In the UAE, it is possible that a company may decide to voluntarily wind up and dissolve its business entity. This step, which is known as voluntary winding up, requires adherence to specific legal procedures and documentation. One of the steps of this process includes drafting a board resolution. The focus of this article is on the important aspects involved in drafting board resolution for voluntary winding up in UAE.
Understanding Voluntary Winding Up
Voluntary winding up takes place when shareholders or directors of a company decide to bring an end to the operations of the company. It can be due to reasons such as reorganization, lack of profitability or having accomplished its objectives. The UAE Federal Decree-Law no (32) of 2021 on Commercial Companies regulates the process of liquidation or dissolution of various companies.
Why is a Board Resolution Important?
Board Resolution is an official statement made by the board of directors who run the company regarding voluntary winding up. It serves as a proof that the board has given its consent and allows for commencement of the liquidation process. The board resolution should be drafted with care ensuring adherence to the relevant law provisions.
Forms of Voluntary Winding Up
The two major types of voluntary winding up for companies in the UAE are:
- Members’ Voluntary Liquidation (MVL): This is when a company has enough money to cover all its debts if it were liquidated. After the directors have made an official declaration of solvency, it is then left to the shareholders to decide to wind-up the business. Consequently, assets are sold off and money distributed amongst shareholders after removal of liabilities.
- Creditors’ Voluntary Liquidation (CVL): When a company goes bankrupt and cannot repay its debts, CVL is put in place. The meeting of the creditors called by directors to deliberate on the financial position of the company marks an onset of liquidation for creditors voluntary liquidation. The main objective is to satisfy as much as possible the demands of creditors (creditor’s claims) with those assets that are available for distribution.
These two types of voluntary winding up must be carried out according to specific legal rules and provisions so as to adequately protect all parties concerned.
Reasons for Voluntary Winding up in the UAE
A company in the UAE might go for voluntary winding up for many reasons, some of which include:
- Financial Difficulty: This is one of the reasons, but not the only one. When a company becomes insolvent which means it has more liabilities than assets, voluntary liquidation helps to close down and pay back debts to creditors in an organized manner.
- Change in Market Conditions: It may be that the market in which the company operates has contracted (also known as market contraction), or new regulations have made it difficult for business operations to continue. Through voluntary liquidation, a firm can leave an unsuitable market.
- Achievement of Business Goals: If the goals for which the company was formed were realized, there may be no basis for its continued existence. Voluntary liquidation allows, therefore, an arranged termination and distribution among owners of remaining assets.
- Other Reasons: Among other reasons for voluntary winding up include internal conflicts between shareholders, intent on merging with another entity or just choosing to start new ventures elsewhere.
Key Elements of a Board Resolution for Voluntary Winding Up
At the time of drafting the board resolution for voluntary winding up, it must include the following elements:
- Company Information: This section should specify the name of the company, its registration number and registered office address.
- Details of board meeting: It is important to include the date, time and place where the resolution was passed by the board.
- Attendees: Written down the names and positions of directors who attended that meeting.
- Resolution: The section should detail on specifics such as when the voluntary winding up will be initiated and who shall be appointed as liquidator amongst others.
- Grounds for Winding Up: The company insolvency, low profit levels or fulfillment of goals are some reasons for liquidation that are indicated in this resolution statement.
- Appointment of Liquidator: The name and contact details including qualifications must be mentioned if any liquidator is chosen in this resolution.
- Delegation of powers: In order for the winding up process to go ahead there may be individuals like liquidators or a company’s directors who have been delegated authority through such resolutions.
- Signatures: The resolution must be signed by all the directors present in the meeting. Such signatures shall be a proof that the directors are in agreement and consent with the resolution.
Notarization and Authentication
Once a draft is done, the board resolution for voluntary winding up must be authenticated and notarized by appropriate authorities in the United Arab Emirates. Depending on where a company is registered in, this process can slightly differ from one emirate to another. The most important thing is that the resolution meets all legal requirements and is properly authenticated to prevent any possible challenges or delays during its liquidation.
How Drafting Lawyers at Notary Public Dubai Can Assist
The process of drafting a board resolution for voluntary winding up may be difficult and complicated thereby requiring deep knowledge of governing law and rules. At Notary Public Dubai our skilled drafting lawyers serve you by supporting:
- Preparation of a comprehensive and legally compliant board resolution for voluntary winding up.
- The inclusion of all necessary elements in the resolution.
- Guidance through notarization as well as authentication processes.
- Advice on legal implications and necessities of voluntary winding-up process.
- Liaising with the relevant authorities on your behalf for a smooth and effective process.
If you are considering the voluntary winding up of your company in the UAE, it is important that you have a properly drafted and authenticated board resolution. You can rely on professionals from Notary Public Dubai to take you through this process. To set up an appointment with our drafting lawyers and guarantee a seamless and compliant winding up operation – call us now!
Source: Explore
