The Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) both provide for Members’ Voluntary Liquidations (MVLs). An MVL is a solvent winding-up process, available only where a company can pay its debts in full within 12 months.
Both economic zones have adopted statutory frameworks closely aligned with English law. In the DIFC, MVLs are governed by the Insolvency Law No. 1 of 2019 and the Insolvency Regulations. In the ADGM, the framework is contained in the Insolvency Regulations 2022.
MVL provides an orderly mechanism for winding up solvent companies, ensuring that liabilities are paid and surplus assets are distributed to members under the supervision of a registered Insolvency Practitioner.
Commencing an MVL
Declaration of Solvency
The process begins with the directors making a declaration of solvency, supported by a statement of the company’s assets and liabilities. The declaration must confirm that the company will be able to pay its debts in full within 12 months of the commencement of the liquidation. The declaration must be made after a full inquiry into the company’s affairs.
Any director who makes a declaration of solvency without reasonable grounds for the opinion that the company will be able to pay its debts in full, together with any interest within the specified period, commits a contravention and is liable to a fine.
Members’ Resolution
Once the declaration has been made, the members may pass a resolution to place the company into members’ voluntary liquidation and appoint a Liquidator. The MVL formally commences on the date of the resolution to wind up.
Role of the Liquidator
The Liquidator must be a registered insolvency practitioner in the DIFC or ADGM. On appointment, the Liquidator assumes control of the company’s affairs, with statutory powers and duties that include, amongst others:
- Realising the company’s property;
- Bringing or defending legal actions;
- Carrying on the business of the company so far as may be necessary for its beneficial winding-up;
- Paying creditors in full;
- Providing a report to the shareholders, if the liquidation continues for more than 1 year;
- Distributing any surplus to members; and
- Preparing and filing accounts and reports on the conduct of the liquidation.
Directors’ Powers
Once a Liquidator is appointed, control of the company passes to the Liquidator and the directors’ powers come to an end. They cannot continue to act on behalf of the company unless either the shareholders, at a general meeting, or the Liquidator specifically authorises them to do so.
Conversion of Liquidation
If, at any stage, the Liquidator concludes that the company will not be able to pay its debts in full within 12 months, the MVL must be converted into a Creditors’ Voluntary Liquidation (CVL). This safeguard ensures creditor protection and prevents the misuse of solvent winding-up procedures.
The Process Before Dissolution
In both economic zones, when the company’s affairs are fully wound up, the Liquidator must prepare a final account showing how the winding up has been conducted and how the company’s property has been disposed of.
- DIFC: The Liquidator must send the final account to the shareholders within 14 days of preparing it and file a copy with the Registrar. On the expiration of 3 months from the date of dispatch of the final account and return, the company is deemed to be dissolved.
- ADGM: The Liquidator must convene a final general meeting of members, giving at least one month’s notice published in an English language newspaper distributed in the United Arab Emirates, available within the ADGM, and on the company’s website. At the meeting, the Liquidator must lay the final account before the members and, within seven days, file the account and a return of the meeting with the Registrar. The company is deemed dissolved three months after registration.
Power of the Court to Void Dissolution
The Court retains the power to void the dissolution after a company has been formally dissolved following an MVL:
- DIFC: The Insolvency Law permits the Court, within six years of the date of dissolution, to declare the dissolution void on the application of a liquidator or any other interested person.
- ADGM: The Insolvency Regulations provide that the Court may void the dissolution within ten years of the date of dissolution, again on application of a liquidator or interested person.
Property of dissolved Company
The treatment of property that has not been disposed of by the time of dissolution differs between the two economic zones. In the ADGM, on dissolution, all property and rights vested in the company immediately before dissolution, are deemed to be vested in the ADGM. However, the DIFC Insolvency Law is silent with regard to the treatment of any assets remaining after dissolution.
Nevertheless, as both economic zones recognise that dissolution is not necessarily the end of the road thereby empowering the respective Courts to void the dissolution of the company (within six years in the DIFC and ten years in the ADGM) this ensures that overlooked property, liabilities, or other interests can still be addressed.
Marios is on the list of approved Insolvency Practitioners of the DIFC and ADGM and a licensed Insolvency Practitioner in Cyprus.
