Have you ever wondered what happens to a company’s debts when it shuts down? If you’re planning to close your business, you might be asking: How do I handle business debts in the UAE? What happens if creditors file claims? And most importantly, what steps ensure a smooth Dubai company liquidation process?

Closing a company in Dubai is not as simple as shutting doors. Debts, creditor claims, tax obligations, and legal requirements all come into play. Mishandling these can delay your liquidation or even lead to legal action. 

That’s why it’s crucial to understand how company debt during liquidation in Dubai is managed, and the right steps to take to protect yourself.

Understanding Debts in Company Liquidation

When a company in Dubai undergoes liquidation, all outstanding debts and liabilities must be addressed before the closure is finalised. This involves notifying creditors, settling pending payments, and ensuring compliance with the insolvency and bankruptcy laws in the UAE.

Creditors usually submit their claims formally, and the liquidator (a licensed professional appointed to manage the closure) evaluates these claims. Once assets are liquidated, proceeds are used to pay creditors in a specific order of priority, as defined by UAE law.

Importantly, company owners cannot skip tax or regulatory requirements. For example, UAE tax deregistration on closure is mandatory, ensuring no pending VAT or corporate tax liabilities remain. Without clearing these, the liquidation cannot proceed.

“The supervising authority for company liquidation in Dubai depends on your business type. Mainland companies are handled by the Department of Economy and Tourism (DET), while free zone companies are overseen by their respective free zone authority.”

15 Ways to Handle Company Debt During Liquidation in Dubai

Liquidation doesn’t have to be overwhelming if you approach it systematically. Here are 15 effective ways to manage debts during the Dubai company liquidation process:

1. Conduct a Full Financial Audit
The very first step is to conduct a complete review of your company’s financial standing. This includes identifying all outstanding debts such as loans, supplier payments, employee dues, tax obligations, and pending utility bills. 

A full audit ensures nothing is overlooked and gives you a realistic view of how much debt needs to be cleared. Without this clarity, the liquidation process can easily stall.

2. Notify All Creditors Promptly
By law, creditors must be informed of your company’s liquidation so they can submit their claims. This is usually done through formal notices or public announcements. 

Prompt notifications reduce the risk of disputes and help creditors prepare their documentation on time. Failure to notify creditors can cause legal complications and delay the liquidation process.

3. Hire a Licensed Liquidator
A licensed liquidator is essential in Dubai because they oversee the entire closure process, ensuring it complies with UAE regulations. They are responsible for verifying creditor claims, liquidating company assets, and distributing funds fairly. 

Hiring a professional also builds credibility with creditors, as they know the process will be handled transparently.

4. Prioritise Secured Debts First
Secured debts, such as loans backed by collateral, must always be settled before unsecured obligations. UAE law requires that creditors holding securities or guarantees be given priority during repayment. 

Paying secured debts first avoids legal disputes and ensures that pledged assets are released quickly.

5. Negotiate Settlements with Creditors
If your company cannot fully repay all debts, negotiation is key. Many creditors are willing to accept partial payments or extended timelines if approached professionally. 

A settlement agreement can prevent lawsuits and speed up the liquidation process. Engaging consultants or mediators can also help you achieve more favourable terms.

6. Liquidate Assets Strategically
Not all assets need to be sold at once. Prioritise liquidating high-value assets that can cover the largest debts first. 

For example, vehicles, machinery, or unused office property can be sold to generate immediate funds. Strategic liquidation helps ensure smooth cash flow for settling multiple creditor claims in liquidation in Dubai.

7. Close Employee Dues Early
Under UAE labour law, employee dues like unpaid salaries, end-of-service gratuity, and leave benefits are considered a top priority. Paying employees early prevents disputes and avoids complaints being raised at the Ministry of Human Resources and Emiratisation. 

Settling employee dues promptly also demonstrates ethical business practices.

8. Maintain Transparency with Creditors
Throughout the process, open communication with creditors builds trust. Share updates on asset liquidation, repayment schedules, and legal proceedings. 

Transparency reduces frustration and increases the chances of reaching amicable settlements. Hidden information, on the other hand, can lead to mistrust and potential lawsuits.

9. Avoid Taking on New Debt
During liquidation, it is critical not to borrow additional funds. Taking on new loans while shutting down complicates insolvency and bankruptcy in the UAE and can be seen as fraudulent if repayment is not possible. 

Focus instead on managing existing liabilities through settlements, negotiations, and asset sales.

10. Separate Business from Personal Finances
Directors and shareholders must keep their personal assets separate from company debts. Mixing finances can create legal complications and, in some cases, lead to personal liability. 

