Liquidation Audit Services Dubai, UAE – Company Liquidation Audit

Liquidation Audit Services Dubai

Liquidation Audit Services Dubai, what is this? When a company terminates its operations, the assets are distributed among shareholders following the settlement of debts to creditors and lenders. However, the company liquidation process involves more than just asset distribution. Regulations are in place to ensure equitable treatment for all parties involved, preventing one party from benefiting at the expense of others.

Company liquidation can be either voluntary, initiated by business owners, or compulsory, where authorities mandate the cessation of business operations. Voluntary liquidation often results from continuous losses, a bank’s call on a loan, or changes in the business environment making continued operations impractical. Creditors may also call for voluntary liquidation in certain circumstances. Authorities may compel a business to liquidate for reasons such as insufficient liquid funds for daily operations, failure to pay creditors, or serious violations of established laws and regulations. Ignoring company liquidation rules carries significant penalties for company owners and top managers, underscoring the importance of a proper conclusion to company operations. The initial step involves appointing a liquidator, and the duties of the liquidator are outlined in official regulations, with only approved firms eligible for designation as liquidators.

Reasons for Liquidation

Various circumstances can make company liquidation a viable option, with the most common reasons including:

• The company’s total debts and liabilities surpass the total value of its assets.
• The company is insolvent.
• The company has been inactive in trading for a year after its incorporation.
• The company is not registered as a public or private entity.
• Sustained losses from business operations.
• Liquidity issues arising from inadequate management of cash flows.

When a business exhibits signs of insolvency, it is advisable to initiate an internal audit. This process can provide insights into the reasons behind the company’s poor performance. Internal auditors delve into the company’s operations, pinpointing areas that require improvement. Studies indicate that companies with established internal audit departments are ten times more robust than those lacking such internal audit functions.

The Liquidation Audit?

A liquidation audit is essential for various reasons. Whenever a company undergoes liquidation, regardless of the cause, it is crucial to account for all the company’s assets and identify its obligations. The audit report, focusing on the assets and liabilities, is instrumental in addressing potential objections from creditors. Throughout the liquidation process, the company’s assets are converted to cash and allocated to creditors or allocated to other company obligations. Specific rules govern the distribution of assets, underscoring the importance of providing comprehensive information to the liquidator. The liquidation audit ensures the accuracy and completeness of this information.

Upon the completion of a company’s liquidation, a post-liquidation audit may be conducted to verify the proper valuation and distribution of all assets. This post-liquidation audit report serves to clarify the events and calculations involved, helping creditors understand the disbursement of funds, if any. The report minimizes the likelihood of creditors questioning the actions of the liquidator.

The Liquidation Audit?

A liquidation audit is essential for various reasons. Whenever a company undergoes liquidation, regardless of the cause, it is crucial to account for all the company’s assets and identify its obligations. The audit report, focusing on the assets and liabilities, is instrumental in addressing potential objections from creditors. Throughout the liquidation process, the company’s assets are converted to cash and allocated to creditors or allocated to other company obligations. Specific rules govern the distribution of assets, underscoring the importance of providing comprehensive information to the liquidator. The liquidation audit ensures the accuracy and completeness of this information.

Upon the completion of a company’s liquidation, a post-liquidation audit may be conducted to verify the proper valuation and distribution of all assets. This post-liquidation audit report serves to clarify the events and calculations involved, helping creditors understand the disbursement of funds, if any. The report minimizes the likelihood of creditors questioning the actions of the liquidator.

Why is a Liquidation Audit Required?

Prior to the closure of any company in Dubai or any Free Zones within Dubai, liquidation audits are mandatory. Entities such as the Dubai Economic Department (DED), Jebel Ali Free Zone Authority (JAFZA), Dubai Airport Free Zone Authority (DAFZA), Dubai Multi Commodities Center (DMCC), and Dubai Silicon Oasis (DSO) necessitate a liquidation audit within their respective jurisdictions when a company ceases operations and cancels its license. Similarly, Abu Dhabi, Sharjah, Hamriyah Free Zone, and SAIF Zone have regulations governing company liquidation, including requirements for liquidation audits, which closely resemble those in other regions within the UAE. To obtain current information on liquidation audits, it is advisable to contact an authorized UAE Audit Firm to ascertain the specific requirements for a particular region.

Who is Authorized to Perform Liquidation Audit?

Audit firms that hold official certification from UAE financial authorities are authorized to conduct liquidation audits both in mainland and within the Free Zones. Each Free Zone’s authorities also endorse audit firms to perform financial and liquidation audits for companies within their respective jurisdictions. Our audit firm has received approval from the Dubai Economic Department (DED) and all Free Zones in the UAE to conduct liquidation audits. The resulting liquidation audit report is then submitted to the relevant authority where the company is registered as part of the liquidation process. Subsequently, the authority officially closes the company and cancels the business license.

To maintain approval from the Free Zones and the Dubai Economic Department (DED), audit firms must uphold their professional qualifications and stay current with International Auditing Standards. Additionally, they are required to be well-versed in the liquidation process and employ qualified auditors.

Requirements for Liquidation Audit of a Free Zone Registered Company

The primary requirements for the liquidation audit of a Free Zone registered company include:

• Submission of a Trial Balance containing all transactions up to the liquidation date. Alternatively, up-to-date transaction records on an Excel spreadsheet can be provided.
• The company’s board is required to generate a Board Resolution declaring the specific date of liquidation and the appointment of a liquidator. The liquidator, identified by the appointed Audit Firm, must be mentioned in the resolution.
• Shareholders of the company need to issue a letter on the Company’s letterhead, confirming the appointment of the Audit Firm as Liquidators. This letter must be signed and stamped by the Shareholders.
• The company must furnish a signed No Liability Certificate printed on the Company letterhead.
• In cases where there are outstanding bank loans, the bank(s) must issue a No Liability Certificate post the settlement of their respective liabilities. Bank closure letters are also essential for the liquidation audit.
• Verification of gratuity calculations and relevant payments.
• A No Objection Certificate (NOC) is required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for utility clearance, if applicable, in the Company.