do not support the resolution, even if all shareholders may otherwise be aligned in principle on the desirability of closure.
Validation of the Minutes
Where all shareholders unanimously approve the resolution to liquidate and appoint a liquidator, the General Assembly minutes are effective without the need for judicial validation. However, this does not remove the obligation to comply with the statutory procedures required for liquidation, which are discussed below.
If the required majority threshold is met but unanimity is absent, or if there is any dispute regarding the validity of the resolution, the shareholders may need to seek validation of the minutes from the competent UAE court.
The Dubai Court of Cassation has clarified, in an analogous case, that an action for validation and enforcement of General Assembly minutes is a substantive action. The Court held that its jurisdiction extends to examining the subject matter of the minutes, verifying their validity, and ensuring compliance with the conditions required for their formation and enforceability. The Court further noted that such proceedings encompass any issues raised concerning the existence, validity, or nullity of the minutes.
The Procedure of Voluntary Liquidation in the UAE
Once the resolution has been passed and the liquidator appointed, the formal liquidation process begins. The key steps are as follows:
- Shareholders’ Resolution: The shareholders must pass a resolution approving the liquidation and appointing a liquidator. The resolution must specify the name of the liquidator.
- Notarization: The resolution must be notarized before a public notary. The notary requires the presence of all shareholders as reflected on the company’s license, even if the Memorandum of Association provides for a specific majority rather than unanimity.
- Notification of Authorities: The liquidator must notify the relevant authorities, in particular the Department of Economy and Tourism (“DET”), by filing the resolution and obtaining all necessary documentation to proceed.
- Publication: A notice of liquidation must be published in two local daily newspapers in Arabic, granting creditors at least forty-five (45) days from the date of publication to submit their claims.
- Settlement of Liabilities: The liquidator must settle the company’s outstanding liabilities to creditors.
- Final Accounts: The liquidator must prepare the final account of liquidation and present it to the shareholders.
- Distribution of Assets: Any remaining assets of the company are to be distributed among the shareholders in accordance with their ownership interests.
- Cancellation of Visas: The visas of the company’s employees must be cancelled.
- Finalization: The liquidation process is completed when the liquidator submits the final documents to the DET, and the company’s license is formally deregistered.
Practical Implications
The framework governing voluntary liquidation of solvent LLCs is designed to ensure that shareholder decisions are subject to both statutory and procedural requirements. In practice, this means:
- The directors must convene the General Assembly in compliance with Articles 92 to 98 of the Companies Law.
- The resolution to liquidate requires the approval of shareholders representing at least seventy-five per cent (75%) of the company’s share capital, unless the Memorandum of Association prescribes a different percentage.
- If unanimity is achieved, judicial validation of the minutes is not required, though all statutory procedures must still be followed.
- Where unanimity is absent or shareholders contest the resolution, court validation may be required.
- The liquidator must carry out the statutory steps, including notifying authorities, publishing notices, settling liabilities, and deregistering the company.
This process provides legal certainty and protects the rights of both majority and minority shareholders, as well as creditors.
Conclusion
The voluntary liquidation of a solvent LLC in the UAE requires more than a simple decision of intent. It demands that the General Assembly is properly convened and notified, that a resolution is passed by shareholders representing at least seventy-five per cent of the share capital (unless the Memorandum of Association prescribes otherwise), and that the statutory liquidation procedures are followed.
Where unanimity is achieved, the process is streamlined; where it is not, judicial validation may be necessary. In all events, acting in compliance with the Companies Law and procedural requirements is essential.
Ultimately, for shareholders seeking to bring a solvent LLC to an end, strict adherence to the statutory framework is essential to ensure a liquidation that is both effective and legally valid.
Disclaimer:
This article is provided for general information purposes only and does not constitute legal advice. Specific advice should be sought in relation to particular circumstances.
Author: Dr. Salman Al Tuweel (Partner) & Ali Bitar (Associate)
