Why Trade License Attachments Can No Longer Block Company Liquidation in Dubai

The enforcement practice that caused the problem

When a creditor obtains a money judgment against a company in the UAE, the next step is enforcement.

One commonly used enforcement tool is to request measures that are reflected at the level of the licensing authority or commercial registry. While technically not an attachment of a physical asset, the effect is administrative but powerful.

In practical terms, once such an attachment is recorded, the licensing authority will often refuse to process most corporate actions, including:

1. transfer of shares,
2. appointment or replacement of managers or directors, and
3. registration of a liquidator.

The company is usually still allowed to renew its trade license, but very little else.

As a result, the company becomes administratively “frozen”.

Why liquidation became impossible

Under UAE company law, if shareholders decide that a company should cease operations and be closed, they may resolve to liquidate the company voluntarily.

This requires:

1. a shareholders’ resolution approving liquidation and appointing a liquidator; and
2. registration of that liquidator with the competent authority.

Once registered, the liquidator takes control, identifies assets and liabilities, sells assets where necessary, and distributes proceeds to creditors in accordance with the law.

However, in many cases, licensing authorities refused to register liquidators on the basis that the company’s file was blocked due to existing attachments or execution files.

This created a paradoxical situation:

1. the company could not realistically continue operating;
2. the company could not legally close; and
3. creditors could not benefit from an orderly liquidation process.

The company was effectively trapped in legal limbo.

The consequences of this approach

This practice had serious practical consequences.

From the company’s perspective:

1. management positions could not be updated even if they became vacant;
2. the business could deteriorate further; and
3. shareholders were prevented from closing the company properly.

From the creditors’ perspective:

1. assets were not being collected or sold efficiently;
2. recoveries were often delayed or reduced; and

Instead of helping creditors, blocking liquidation frequently worked against their interests.

The long-standing debate

This situation gave rise to a long-running debate in UAE legal practice.

Those in favour of blocking liquidation argued that:

1. freezing the company exerted pressure on shareholders and directors to pay judgments; and
2. allowing liquidation might enable debtors to avoid responsibility.

Those against argued that:

1. a change in shareholders does not affect the company’s debts or assets;
2. blocking management changes can destroy any chance of recovery; and
3. liquidation is not an escape mechanism, but a legal process specifically designed to pay creditors.

The core question remained unanswered: can an enforcement measure override the statutory liquidation process?

The Dubai Court of Cassation case

The issue finally reached the Dubai Court of Cassation in case no. 1270/2025/445.

In this case, the shareholders of a company had passed a resolution to liquidate and appoint a liquidator. Due to the existence of execution files and attachments, the liquidation could not be registered.

The lower courts rejected the claim, reasoning that the liquidation could not be practically implemented given the enforcement constraints.

The matter was appealed to the Court of Cassation.

What the Court of Cassation decided

The Court of Cassation overturned the lower court’s reasoning.

The court held, in essence, that:

1. the existence of execution files or attachments relates to how liquidation is carried out, not whether liquidation can be initiated; and
2. such attachments cannot be used as a legal basis to refuse the validity or enforceability of a shareholders’ liquidation resolution.

The court emphasized that liquidation exists to ultimately satisfy debts. Preventing liquidation on the basis of enforcement measures defeats that purpose.

In simple terms, the court made a clear distinction between:

1. starting liquidation, which must be allowed if legal requirements are met; and
2. conducting liquidation, during which enforcement rights may still be exercised.

Why this reasoning matters

This distinction is critical.

Attachments and execution files do not disappear when liquidation begins. Creditors retain their rights and may pursue claims through the liquidation process.

However, enforcement measures cannot be elevated to a level where they block the very process designed to organize and satisfy creditor claims.

The Court of Cassation’s reasoning restores coherence to the legal framework:

1. enforcement tools are meant to assist recovery, not obstruct it; and
2. liquidation is not an exception to enforcement, but a complementary mechanism.

What the judgment does not say

It is important to understand what this judgment does not do.

The court did not say that:

1. debts are extinguished by liquidation;
2. attachments are automatically lifted; or
3. creditors lose enforcement rights.

On the contrary, creditors remain entitled to:

1. submit claims in liquidation;
2. monitor the liquidator’s actions; and
3. challenge any acts that prejudice their interests.

The judgment simply confirms that liquidation cannot be blocked at the threshold.

Practical implications going forward

This judgment is likely to have several practical effects:

1. Licensing authorities should no longer refuse to register liquidators solely because of attachments.
2. Shareholders may opt for liquidation instead of being forced into bankruptcy.
3. Creditors may see more orderly recoveries through liquidation rather than prolonged enforcement stalemates.
4. Courts are likely to scrutinize attempts to use enforcement measures as a blanket veto over corporate actions.

Over time, this should reduce unnecessary bankruptcies and bring enforcement practice closer to legislative intent.

Conclusion

The Dubai Court of Cassation’s decision in case no. 1270/2025/445 marks an important clarification in UAE enforcement and company law practice.

By confirming that attachments on a trade license cannot be used to block shareholders’ liquidation, the court has reaffirmed a basic but essential principle: legal tools designed to recover debts should not be used to frustrate the processes created to pay them.

For creditors, shareholders, and practitioners alike, this judgment restores balance, logic, and predictability to an area that had long been marked by uncertainty.