Insolvency and Liquidation FAQs
- What triggers insolvency proceedings in the UAE?
Companies must initiate insolvency procedures when they become unable to meet debt obligations or when accumulated debt exceeds available assets. Failure to act may lead to legal consequences, including penalties for directors.
Directors must:
Failure to meet these requirements can expose directors to civil or criminal liability.
Frequently Asked Questions
Insolvency refers to a company’s inability to pay its debts when they fall due.
Liquidation is the formal process of winding down a company and distributing its assets to creditors and shareholders.
Restructuring involves reorganising operations, debt, or ownership to restore financial stability and potentially avoid liquidation.
Take reasonable steps to minimise losses to creditors
Avoid wrongful or fraudulent trading
Maintain accurate records
Act in the best interests of creditors once insolvency becomes likely
Voluntary liquidation is initiated by shareholders or directors—either because the company is solvent and wishes to cease operations or because directors choose a structured wind-down to protect stakeholders.
Court liquidation is ordered by the court, typically due to insolvency, non-payment of debts, or creditor petitions. A court-appointed liquidator manages the winding-up process and creditor distribution.