Always use the company’s accounts for debt settlements and maintain clear documentation to show that personal wealth is not being used improperly.

11. Comply with Legal Order of Payment
The UAE has strict rules on the order in which debts are paid during liquidation. Generally, secured creditors and employees are paid first, followed by government dues like taxes, and finally, shareholders. 

Following this order prevents disputes and ensures the liquidation process is legally valid.

12. Handle Disputed Claims Legally
Sometimes, creditors may dispute the amount they are owed. In such cases, it’s important to resolve issues through legal channels or mediation. A liquidator can help verify the validity of claims and represent the company in legal proceedings. 

Resolving disputes quickly ensures the liquidation doesn’t drag on unnecessarily.

13. Plan for Tax Deregistration
Every company in Dubai must apply for UAE tax deregistration on closure. This ensures that VAT, corporate tax, or excise obligations are cleared before liquidation is finalised. Failing to complete deregistration can result in fines and prevent the company from officially closing.

14. Document Everything
Keep a detailed record of all debt settlements, creditor notifications, tax filings, and employee payments. These documents are often required by the Dubai Land Department, free zone authorities, or courts. 

Proper documentation protects you against future claims and proves that the liquidation was conducted fairly.

15. Engage Consultants for Debt Settlement
Professional consultants simplify the debt settlement during liquidation in the UAE by managing negotiations, creditor communications, and compliance requirements. Their expertise ensures the process is smooth, lawful, and time-efficient. 

For business owners unfamiliar with liquidation, consultants provide peace of mind and reduce the risks of costly mistakes.

5 Common Mistakes to Avoid During Company Debt Settlement

Even the best-planned liquidations can go wrong if you overlook critical steps. Here are five mistakes businesses often make when managing debt settlement during liquidation in Dubai:

Ignoring Minor Creditors: Many companies pay large creditors but delay smaller ones, leading to disputes.
Delaying Creditor Notifications: Late notifications can cause legal complications and delays in the liquidation process.
Not Securing UAE Tax Deregistration: Skipping this step halts liquidation until pending tax obligations are cleared.
Underestimating Legal Compliance: Failing to follow the insolvency and bankruptcy laws in the UAE can result in penalties.
DIY Approach Without Expert Help: Trying to manage liquidation without consultants often leads to missed steps, creditor disputes, or incomplete closures.

To avoid these mistakes, it’s best to work with consultants or experienced professionals who understand the Dubai company liquidation process inside out.

Conclusion

Handling company debt during liquidation in Dubai requires careful planning, compliance with laws, and transparent communication with creditors. From managing creditor claims in liquidation in Dubai to ensuring smooth debt settlement during liquidation in the UAE, each step plays a role in finalising your company’s closure successfully.

At Business Setup Consultants in Dubai, we help businesses close smoothly. Our experts assist with debt settlement, creditor negotiations, and legal compliance, including UAE tax deregistration on closure. If you want to wind up your company without delays, our team will make the process simple and stress-free.

Take the right step today.

Contact us and let our consultants guide you through the liquidation process in Dubai.

FAQs – Company Debt During Liquidation in Dubai

1. What happens to company debts during liquidation in Dubai?
All debts must be settled before a company can officially close. Assets are liquidated and used to pay creditors according to UAE insolvency laws.

2. Can a company be liquidated in Dubai with unpaid debts?
No, debts must either be paid, negotiated, or legally settled before the liquidation process can be completed.

3. What is the role of a liquidator in handling debts?
A liquidator manages the liquidation process, settles creditor claims, distributes assets, and ensures compliance with regulations.

4. How are creditor claims handled during liquidation in Dubai?
Creditors file formal claims, which are reviewed by the liquidator. Valid claims are paid based on the priority order set under UAE law.

5. What is debt settlement during liquidation in the UAE?
It’s the process of negotiating, restructuring, or paying off outstanding debts to ensure a smooth liquidation and avoid legal disputes.

6. Do employees get priority during liquidation?
Yes, employee salaries, gratuities, and benefits are given priority in debt repayment during liquidation.

7. What happens if there are not enough assets to pay debts?
In such cases, the company is treated under insolvency and bankruptcy in the UAE laws, and creditors may receive partial settlement.

8. Is UAE tax deregistration required during liquidation?
Yes, companies must complete UAE tax deregistration on closure to confirm that VAT and corporate tax obligations are cleared.

9. Can directors be held personally liable for debts?
Directors are usually not personally liable unless fraud, mismanagement, or misuse of company funds is proven.

10. How can consultants help with the Dubai company liquidation process?
Consultants ensure compliance, negotiate with creditors, manage documentation, and handle debt settlement efficiently, saving time and avoiding costly errors.