Business

Company Liquidation in UAE: How It Affects Employees

Business insolvency is when a business is no longer capable of settling its dues and it can affect not just small businesses but also big corporations. For employers and employees alike, business insolvency is an incredibly terrible thought that nobody likes to experience; however, it is important for parties to know their duties and responsibilities so they are prepared when the worst-case scenario actually occurs.

Let us consider how employees are affected by company liquidation in UAE and when works starts looking untenable.

Source: Medium

Administration

While company liquidation in UAE means a business’ closure and termination of employment contracts, businesses go into administration to see if there’s a chance that they can keep going via restructuring, transferring all or a part of the businesses onto new buyers.

If a struggling company’s assets are bought by a new buyer, the rights of the remaining employees will be transferred to new owners that subsequently adopt employment contracts. The new buyers become responsible with the outstanding money that is owed to the remaining staff members.

If an employer can’t find a way in keeping the business alive, it’s possible that the business may be put into voluntary liquidation. With voluntary liquidation in UAE, employee’s employment contracts are all going to be terminated.

Employees are eligible in submitting a claim for money that is owed to them. An appointed liquidator of the business will send out necessary claim forms; however, staff members may still want to write a company liquidator requests for forms if they haven’t received any. If an employee is unsure who was appointed as the company’s liquidator, then it is to talk to the Human Resource personnel.

Who’s considered as a company employee?

You’re likely classified as a company’s employee if you’re any of the following:

  • Paid a wage, commission, or salary; 
  • Engaged by a business under an enterprise agreement, award, agreement-based transitional instruction or contract of employment 

Take note: contractors aren’t considered as employees and considered instead as a company’s ordinary unsecured creditors.

If you’re an employee and you are owed money by a business of annual leave, unpaid wages, sick leave, superannuation, retrenchment pay or long service leave, then you’re one of the creditors of a company. It is possible that you are entitled to all or a portion of the money you’re owed and you’re to be prioritized from the other creditors of the company.

Source: Dubai Business Advisors

The purpose of company liquidation in UAE

An insolvent company goes into company liquidation in UAE to have a suitably qualified and independent professional, the appointed liquidator, to take contract of a company’s affairs so they are wound up in a fair and orderly manner in which the creditors can benefit the most.

There are two main kinds of insolvent liquidation:

  • Voluntary liquidation by creditors; and 
  • Court or mandatory liquidation 

The most common kind of liquidation that takes place in the United Arab Emirates is the voluntary liquidation by creditors and it often starts in any of the following:

  • The shareholders of an insolvent business resolve to start liquidating the company’s assets and appoint a company liquidator quickly 
  • Creditors vote in liquidation following voluntary administration or terminated deed for company arrangement 

With court liquidation, also referred to as mandatory liquidation, a liquidator that will handle the company liquidation in UAE will be appointed by proper courts in order to wind up the company’s affairs following an application sent by creditors. Others such as the shareholders and directors may be able to send an application for winding up to the court. It’s possible for a business in liquidation to be in receivership.

Employee entitlements

In most cases, company liquidation in UAE terminates employment of staff members. Employees have rights and if there’s surplus funds following the settlement of fees and expenses by the liquidator, the funds are to be used in paying outstanding entitlements to employees rather than unsecured creditors. The priority employee entitlements in UAE are grouped into several classes and they’re paid in this order:

  • Outstanding wages and gratuity pay
  • Outstanding absence leave 

Each class will be paid in full prior to the next class being settled. If there’s no longer any funds left in playing a certain class in full, all available funds will be paid on a pro-rata basis. This means the following class or classes won’t be paid.

If the company liquidator continues in trading the company for a certain period of time in order to assist with the winding up process, entitlements of employees that are accrued during the period will be paid out of the assets that are available as cost of winding up and they will be paid prior to other outstanding entitlements of employees.

Source: Heath Accounting Solutions

Attempts in avoiding employee entitlements

It’s an offence to enter into a contract with the intention in avoiding a company’s employee entitlements. If the business is in liquidation with the employees suffering loss or damage due to the person entering into this type of agreement, the person will be liable in paying compensation for loss suffered by employees. An employee has priority to compensation that’s recovered by an appointed company liquidator.

If you believe that such offence was committed and you have sufficient proof, then you are to tell the company liquidator. If the issue or dispute has not been resolved, then lodge a report with the Ministry of UAE Ministry of Human Resources & Emiratization.

As a company’s creditor, you’ll be able to request the appointed liquidator to provide information in the form of a report or document. A company liquidator in UAE is to provide information in the form of a report provided that an employee’s request is reasonable plus it is in relation to the company’s liquidation. Also, a company liquidator in UAE has to make sure that complying with this request of an employee won’t cause the expert to breach its duties with respect to liquidating the company.

If you want to know more regarding your rights as an employer or employee during an impending or already occurring company liquidation, then seek the help of experts like Farahat and Co

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