Monday, November 7, 2016

Voluntary Liquidation in Oman

A number of limited liability companies (“LLCs”) are set up in Oman to carry out specific contracts for works and services, either as joint foreign and Omani enterprises under Article 2 of the Foreign Capital Investment Law promulgated by Sultani Decree 102 of 1994, as amended (the “FCIL”), or as 100% Omani owned LLCs. However, once the specific contract has expired, it is not always the case that these LLCs are successful in securing further contracts for works or services in Oman. As a result, these LLCs may consider voluntary liquidation.

Justifications for Liquidation

A LLC’s constitutive contract would usually set out the circumstances in which the LLC may be placed into liquidation, but justifications for liquidation are also set out in Article 14 of the Commercial Companies Law No. 4 of 1974 (the “CCL”). These are:

(a)        Expiration of the term fixed for the LLC, or the occurrence of any other event requiring
dissolution specified in the constitutive contract or articles of association of the LLC.

(b)       Accomplishment of the purpose for which the LLC was established, or impossibility of
accomplishing such purpose.

(c)        Transfer of all the shares or stocks in the LLC’s capital to one member.

(d)       Bankruptcy of the LLC, or loss of all or most of the LLC’s capital if such loss renders
the effective use of the remaining capital impossible.

(e)        Agreement of the members to dissolve the LLC.

(f)         If at the request of any interested party, and for any of the foregoing reasons or for
any other reason seriously impairing the LLC’s ability to accomplish its objectives, the Commercial
Court orders the dissolution of the LLC.

For the purpose of this article, we will consider the process to be followed where there is agreement of the members of an LLC to dissolve the LLC, although the main processes set out below would apply to the other justifications for liquidation.

Liquidation Process

Agreement to Liquidate
In accordance with Article 168 of the CCL, an LLC may be liquidated with the agreement of the 
shareholders representing 75% of the LLC’s capital.

Appointment of Liquidator

The shareholders will need to execute a resolution confirming their decision to liquidate the LLC 
and the appointment of a liquidator (usually a local law firm).   The shareholders resolution and 
appointment of the liquidator would then need to be filed by the liquidator in the commercial 
register of the Ministry of Commerce and Industry (“MOCI”) with a cheque for OMR 50 payable to the Ministry of Legal Affairs (“MOLA”).

Cessation of Business and Notices

Once the shareholders resolution discussed above is executed, the LLC must cease all of its business. The MOCI will liaise with MOLA to publish a notice of liquidation in the Official Gazette of Oman. The publication in the Official Gazette will invite the LLC’s creditors to present any claims they may have against the LLC. In accordance with Article 25 of the CCL, the creditors have six months from the first publication to present such claims, although the Minister of MOCI may authorise a shorter period, depending on the financial state of the LLC.

Any contracts, receipts, notices or other documents issued by the LLC after the publication of the notice of liquidation, must indicate that the LLC is under liquidation.

Liquidators Duties and Powers

The liquidator will take possession of the LLC’s ledgers, registers, documents and stock and with the LLC’s auditors or managers (if any) will prepare a detailed list of the LLC’s assets and liabilities. The liquidator will represent the LLC and manage its activities and take all measures necessary to liquidate the LLC’s assets and settle its debts. The liquidator will represent the LLC in law as either plaintiff or defendant and take appropriate steps to safeguard the interests of the LLC.

However, the liquidator will not be permitted to conclude any settlement arrangements with the LLC’s creditors, or to accept arbitration on its behalf or to relinquish any insurance or any other types of security belonging to the LLC at less than its full value. The Liquidator may not commence any new undertakings unless such undertakings are necessary to liquidate the LLC.

Return of Stake to Shareholders

After settling all valid claims made against the LLC, the liquidator shall repay to each of the shareholders the remaining value of his stake or shares in the LLC’s capital as set out in the LLC’s constitutive contract, and distribute among the shareholders any remaining assets in accordance with the provisions of the LLC’s constitutive contract. In the absence of a specific provision to this effect, the remaining assets will be distributed among the shareholders proportionate to each of their stakes or shares in the LLC’s capital.

Completion of Liquidation Process

When the liquidation process has been completed, the liquidator shall submit a final report and a 
statement of account on their work to the LLC’s shareholders for approval.  If the LLC’s 
shareholders do not agree unanimously to the final report and the statement of account, the 
liquidator may request the competent Court to approve.

he approved final report is then presented to the Tax office at the Ministry of Finance (the “MOF”) to confirm that all taxes have been paid.  The liquidator will also be required to receive a 
statement from the Ministry of Manpower (the “MOM”) confirming that all amounts due to the 
employees have been settled.

The liquidator is then required to submit the final report along with the MOF and MOM confirmations to the MOCI and file the announcement of completion of the liquidation process on the Commercial Register at the MOCI.

The announcement of the completion of the liquidation process will also be published in the Official Gazette, after which, an official request is made to the MOCI enclosing a copy of the publication for closure of the LLC. Upon filing this request, the liquidation shall be deemed to be completed and the LLC shall cease to exist.