- May 15, 2018
- Posted by: admin
- Category: Blog
When a Company ceases its operations, all the assets of the company are distributed to the Shareholders of the Company after settlement of dues to creditors and lenders. However, there is much more to the process of liquidating a Company. The regulations are in place to ensure all parties involved are treated fairly – that one party does not benefit at the expense of others involved.
Company liquidation can be voluntary (instigated by the business owners) or compulsory (where authorities force the business to cease operating). Voluntary liquidation commonly results from continuous losses, a bank calls on a loan, or changes in business environment causing the business to be impracticable. In some circumstances creditors can call for a voluntary liquidation. Authorities may force a business to liquidate for several reasons. A forced liquidation will occur when a company no longer has liquid funds required to maintain daily operations; creditors are not being paid; or the company commits a serious offense against established laws and regulations. Ignoring the company liquidation rules has some significant penalties for Company owners and top managers so it is important to properly end the company operations. The first step is to designate a liquidator. The duties of the liquidator are set forth in official regulations and only approved firms may be designated as liquidators.
The Liquidation Audit?
There are several reasons for a liquidation audit. Anytime a liquidation of Company is called for irrespective of the reason it is important that all the Company’s assets are accounted for. It is just as important to discover and list all of the Company’s obligations. A liquidation audit report will list the assets and liabilities of the Company and should preclude any objections from creditors. As the liquidation progresses, all the Company’s assets are converted to cash and distributed to the creditors or assigned to other Company obligations. There are specific rules concerning the way the assets are distributed. It is extremely important that all the relevant information is available to the liquidator. The liquidation audit helps assure the information is accurate and complete.
As a Company’s liquidation is completed, a post liquidation audit may be performed to verify all assets were valued and distributed properly. This post liquidation audit report will help creditors understand what occurred and how the funds (if any) they received from the liquidation were calculated. This report will reduce the chances that a creditor might question the liquidator’s actions.
Why a Liquidation Audit is Required?
Liquidation audit are required before any company can be closed in Dubai or any of the Free Zones in Dubai. Dubai Economic Department (DED), Jebel Ali Free Zone Authority (JAFZA), Dubai Airport Free Zone Authority (DAFZA), Dubai Multi Commodities Centre (DMCC) and Dubai Silicon Oasis (DSO) all require liquidation audit in their respective authority regions whenever a Company is closing its operations and cancelling its license. Abu Dhabi, Sharjah, Hamriyah Free Zone and SAIF Zone also have regulations concerning Company liquidation and for liquidation audit very similar to other regions within UAE.
Who is Authorized to Perform Liquidation Audit?
Auditing Firms holding official certification from UAE financial authorities are approved for liquidation audit in mainland and within the Free Zones. Authorities for each Free Zone also approve the Audit Firms to conduct financial and liquidation audit for Companies in the respective Free Zones. Only these approved auditors are authorized to prepare and submit liquidation audit report for a Company. The liquidation audit report is submitted to the authority of the Free Zone where the company is registered as part of the liquidation process. The authority will then officially close the company and cancel the business license.
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