Liquidation and Winding up of a company in DMCC
DMCC Company Regulations 2020
On 02 January 2020, the Dubai Multi Commodities Centre (DMCC) issued and promulgated the New Company Regulations 2020 ('Regulations'), which were to replace the former DMCC Company Regulations of 2003. They were so reconfigured in order to attain alignment with international legislation; furthermore, they have simplified the interpretation of the Regulations, as well as the growing needs and requirements of businesses.
The Regulations include detailed provisions on the winding up of a DMCC company. This event could manifest in four discrete ways, as elaborated upon in the Regulations:
- Solvent Winding-Up: in this case, the shareholders unanimously resolve, at a general meeting, to wind up. Accordingly, the company is able to discharge its liabilities within 12 months of the commencement of procedures of the winding-up;
- Summary Winding-Up: this is in reference to the event wherefore the shareholders unanimously resolve, at a general meeting, to wind-up and the company is able to wind up its affairs, and discharge its liabilities within six months of commencement of the procedures of the summary winding up;
- Insolvent Winding-Up: when the shareholders unanimously resolve, at a general meeting, to wind up, followed by a settlement of dues meeting with the creditors; and
- Involuntary Winding-Up by The Courts: when the Court orders the winding-up of the company.
It is worth mentioning that the provisions of the UAE Federal Bankruptcy Law (Federal Law 9 of 2016) relating to the bankruptcy of companies generally are also stated to apply to DMCC companies; it is unclear as to how the two regimes shall interact in practice.
Voluntary Winding Up Procedures
The aforementioned solvent, summary, and insolvent winding up eventualities belong to the "voluntary" category of winding-up procedures.
A company is at liberty to wind up voluntarily should it resolve by unanimous resolution at a general meeting that it shall be wound up, or if the losses of a company reach 75 percent.
If the losses of a company reach seventy-five (75) percent, or more, of its share capital, the company shall (within 21 days of gaining awareness of the extent of its losses) call for a general meeting, at which a resolution for a voluntary winding-up, or alternatively for the recapitalization of the company to the extent of its losses shall be proposed.
In the case of a solvent or summary winding up, it is said to commence at the time of passing the resolution for voluntary winding-up by the company. On the other hand, in the case of an insolvent winding up, it is said to formally commence at the time of the certification of the notice of appointment of the liquidators.
Within a window of ten days from the date of appointment, the liquidator shall sign a notice of such an appointment and provide it to the shareholders, and the creditors via a delivery method approved by the Registrar.
Effect on the status of the company
In, and only in the case of a voluntary winding up, the company shall, from the outset of the winding-up procedures, halt all aspects of its functioning, except so far as may be required to effectuate its winding-up. However, it should be noted that the status and powers that the company wields shall be eligible to be continued until the company's dissolution.
To further comprehensive understanding of this topical procedure, we shall now proceed to delve into the regulatory nuances of these arrays.
Solvent Winding Up
In order to commence a solvent winding-up, a declaration of solvency is required to be issued via a form signed by the directors.
Upon having made an exhaustive inquiry into the affairs of the company, the declaration shall state whether the company has no assets and no liabilities; the company has assets, and no liabilities; or, whether the company has liabilities and will be able to discharge those liabilities within twelve months of the commencement of the winding-up.
As previously established, the company shall appoint one or more liquidators at the general meeting, solely for the purpose of winding-up the company's affairs and distributing its property.
If the winding-up of the company continues for more than twelve months, the liquidator must, every three months until the cessation of the procedure, prepare a progress report providing a summary of his acts and dealings. He is required to send a copy of the progress report to the shareholders, and to the Registrar.
Summary Winding Up
Like a solvent winding up, a declaration of solvency is required to be issued via a form signed by the directors, in order to start the effectuation of a summary winding up.
Here, the declaration of solvency should state whether, having made a full inquiry into the affairs of the company; it has no assets and no liabilities; the company has assets, and no liabilities; or, whether the company has liabilities and will be able to discharge those liabilities within six months of the commencement of the winding-up.
In a pre-established summary winding-up, if the liquidator has not submitted an application for the company to be dissolved within six months from the date of the directors' declaration, the summary winding-up shall be dimensionally converted into a solvent winding-up.
Insolvent Winding Up
Section 19 of the DMCC Company Regulations governs the effectuation of an insolvent voluntary winding-up.
Initially, the company shall call a general meeting of creditors, at which the resolution for an insolvent winding-up is to be proposed. The directors of the company are required to produce a signed statement of affairs of the company, and present it before the creditors.
