Liquidaion Audit
LiquidationAudit
Signup for free Consultation
Company liquidation & license cancellation
in Dubai, Sharjah, Abu Dhabi – UAE
While a lot of businesses pop up to take benefit from these measures, there are bound to be certain instances where starting a business would not always result in expected gains. There will be times of business closures where investors would like to recover their investments due to nonperformance, or a change in business environment resulting in loss or so many other similar reasons.
There could be multiple causes where a company feels the need to liquidate assets to close shop. It is not as simple as disconnecting a phone connection or turning off a light switch.
To ensure fairness to all stakeholders involved, there are SoPs governed by a strict legal framework that oversees such closures and ensure that all liabilities and dues are settled and that no party is shortchanged in the process. Another reason for all these measures is to safeguard the interest of UAE citizens that they are not treated unfairly while a business gets liquidated. The UAE Govt ensures that there is a fair amount of governing regulations in place, failure in observing which, could result in penalties.
What is
company liquidation?
Distribution of all assets to shareholders after settling outstanding liabilities to creditors and lenders, is one of the most important activity to undergo as a company closes its doors. All the regulations in place are there to ensure that a single party does not emerge as a sole beneficiary of this entire process and that the proceeds are shared fairly and equally to all concerned.
Liquidation can be both voluntary and compulsory. Continuous operating and business losses is when the company owners themselves opt for this option to stem further losses. Other causes like change in business, legal or operational environment or a bank call can also be a reason to choose this type of liquidation. Creditors too, can ask for it under certain conditions if they feel their investment is not safe and not giving desired results and that the money can be invested elsewhere for higher gains.
On the other hand, tax authorities can force a liquidation on a business for several other reasons. Most important of them is when the business entity no longer has liquid cash in hand to sustain day to day operations, or, if the company loses its ability to honor its commitment to the creditors, or, in worst case scenario, the company is in serious breach of established tax laws of the land.
In such case, ignoring the liquidation call could result in serious penalties imposed on the business that can even lead to blacklisting of present owners for any future business incorporation. Appointing a liquidator is the first step towards liquidation which only approved firms can get. The role and responsibilities of the liquidator are clearly elaborated in the official regulations.
Reason
for liquidation
Several reasons can be cited as cause for initiation of a liquidation process. Most common one’s area as follows:
Insolvency of a company
Persistent losses in business operations
When sum of debts and liability value surpasses your assets
Total absence of any business activity one year after incorporation
Nonregistration of your company as either a public or private entity
Absence of liquidity in the absence or lack thereof of Cashflow management
Upon seeing the first signs of insolvency, it is advised to conduct an internal audit of the organization to ascertain the exact causes behind lackluster company performance. Auditors will perform a detailed analysis to identify and pinpoint areas of improvement. It has been proven that companies having a strong inside audit departments are 10 times more likely to avoid insolvency as compared to companies who do not have such strong internal controls
Why a liquidation
audit is required?
It is a mandatory and legal requirement to conduct a liquidation audit if the company is to close its offices or cancel their licenses in Dubai or any of its free economic zones, i.e. Dubai Airport Free Zone Authority (DAFZA), Jebel Ali Free Zone Authority (JAFZA), Dubai Economic Department (DED), Dubai Multi Commodities Center (DMCC), and Dubai Silicon Oasis (DSO). All the mentioned respective authorities where a company is located would require a liquidation audit.
Other regions i.e. Abu Dhabi, Sharjah, SAIF and HAMARIYAH free zones have their own regulating authorities which oversee liquidation activity in their respective regions. Services of an authorized audit firm can be requested to determine exact requirement of a specific region
Who is authorized to perform liquidation audit?
Only officially certified and approved firms from the UAE Govt. financial authorities can conduct liquidation audit in mainland area and associated free zones. Official authorities within a free zone also grant approval to certain audit firms to conduct audits of companies that reside inside the respective zones. Audit Firms should be professionally qualified and should be up to date with International Auditing Standards to remain listed in the roster of approved companies by the Free Zones as well as the Dubai Economic Department (DED). They also must have complete familiarity with the entire process of liquidation and should employ a team of dedicated and qualified auditors experienced in operating in this complex operation. The liquidation report thus prepared, is submitted to the authorities of the relevant area where the company is registered who then close the business operations and cancel the license of the company.
Requirements for liquidation audit of a free zone registered company
Major requirements for the liquidation audit of a free zone registered company include:
No Objection Certificate (NOC) required from the Dubai Electricity and Water Authority (DEWA) and Etisalat or DU for-utility clearance of the Company where applicable.
The Shareholders of the company must issue a letter on the company’s letterhead stating that audit firm has been appointed as liquidators. This letter must be signed and stamped by the shareholders.
Trial balance including all transactions up to the liquidation date. This document and other required accounting information up to the date of liquidation of the company is required.
An alternative to a trial balance can be up to date records of transactions on an Excel spreadsheet.
The Company must issue a signed No Liability Certificate printed on company letterhead.
If there were any bank loans, the bank(s) must issue a No Liability Certificate after the settlement of their respective bank liabilities.
Bank closure letters are also required for the liquidation audit.
Absence of liquidity in the absence or lack thereof of Cashflow management
Absence of liquidity in the absence or lack thereof of Cashflow management
FAQ’s
The audit verifies the actual transaction during liquidation. This liquidation process includes revenue from the assets, the liquidation process, and the distribution of proceeds.
The purpose of liquidation is to ensure that all the affairs of the company have been dealt with and all its assets realized. After having a liquidation audit, you will no longer need to file annual accounts, tax returns, or VAT accounts once the liquidation is done.
A company is required to prepare its financial statements using the liquidation basis whenever it is imminent. A liquidation audit report will detail the company’s assets and obligations. A liquidation audit is required to make sure that all the company’s affairs have been dealt with and all the assets are sorted.
There are some documents that are required for you to prepare before the liquidation audit. These include analyses conducted, confirmation letters, audit plans, checklists, representation letters, summaries of significant findings, etc.
According to the requirement, within two months from the date of filing an application for liquidation is required. Sometimes the schedule for three months is required to complete liquidation in auditing. This time period includes four weeks of fieldwork and four weeks of compelling the audit report. The auditors are mostly working on multiple projects along with your audit.
These are the main steps in a liquidation audit:
A liquidation audit report will be made that will list the liabilities or assets of the company.
All the information regarding the financials of the company will be shared with the liquidator.
Closing or selling the business.
Selling or identifying the company’s assets.
Receiving and contacting claims from creditors.
Making payments to the creditors and investing in possible criminal offenses or transactions.
If after the liquidation process, you get up-to-date information about your report and identify the misfeasance or wrongful trading signs then your liquidation audit is good. A successful audit always manages everything, has sufficient preparation and corrects the previous wrong actions.
