Closing Up Shop? A Guide to Creditors’ Voluntary Winding up in the UAE

creditors voluntary winding up

The decision to close a business in the UAE has to be intentional. Properly managing the expectations of creditors and shareholders through transparent communications is crucial for maintaining trust during the Winding down process. Among the few options, Creditors’ Voluntary winding up offers a legal and transparent way to wind down your operations. In this regard, the need for the UAE government to prioritize a holistic business environment is apparent. 

Recent news headlines suggest discussions about streamlining the CVL process. Potential changes could involve reducing paperwork or expediting approvals from relevant authorities. These developments aim to make CVL a faster and more efficient option for companies seeking closure.

What is creditors voluntary liquidation (CVL) or creditors voluntary winding up?

Creditors’ Voluntary Liquidation (CVL) is a process initiated by a company’s directors when they believe the company cannot continue due to its debts. This decision allows them to take control of winding down the company strategically, with the aim of paying off creditors to the maximum extent possible from the remaining assets. This process is formal in the UAE and involves several legal and regulatory steps to ensure fair dealings for all parties involved.

In the UAE, the terms “winding up” and “liquidation” are often used interchangeably in the context of closing a company, but there are important distinctions between them. Understanding the distinction between “winding up” and “liquidation” is crucial for business owners, directors, and stakeholders in closing a company.

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What is Winding Up?

“Winding up” is the broader term encompassing the entire process of closing down a company. The method includes settling all liabilities, distributing assets, and preparing the entity for its eventual dissolution. Winding up can be carried out under different circumstances:

Voluntary Winding Up: If the company is solvent or insolvent but not under immediate pressure from creditors, the shareholders initiate the process.

Compulsory winding Up: A court order initiates the process, usually at creditors’ request, when the company cannot pay its debts.

 What is Liquidation?

“Liquidation” is a phase within the winding up process where the company’s assets are sold off to pay creditors. After the assets are liquidated, any remaining proceeds are distributed to shareholders, and then the company is formally dissolved. Liquidation is a part of both voluntary and involuntary (compulsory) winding up. 

Why is it “Creditors’ Voluntary Liquidation” (CVL)?

Creditors Winding UP is also known as Creditors Voluntary Liquidation (CVL):

“Creditors’ Voluntary” emphasizes that the decision to wind up the company is made by the solventcompany and requires shareholder approval. Creditors have no say in initiating the process but are involved in the liquidation proceeds.

“Liquidation”: This refers to the process of converting assets into cash to pay creditors and close the company. While “winding up” is a broader term encompassing the entire closure process, “liquidation” focuses on converting assets to cash.

In essence, CVL combines these concepts. The company voluntarily chooses to “wind up” its operations, and this involves liquidation (selling assets) to settle debts with creditors (creditors voluntarily). 

The CVL Process:

To understand Creditor’s voluntary liquidation advantages and disadvantages, let’s first understand the process of creditors voluntary winding up:

  1. Board Resolution: Shareholders formally agree to dissolve the company and appoint a qualified liquidator through a documented resolution.
  2. Notify All Concerned: The appointed liquidator notifies relevant authorities and creditors about the company’s impending liquidation, including informing the UAE’s Department of Economic Development and other appropriate authorities. Transparency allows creditors to make informed decisions regarding outstanding debts. 
  3. Convert Assets into Cash: The liquidator meticulously identifies and sells the company’s assets to maximum value. This may involve equipment for sale, inventory, or even intellectual property. Additionally, the liquidator collects any outstanding debts owed to the company.
  4. Unbiased Settling of Debts: Once assets are liquidated and debts collected, the focus shifts to settling outstanding dues. Creditors are paid according to a predetermined hierarchy, ensuring a fair and legal distribution of remaining funds.
  5. Company Dissolution: This marks the final step in the CVL process. After all financial obligations are settled and any remaining assets are distributed per UAE regulations, the company is officially dissolved from the UAE trade register. 

Legal Responsibilities of Directors in Creditor's Voluntary Winding up:

In voluntary liquidation scenarios, company directors have critical legal responsibilities:

Information Provision: They must provide the liquidator with all necessary information about the company’s financial state and operations.

Attendance and Cooperation: Directors are required to attend meetings with the liquidator and cooperate on an ongoing basis throughout the liquidation process.

Asset Management: Directors must ensure all company assets are accounted for and handed over to the liquidator.

Common Concerns Addressed: CVL in the UAE Context

Why Opt for CVL?

The reasons for opting for CVL or Creditors’ voluntary winding up often include insolvency—where a company’s financial liabilities exceed its assets and cannot meet its obligations when they become due. CVL offers a structured way to address these issues under the supervision of a licensed liquidator, which can be more favourable than facing compulsory liquidation imposed by creditors through court proceedings.

Who Can Initiate a CVL?

Solvent companies have the power to initiate a CVL. However, shareholder approval is crucial. Shareholders holding at least 75% of the voting rights must pass a resolution to wind up the company and appoint a licensed liquidator to oversee the process.

How is CVL Conducted in the UAE?

The Creditor’s voluntary liquidation process in the UAE typically follows these broad steps:

1. Directors’ Decision and Shareholders’ Approval: The company’s directors propose the liquidation, and the shareholders must approve it.

