Monday, September 23, 2019

Dissolution and Liquidation Under the New Commercial Companies Law

The recently issued Commercial Companies Law (Royal Decree No. 18/2019), introduced in our previous post, has implemented several changes that modernize and increase the efficiency of commercial company practice in Oman. Among these, we will review some notable changes to the regime governing the dissolution and liquidation of commercial companies.

Generally, the new provisions regarding liquidation are more elaborate and detailed in setting out the liquidation process and the responsibilities of the parties involved, resulting in a clear and more organized procedure. They also establish new or more stringent deadlines to expedite the liquidation process. Below, we set out the key changes as introduced in Section 3 of the Commercial Companies Law.

Reasons for Dissolution

The list of reasons for the dissolution of a company has expanded. The failure of a company to conduct business from the date of its incorporation or a halt in its operations and business for more than two years are now valid reasons for dissolution. Moreover, the reduction of the company’s share capital beyond a stipulated minimum limit, with no possibility of increasing it within a specified period, can also justify dissolution.

Under the previous Commercial Companies Law (Royal Decree No. 4/1974), transfer of all shares in the capital of the company to one partner was a reason for dissolution. As the new Commercial Companies Law introduced the Sole Shareholder Company, this was changed to “the transfer of all shares to a number of partners or shareholders below the stipulated limit” and remains applicable only to Joint Stock Companies, which still require at least three shareholders.

Liquidators and Liquidator Responsibilities 

A noteworthy change is that liquidators must be licensed accountants and auditors, accredited by the competent authorities. This excludes lawyers from acting as liquidators, and reflects the nature of the liquidation process and the necessity of involving accountants in the process.

The new law now also requires liquidators to prepare financial statements of the company, in addition to the inventory of the company’s assets and liabilities.

Time Limits

The following new time limits have been imposed in order to streamline the liquidation process:

  1. the period of voluntary liquidation is now limited to three years, and can only be extended with the approval of the competent authority (the Ministry of Commerce and Industry or the Capital Market Authority, depending on the type of company);
  2. a copy of the liquidation resolution or the order must be lodged with the Registrar within 15 days of issuance, and then published by the Registrar within seven days;
  3. the announcement for the creditors’ grace period to bring forward claims must be issued by the liquidator within seven days from the date on which the issued liquidation order is lodged with the Registrar;
  4. the report on liquidation activities conducted during the year, together with the financial statements, must be submitted within 30 days of the end of the financial year during liquidation;
  5. on conclusion of liquidation, the final report must be submitted within 30 days for approval. Once issued, a copy of the approval must be lodged with the Registrar within seven days of issuance, and then published within two days.

Unpaid and Unclaimed Proceeds of Liquidation

Any remaining unpaid balance of liquidation is to be deposited in a fund set up by the Ministry of Commerce. Entitled persons must be notified, and publication must be made in two daily newspapers at least twice in one year before the passage of fifteen years from the date of deposit. Monies that remain unclaimed for fifteen years are to be hypothecated for charitable activities.

Read more about the New Commercial Companies Law (Sultani Decree 18/2019):

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies (April 2019)

Access to Company Documents under the Old CCL and the New CCL (June 2019)

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law (June 2019)

Establishment of Companies by Sultani Decree (July 2019)