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What is Liquidation?
Liquidation is the process of shutting down a company and distributing its assets to claimants. It usually occurs when a company is insolvent or is unable to pay its debts. When a company’s operations halt, its leftover assets are used to pay creditors and shareholders in a certain order that is identified in multiples Laws and Regulations. Liquidation can be both compulsory and voluntary; Compulsory liquidation happens when a court orders the company’s liquidation due to negligence or non-compliance to certain commitments. Whilst the voluntary Liquidation takes place when the shareholders of a company decide to terminate operations due to lack of profitable business or due to the failure of the company to complete its projects or to achieve the objectives of its establishment. However, this article will focus on compulsory liquidation of commercial companies, a topic that was regulated in the Qatari Commercial Companies Law number (11) of the year 2015.
Liquidation and Dissolution of companies are regulated in Chapter (11) of the Law number (11) of the year 2015; the first section of this chapter discusses dissolution whilst the second section discusses the provisions of liquidation.
It is stipulated that companies shall immediately enter liquidation upon dissolution. It shall keep its legal identity to the extent essential for the liquidation during the liquidation phase. The phrase “under liquidation” should be clearly displayed next to the company’s name throughout this phase. Generally, the Liquidation shall be done according to the regulations previously sat in the company’s article of association. However, if the articles of association did not include such provisions, this section of the Law shall apply on any liquidation process. According to the Law, when a business dissolves, its managers and directors’ must hand over control to the liquidator. The liquidation procedure should be specified by the competent Court, and one or more liquidators must be appointed. In addition, the liquidator’s mission will continue even if the partners of the company die, declare bankruptcy, become insolvent. Fees of the liquidator must be determined by the competent court. If more than one liquidator is appointed, they must operate jointly unless it is indicated otherwise. Liquidators are equally and severally liable for damages caused by their actions or inactions to the firm, its partners, and third parties.
The law obliges the liquidators to commence all the work necessary to complete the liquidation process. However, the following is mentioned explicitly in article (310):
- Representing the firm in court and resorting to mediation and arbitration.
- Meeting the company’s obligations, and the fulfilment of all necessary processes to maintain the company’s assets and interests.
- Attempting to sell the firm’s assets at the greatest price feasible and collecting debts owing to the company from third parties.
The liquidator can’t engage in new work unless it is necessary to finish pre-existing work. If the liquidator exceeds the scope of the liquidation, he is personally liable for it. With regards to the company’s debts’, all due dates for the company’s debts will be void upon dissolution. All creditors must be notified by registered letters that the liquidation procedure has begun and they must be invited to submit their claims. The liquidator shall comply with the following order stipulated by the Law during the liquidation process:
- liquidation costs, including the liquidator’s fees.
- The wages and salaries of the company’s employees.
- The amounts owed to the State.
- The rent that the company owes to the landlord for any rented premises.
- Other sums due in accordance with applicable laws.
Without the approval of a competent court or the Minister, the company’s liquidation duration should not exceed three (3) years.
For further information don’t hesitate to contact any of our professionals at Alhababi Law firm.
Author: “Mohammad Mufid” Ratib Qurashi.