Dubai Court orders company to be dissolved and liquidated over financial losses exceeding Dhs344 million

Mohammed Yaseen, Staff Reporter

Dubai Commercial Court of First Instance ruled that a contracting company that had incurred financial losses exceeding Dhs344 million to be dissolved and liquidated and a specialised accountant to be appointed to inventory all the company’s assets and list its rights and obligations.

The liquidator will be assigned to sell the company’s assets by public auction, deposit the proceeds of the sale in a bank account for the company under liquidation, notify the company’s creditors accordingly, liquidate all debts owed by the company and distribute the remaining funds on the partners, each according to his share.

According to the official documents, the company that the court ordered to be liquidated is a limited liability contracting company and the owners are: another company that owns 49 per cent of the shares and a businessman who owns the remaining 51 per cent of the shares.

The case file showed that the company, which owns nearly half of the shares, requested the contracting company to be liquidated because it was incurring operating losses and was no longer able to carry out its commercial activity, as there were no ongoing projects or means to implement its operations and the lack of cash liquidity. Its losses have accumulated since 2016 until now and there was no way to obtain any financing to allow it to continue.

The documents showed that the plaintiff company appointed an expert office to prepare a consulting report to clarify the true financial position of the defendant company based on its accounts and budgets.

The report concluded that the company’s capital is Dhs2 million and that according to the latest audited balance sheet, the company’s accumulated losses are estimated at Dhs278 million until June of last year, which meant that the company’s losses exceeded 139.04 times the company’s capital.

Therefore, according to the second clause of Article 308 of Federal Law 32 for 2021, the plaintiff has the right to demand the dissolution and liquidation of the defendant company and hence the plaintiff filed this lawsuit.

According to legal advisor, Dr. Alaa Nasr, the case was heard before the case management office and the court, and the supervising judge decided to appoint an accounting expert. The expert’s report concluded that the company had incurred total accumulated losses of around Dhs344 million and that it did not have any liquid funds, as all its bank accounts had been frozen, he said.

Therefore, the company would not be able to resume its operational, commercial and administrative activities because according to the liquidity standard recognized in financial analysis, the facility must have cash liquidity at a rate that is twice its current obligations, he added.

Nasr pointed out that the company’s financial status is consistent with the legal conditions for dissolving companies including among others the expiry of the period specified in the contract unless renewed, fulfillment of the purpose for which the company is established, disposition of all or most of the company’s funds or the partners’ unanimous agreement to end its term.