Highlights of Insolvency Act 2063

Liquidation of Company in Nepal marks the end of the Existence of a Company. Companies Act 2063 and Insolvency Act 2063 are the major Liquidation Laws of Nepal.

Insolvency Act 2063

Insolvency Act 2063 was introduced to make legal provisions immediately concerning the administration and insolvency proceedings of companies that are insolvent or going to be insolvent and the restructuring of such companies.

Companies Act 2063

Companies Act 2063 was introduced to amend and consolidate the law relating to companies to bring about dynamism in the country’s economic development by promoting investment in the industry, trade and business sectors. It was brought to make companies’ incorporation, operation and administration much easier, simpler and more transparent.

Voluntary Liquidation in Nepal

Voluntary liquidation is a process initiated by the shareholders or members of a company when they decide to wind up the business. It occurs when a Company can pay its debt, including Interest and Other Liabilities. The Shareholders can liquidate the company by adopting a special resolution in the General Meeting or Memorandum of Association, Articles of Association or Consensus Agreement.

Conditions of Voluntary Liquidation

A Company can liquidate Voluntarily in the following circumstances:

1. If the company possesses the capacity to settle its debts and other financial obligations fully;
2. If there are no ongoing proceedings for insolvency review under the prevailing insolvency laws or any potential insolvency proceedings that might apply to the company under the current insolvency regulations;
3. If the company’s directors, following a thorough examination, have issued a written statement affirming the company’s ability to meet its debts and other financial obligations entirely and that these debts and liabilities can be discharged within one year from the date the decision to liquidate the company is adopted;
4. If the directors’ written declaration, as described in Clause (c), has been presented during the general meeting convened to deliberate on the company’s liquidation, or if such a declaration was made during discussions on the liquidation matter in the general meeting.

Procedure for Voluntary Liquidation of Company in Nepal

The procedure for voluntary liquidation involves the following steps:

1. The company must verify its financial statements internally and clear all debts and liabilities.
2. The shareholder representative must confirm in writing that the company can settle its debts and liabilities within one year of the resolution for liquidation or through an alternative arrangement.
3. The shareholder representative should pass a written resolution to dissolve the company and submit it to the Office of Company Registrar (“OCR”).
4. The shareholder representative must also appoint a liquidator and auditor, specifying their remuneration and the timeframe for completing the liquidation process.
5. The company must inform relevant government authorities, such as the OCR and Inland Revenue Department (“IRD”), of the liquidator’s appointment within seven days of the appointment.
6. The Office of Company Registrar shall strike the company’s name off the company register and issue an order that the company’s registration has been cancelled.

Power and Duties of Liquidator

1. To prepare and submit to the Office the statements and accounts of incomes and expenditures in the course of liquidation every six months after the appointment of the liquidator;
2. To inform the shareholders of the company about the progress of the liquidation proceedings every six months after the appointment of the liquidator;
3. To obtain and recover all properties or amounts required to be obtained and recovered on behalf of the company and repay and discharge the debts and other liabilities of all the creditors of the company;
4. To call the general meeting of shareholders and present therein a proposed report and return on the distribution of the remaining properties of the company to the shareholders;
5. If the shareholders holding at least seventy-five per cent of the paid-up share capital to make payment of amounts to the shareholders accordingly;
6. To prepare a report on the properties recovered, payments made to the creditors and distributions made to the shareholders on behalf of the company, and submit such report, certifying that the company has been liquated, accompanied by the auditor’s report, to the Office.

Involuntary Liquidation in Nepal

Involuntary liquidation is a legal process through which a debtor’s assets are sold, and a court-appointed trustee or liquidator settles their debts. It is the forced or involuntary closure of a business or individual’s financial affairs due to the claims of creditors.

Procedure of Involuntary Liquidation

1. Involuntary liquidation begins when one or more creditors file a petition with a court to force the debtor into bankruptcy.
2. After the petition, the court reviews the case and determines whether the debtor should be placed into involuntary bankruptcy.
3. If the court approves the petition, it will appoint a trustee or liquidator.
4. The appointed trustee or liquidator will sell the debtor’s assets and use the proceeds to pay off the debts to the creditors.

Duties of Liquidator

The Duties of the Liquidator in Involuntary Liquidation are:

1. To institute or defend any case or legal action on behalf of the company;
2. To appoint employees to assist in the discharge of their functions;
3. To borrow loans against the security of the assets of the company;
4. To examine whether directors, shareholders or employees have done any fraud, cheating or deception;
5. To sell the assets and distribute the proceeds of such sale; and
6. To perform or cause to perform all activities necessary to liquidate the company.