The Federal Supreme Court Settles the Dispute on the Dissolution and Liquidation of a Single-Person Company

Introduction

The Federal Supreme Court of the United Arab Emirates issued a landmark ruling concerning single-person companies. This judgment on the dissolution and liquidation of a single-person company represents a pivotal moment in the UAE’s commercial judiciary, carrying significant implications regarding the legal characterization of a single-person company, its subjection to the provisions governing limited liability companies, and the extent of the owner’s authority in determining its fate.

The issue arose when the company’s owner, who also served as the sole representative of the general assembly, sought to liquidate the company through the courts. However, the primary and appellate courts dismissed his claim, reasoning that he had no standing, given his exclusive authority to decide on dissolution and liquidation as the sole owner. In contrast, the Federal Supreme Court, in Appeal No. 1276 of 2024 Commercial, issued on January 14, 2025, adopted a different stance. It provided a precise interpretation of the legal provisions and addressed a longstanding legal and practical issue frequently encountered by investors and practitioners: Does the owner of a single-person company have the right to approach the courts to request the dissolution and liquidation of their company, or is their unilateral decision sufficient to terminate the company’s existence?

1- Subject of the Dispute and the Issue

The case facts can be summarized as follows: the owner and director of a single-person company filed a lawsuit requesting the dissolution and liquidation of his company after it incurred losses exceeding more than twenty times the company’s capital due to the global COVID-19 pandemic.

However, the primary court—and subsequently the appellate court—held that the plaintiff lacked standing to bring the case, as he possessed the authority to dissolve and liquidate the company by his sole will, acting as the general assembly itself. This reasoning was based on Article 306 of the Commercial Companies Law, which provides that the proper method for liquidating a company is a resolution of the general assembly, with recourse to the courts only when the assembly cannot convene.

Herein arose the central issue.:

• Is recourse to the courts in this case truly impermissible?
• Or does the owner, despite his unilateral authority, still retain a fundamental right to request judicial liquidation, particularly when there are legitimate reasons constituting a real and direct interest in approaching the courts?

2- Text of Article (71) of Federal Law No. 32 of 2021 on Commercial Companies and the Court’s Interpretation

Article (71) of Federal Decree-Law No. (32) of 2021 on Commercial Companies provides that:

“1. A limited liability company is a company whose number of partners is not less than two and does not exceed fifty partners, and each partner is liable only to the extent of their share in the capital..

2. A single natural or legal person may establish and own a limited liability company, and the owner of the company’s capital is liable for its obligations only to the extent of the capital specified in its incorporation contract. The provisions applicable to limited liability companies under this Federal Decree-Law shall apply to it insofar as they do not conflict with its nature.

Here, the legislator permitted the establishment of a single-person company as an exception to the general rule, but stipulated that the provisions applicable to limited liability companies apply only insofar as they do not conflict with the specific characteristics and nature of a single-person company.

The Federal Supreme Court emphasized this crucial point, clarifying that granting the sole owner the authority to dissolve and liquidate the company does not negate their right to approach the courts when objective reasons justify it, such as the complete loss of capital or the accumulation of debts beyond capacity. The Court considered that the plaintiff had a real and direct interest in filing the lawsuit, noting that the legal text does not restrict their access to the judiciary but rather provides an alternative route when unilateral dissolution is impossible or unfeasible.

The Court ultimately overturned the appealed judgment, affirming that depriving the company’s owner of access to the judiciary contradicts the essence of Article (71) and the guarantee of the right to litigation. The Court noted that the previous courts’ interpretation involved flawed reasoning and misapplication of the law, as well as a failure to consider the factual elements of the case; they overlooked the specific characteristics and nature of a single-person company, which may render certain provisions applicable to limited liability companies inapplicable. Moreover, the lawsuit is connected to a direct right protected by law, ensuring that the plaintiff has a real interest in pursuing judicial relief.

Conclusion

This ruling reinforces a highly significant principle: a single-person company is not merely a simplified form of a limited liability company, but rather a distinct entity with a special nature that requires a flexible interpretation of legal provisions, balancing its independence as a legal personality with the reality of its sole ownership.

Through this ruling, the Supreme Court helped clarify the ambiguity surrounding the application of Articles (71) and (306) of the Companies Law, confirming that the owner of a single-person company has two legitimate options: either to issue a dissolution and liquidation decision by their own will, or to resort to the courts whenever circumstances warrant it.

Consequently, the impact of this ruling extends beyond the specific dispute at hand, as it paves the way for owners of single-person companies to obtain genuine judicial protection when facing difficult economic conditions or accumulating debts, and it strengthens investors’ confidence in the clarity and balance of the legislation.

Undoubtedly, this approach by the Federal Supreme Court reflects the UAE judiciary’s commitment to supporting the business environment and ensuring fairness in commercial transactions, thereby promoting legal and economic stability in the country.