Upon viewing the same, the creditors and the company may each nominate one or more persons to act as liquidator; these individuals shall be appointed by means of a simple majority by value of claims.
It is critical to note that, during the period following the commencement of the winding-up, but prior to the appointment of a liquidator, the powers of the directors shall not be exercised; the only exceptions to these is if the consent of the Registrar has been procured and if the motive is to protect the company's assets. As soon as the liquidator is appointed, all the powers of the Directors cease.
The eventuality of an insolvent winding-up also allows for the creation if a liquidation committee. As per Regulation 122, the creditors may vote to appoint a liquidation committee at a meeting; this shall consist of a minimum of three and a maximum of five members. The liquidation committee shall assist the liquidator in discharging the liquidator's functions.
Much like the previous studies instances of winding up, the liquidator must, every three months until the cessation of the procedure, prepare a progress report providing a summary of his acts and dealings.
As soon as the company's affairs are thoroughly wound up, prior to the company's dissolution, the liquidator shall prepare a summary bearing the crux of the process, showing how it was conducted. Following the production of the same, the liquidator shall call for a general meeting of the company before the creditors, for the purpose of tying up all the loose ends in as transparent a fashion as possible.
Involuntary Winding Up
Article 137 of the Regulations empower the Court to wind up a company if it makes such an order following a petition to wind up issued by the Registrar.
The Registrar may present a petition to the Court demanding that a company be wound up if it determines that the company has been struck-off without a shadow of a doubt; or, is the company has committed a serious or repeated contravention of any of these Regulations or any other decision applicable in the DMCC Free Zone.
Where the Court accepts, and orders that a company be wound up, the Court shall identify the individual who shall don the role of the liquidator; this person shall take office immediately, upon the order being made.
As soon as the company's affairs are fully wound up, and right before dissolution, the liquidator shall prepare a summary of the winding-up, showing how the company's property has been dealt with/ disposed of.
The Powers of the Liquidator
The powers that the liquidator(s) wields is significant and certainly warrants delineation. They are empowered to settle a list of contributors, with power to amend the register of shareholders; to make an order on any contributory to pay any sum due from him to the company; to make calls for the adjustment of the rights of the contributories among themselves; and, to rightfully distribute any surplus among the contributories.
Proofs of Debt in Liquidation
If a company is being wound-up, a person claiming to be a creditor of the company who wishes to recover his debt in whole, or in part, must submit his claim in writing to the liquidator. In order to establish his claim, he is required to produce proof of debt.
The creditor's proof of debt is required to bear the creditor's name and address; the total amount of his claim;
whether or not that amount is inclusive of outstanding non-capitalized interest; particulars of how and when the debt was incurred by the company; particulars of any security interest held; details of any reservation of title with respect to the goods referred to by the debt; the name, address and authority of the person signing the proof of debt.
If the liquidator rejects a proof of debt (either in whole, or in part), he shall prepare a written statement of his reasons for doing so, and provide the same to the creditor.
Conversely, where a liquidator intends to declare a dividend, he must deliver a notice of that fact to all known creditors and, formally invite them to prove their debts.
General Priority of Expenses
The Regulations also provide an elaborate, prioritized list of the expenses of the winding-up, which are payable out of the available assets of the company. They assume the following order of priority;
- expenses or costs of the liquidator which are properly chargeable, or incurred by the liquidator in conducting his duties;
- the remuneration of the liquidator;
- any amounts payable to secured creditors;
- any amount which is owed by the company to an unpaid person who is, or was an employee of the company, provided that the total does not exceed a sum equivalent to the salary of that person for a period of three months as a maximum;
- any amounts payable to DMCCA, DMCC or any other government authority
- any amounts payable to general unsecured creditors.
Distribution of a Company's Property
Upon winding-up, a company property's distribution shall be realized in pari passu satisfaction of the company's liabilities. It shall be distributed among the shareholders, according to their rights and interests in the company.
Currently, the preferred modes of winding up are centered around an auditor's report confirming that there are no debts, liabilities or receivables due or payable, in order to proceed with the winding-up process. The new Regulations has detailed new events for insolvency that have been elucidated upon in this article; however, implementation of the same is still freshly underway and is yet to be analyzed.
Starting from January this year, companies were granted 24 months to comply with the new Regulations, or amend their articles to be in line with the new Regulations. To be sure, failure to comply with the same may attract penalties and/or sanctions.