In Nepal, liquidating a company means winding up its affairs and selling its assets to pay off its outstanding debts and liabilities. The process of liquidating a company in Nepal is governed by the Company Act, of 2063 (2006), and the Insolvency Act, of 2063 (2007).
There are two types of liquidation procedures available in Nepal:
- Voluntary Liquidation
- Compulsory Liquidation.
During the liquidation process, the liquidator is responsible for selling the company's assets and settling its debts.
The liquidator must follow a strict legal process to ensure that all creditors are paid in accordance with their priority and that any remaining assets are distributed to the shareholders in proportion to their ownership in the company.
Once the liquidation process is complete, the company is closed, and its legal existence comes to an end.
What is Voluntary Liquidation?
Voluntary liquidation in Nepal is a legal process through which a company can choose to wind up its affairs and dissolve its legal existence.
The process is initiated by the company's directors or shareholders when they decide that the company is no longer viable or when they wish to close the business.
The voluntary liquidation process in Nepal follows the provisions of the Company Act, of 2063 (2006), and the Insolvency Act, of 2063 (2007).
The company must follow a strict legal process to ensure that all creditors are paid in accordance with their priority, and that any remaining assets are distributed to the shareholders in proportion to their ownership in the company.
The procedure for voluntary liquidation in Nepal involves several steps, which are as follows:
- Board Meeting: The first step in the voluntary liquidation process is for the Board of Directors to hold a meeting to pass a special resolution to liquidate the company. This resolution must be passed by at least three-fourths of the total number of shareholders or their representatives.
- Appointment of Liquidator: The next step is to appoint a liquidator to manage the liquidation process. The liquidator can be an individual or a company, but must not have any conflict of interest with the company.
- Notification: Once the liquidator is appointed, the company must notify the Office of the Company Registrar about the liquidation and the appointment of the liquidator.
- Advertisement: The Company must also advertise the liquidation in two daily newspapers with wide circulation in Nepal, one in the Nepali language and one in the English language. The advertisement must provide details about the liquidation process, including the name of the liquidator, the date of the liquidation resolution, and the deadline for creditors to file their claims.
- Meeting of Creditors: The liquidator must hold a meeting of the company's creditors within 30 days of their appointment. At the meeting, the liquidator must provide a report on the company's financial situation, and the creditors can file their claims for payment.
- Asset Sale: The liquidator is responsible for selling the assets of the company and settling its debts. The liquidator must follow a strict legal process to ensure that all creditors are paid in accordance with their priority, and any remaining assets are distributed to the shareholders in proportion to their ownership in the company.
- Final Report: Once the liquidation process is complete, the liquidator must submit a final report to the Office of the Company Registrar and the company's shareholders, which must include a summary of the liquidation process, details of the assets sold and the proceeds received, and the final distribution of the assets to the shareholders.
- Dissolution: The final step in the voluntary liquidation process is the dissolution of the company, which involves canceling its registration with the Office of the Company Registrar.
Overall, voluntary liquidation in Nepal is a legally mandated process to close down a company's affairs in an orderly and fair manner, while protecting the rights of creditors and shareholders.
What is Compulsory Liquidation?
Compulsory liquidation, also known as involuntary liquidation, is a legal process that occurs when a court or other government authority orders the winding up of a company or business.
In Nepal, the process of compulsory liquidation is governed by the Insolvency Act, of 2063 (2007), and its related regulations.
The procedure for compulsory liquidation in Nepal involves several steps, which are as follows:
- Submitting a request to the applicable court for consideration.
- The court has to decide whether to initiate insolvency proceedings or not. If accepted, the court will direct the appointment of an inquiry officer.
- The director will be responsible for submitting an account of the financial dealings and structure of the corporation to the court.
- If the court decides to liquidate the company, it will appoint a liquidator.
- Within three months of the liquidator's appointment, a report of the company's progress must be provided to the OCR and the court.
- When the liquidation process is completed, the liquidator must present a report to OCR. This report must include details on the properties that were recovered, the payments made to creditors, and the distributions to shareholders from the company. Additionally, the report must be accompanied by an auditor's report confirming that the company has been liquidated.
- Once the OCR has received the report, they will delete the name of the company and release an announcement that the registration of the company has been closed. It is mandatory to print a notice in a daily newspaper to notify the readers that the company has been closed.