2. Appointment of a Liquidator: A licensed liquidator oversees the process.

3. Notification: Relevant authorities and creditors are notified about the liquidation.

4. Claims Settlement: Creditors submit their claims, which the liquidator then settles from the company’s assets.

5. Asset Liquidation: Company assets are sold to generate funds.

6. Final Accounts Preparation: The liquidator prepares the final accounts, showing how the assets were liquidated and debts settled.

7. Dissolution: The company is formally dissolved.

What Are the Legal Implications?

During CVL, the company directors must cease operations and cede control to the appointed liquidator. The liquidator then takes charge of the company’s assets and liabilities, ensuring that the creditors are paid as fairly as possible according to the legal hierarchy of claims guided by UAE’s commercial laws.

How Long Does CVL Take in the UAE?

The duration of the CVL process can vary significantly depending on various factors. Typically, it takes several months to over a year.

Creditor’s voluntary liquidation advantages and disadvantages

Here are a few Creditor’s voluntary liquidation advantages and disadvantages that will help you understand if it is an apt step for you:

  • Orderly Closure: Creditors voluntary winding up is a controlled and legal framework for winding down operations. It ensures a smooth transition and minimizes disruption.
  • Fair Treatment of Creditors: The process prioritizes creditors by settling debts hierarchically. 
  • Preserving Director Reputation: A transparent closure through CVL can mitigate potential legal issues, thus retaining the reputation of company directors.
  • Minimizes Further Losses: Initiating a CVL can stop the company from accruing further debt, helping to limit the financial damage. In turn, it preserves more value for creditors and shareholders.


  • Potential for Debt Forgiveness: In some cases, creditors may agree to settle their claims for less than the total amount owed as part of the liquidation process. Such decisions help resolve outstanding liabilities and close the company’s books.
  • Professional Assistance: The process involves appointing a licensed insolvency practitioner to manage the liquidation. The expert’s guidance ensures the liquidation is conducted efficiently and complies with legal and regulatory requirements. Appointing the liquidator alleviates the directors from the stress of managing this complex process alone.
  • Clearance of Obligations: CVL provides a clear endpoint for all business obligations, including contracts and leases, which might otherwise be expensive or difficult to terminate.

While winding up is not ideal for any business, when insolvency is unavoidable, creditors voluntarily winding up the company can provide a structured and potentially less harmful method to control a sensitive situation.

No method exists without its weakness. Creditors’ Voluntary Liquidation (CVL) is an apt decision for any insolvency company. However, it has certain disadvantages:

Damage to Reputation: Engaging in a Creditor’s voluntary liquidation can significantly tarnish a company’s reputation. This perceived failure can negatively affect the directors’ future business ventures and the company’s brand, making it difficult to regain trust and credibility in the business community.

Loss of Control: Once the CVL process begins, the company’s directors lose control over the business. A liquidator is appointed to take charge of the company’s affairs, which includes selling assets and settling debts. This loss of power can be challenging for owners who are deeply invested in their businesses.

Costs: Liquidation involves various costs, including the fees for the liquidator, legal fees, and other administrative expenses. These costs can be substantial and reduce the amount available.

Employee Impact: CVL often results in job losses as the company ceases operations. It can have a broader socio-economic impact, especially if the company is a significant local employer.

Creditors May Not Be Fully Paid: In many cases, the proceeds from selling the company’s assets may need to be increased to cover all outstanding debts. This shortfall means that some creditors may receive partial payment, which can lead to financial difficulties for those creditors.

Understanding the Creditor’s voluntary liquidation advantages and disadvantages is crucial for a winding up, as it helps weigh the benefits against the potential long-term impacts.

Alternatives to Consider: Beyond CVL

While Creditors voluntary winding up offers a controlled closure, it’s not the only option. Here are some alternatives to consider:

  • Compulsory Liquidation: This court-ordered closure is initiated by creditors when a company defaults on its debts and cannot meet its financial obligations.
  • Mergers and Acquisitions: Selling the company or merging with another entity can be a strategic alternative to complete closure, offering employees continued employment and preserving brand value.

The importance of the liquidator:

An insolvency practitioner typically plays the role of the liquidator. This individual or firm (such as Nair and Nelliyatt) is professionally licensed to handle insolvency proceedings and has the expertise to manage the complex tasks of winding up a company. Here’s a closer look at who can be a liquidator:

1. Licensed Insolvency Practitioners: These are professionals expressly qualified and authorized to act in insolvency matters. In many jurisdictions, including the UAE, a person must pass specific examinations and meet professional experience requirements to become a licensed insolvency practitioner.

2. Specialist Firms: Often, the liquidator comes from a firm specialising in insolvency, restructuring, or corporate recovery. These firms employ multiple licensed insolvency practitioners and provide services to handle all aspects of company liquidations and other insolvency solutions.

The appointment of the liquidator in a Creditors’ voluntary winding up is typically made by the company’s shareholders, but creditors also have a say in the process and can change the appointed liquidator during the initial creditors’ meeting. Thus, the process remains transparent, and creditors have confidence in the liquidation process’s management.

Seeking Expert Guidance for CVL

Creditors’ voluntary winding up can be a complex process with legal and financial implications. Consulting with experienced lawyers and licensed liquidators familiar with UAE regulations is the key. They can guide you through the intricacies of Creditors’ voluntary liquidation advantages and disadvantages. Contact Nair and Nelliyatt for specific help with the closure of your business.

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