Company liquidation in Nepal involves dissolving a business entity and distributing its assets. The Companies Act 2063 (2006) provides the legal framework for voluntary and involuntary liquidation processes.
This article examines the steps, requirements, and considerations for voluntarily closing a company in Nepal, including appointing a liquidator, assessing assets/liabilities, and filing necessary documents with regulatory authorities.
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What is Company Liquidation (कम्पनी खारेजी)?
Voluntary liquidation, also known as “Khareji” in Nepal, is the process by which a solvent company’s shareholders decide to wind up operations and dissolve the business. This procedure is governed by Chapter 10 of the Companies Act 2063. The company’s assets are realized, liabilities are paid off, and remaining proceeds are distributed to shareholders. Voluntary liquidation allows for an orderly closure when a business is no longer viable or shareholders wish to exit.
Types of Company Liquidation in Nepal
The Companies Act 2063 outlines two main types of company liquidation in Nepal:
- Voluntary Liquidation: Initiated by shareholders through a special resolution when the company is solvent. This allows for an orderly winding up of affairs.
- Compulsory Liquidation: Ordered by the court, typically when a company is insolvent or unable to pay its debts. This process is overseen by a court-appointed liquidator.
Process of Closing a Company in Nepal (Voluntary Liquidation)
The process of closing a Company in Nepal are as follows:
Step 1: Board Resolution for Liquidation
Step 2: Appointment of Liquidator
Step 3: Appointment of Auditor
Step 4: Assessment of Assets & Liabilities
Step 5: Filing of Application to OCR
Step 6: Closure of Company
Step 1: Board Resolution for Liquidation
The voluntary liquidation process begins with the board of directors passing a resolution to recommend the winding up of the company. The board resolution should include:
- Reasons for recommending liquidation
- Statement confirming the company’s ability to pay all debts
- Proposed timeline for liquidation
- Recommendation for appointment of liquidator and auditor
The board must ensure that the company is solvent and able to pay all creditors within one year of liquidation commencement. This resolution forms the basis for calling a general meeting of shareholders to approve the liquidation.
Step 2: Appointment of Liquidator
After shareholders approve the liquidation through a special resolution, a liquidator must be appointed. The liquidator’s appointment process involves:
- Selection of a qualified individual or firm as per Section 127 of the Companies Act
- Approval of liquidator’s appointment by shareholders
- Determination of liquidator’s remuneration
- Notification to Office of Company Registrar within 7 days of appointment
The liquidator takes control of the company’s affairs, including assets, records, and financial matters. They have the authority to realize assets, settle debts, and distribute remaining funds to shareholders.
Step 3: Appointment of Auditor
Concurrent with the liquidator’s appointment, an auditor must be appointed for the liquidation process. The auditor’s role includes:
- Reviewing financial statements and records
- Verifying assets and liabilities
- Ensuring compliance with accounting standards
- Preparing audit reports for the liquidation period
The auditor’s appointment follows similar procedures as the liquidator:
- Selection of qualified auditor
- Approval by shareholders
- Determination of audit fees
- Notification to Office of Company Registrar
Step 4: Assessment of Assets & Liabilities
The liquidator conducts a comprehensive assessment of the company’s assets and liabilities, including:
- Inventory of all tangible and intangible assets
- Valuation of assets at fair market value
- Compilation of all outstanding debts and liabilities
- Identification of contingent liabilities
This assessment provides a clear picture of the company’s financial position and helps determine the order of debt repayment and potential distribution to shareholders. The liquidator must:
- Prepare a statement of affairs detailing assets and liabilities
- Identify any secured creditors and their claims
- Determine the priority of creditor claims as per legal requirements
- Estimate potential recovery values for assets
The assessment forms the basis for the liquidation plan and timeline.
Step 5: Filing of Application to OCR
After completing initial steps, the liquidator must file an application with the Office of Company Registrar (OCR) for approval of the voluntary liquidation. The application includes:
- Special resolution approving liquidation
- Statement of affairs prepared by liquidator
- Declaration of solvency by directors
- Proposed liquidation plan and timeline
- Details of appointed liquidator and auditor
The OCR reviews the application to ensure compliance with legal requirements. Once satisfied, the OCR issues an order approving the commencement of liquidation proceedings.
Step 6: Closure of Company
The final stage of voluntary liquidation involves:
- Settlement of all debts and liabilities
- Distribution of remaining assets to shareholders
- Preparation of final accounts and liquidator’s report
- Submission of closure documents to OCR
- Obtaining dissolution order from OCR
The liquidator must ensure all legal and financial obligations are fulfilled before applying for final dissolution. Upon receiving the dissolution order, the company ceases to exist as a legal entity. The OCR removes the company from the register and issues a certificate of dissolution, marking the formal end of the company’s existence.
Consult an Expert Company Lawyer
Also Read: Company Registration Process in Nepal
Documents required for Company Closure in Nepal
The voluntary liquidation process in Nepal requires submission of various documents to regulatory authorities. The required documents are:
- Board resolution recommending liquidation
- Special resolution of shareholders approving liquidation
- Declaration of solvency signed by directors
- Appointment letters for liquidator and auditor
- Statement of affairs prepared by liquidator
- Auditor’s report on final accounts
- Liquidator’s interim reports on progress of liquidation
- Application for dissolution to Office of Company Registrar
- Newspaper publications of liquidation notices
- Minutes of final general meeting approving liquidator’s accounts
- Any other documents required by OCR or other regulatory bodies
Cost of closing a company in Nepal
The cost of closing a company in Nepal through voluntary liquidation varies depending on factors such as company size, complexity of affairs, and duration of the process. Key expenses include:
- Liquidator’s fees (typically based on time spent or percentage of assets realized)
- Auditor’s fees for final audit and liquidation period accounts
- Legal fees for document preparation and regulatory compliance
- Government fees for filing applications and obtaining clearances
- Publication costs for newspaper notices
- Costs associated with asset valuation and disposal
- Administrative expenses during liquidation period
Timeline of Closing a company in Nepal
The timeline for closing a company in Nepal through voluntary liquidation typically ranges from 1-3 months.
Company Liquidation Lawyer in Nepal
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Conclusion
To Liquidate a company in Nepal are obtaining shareholder approval, appointing a liquidator, assessing assets and liabilities, and complying with regulatory requirements.
Company Liquidation in Nepal: FAQs
What is company liquidation?
Company liquidation is the legal process of dissolving a business entity, realizing its assets, settling debts, and distributing remaining proceeds to shareholders. It marks the end of a company’s existence as a legal entity.
How long does liquidation take?
Voluntary liquidation in Nepal typically takes 6 months to 2 years, depending on the company’s size and complexity. Efficient management and prompt document submission can help expedite the process.
Can a company be revived after liquidation?
Generally, once a company is liquidated and dissolved, it cannot be revived. However, in exceptional cases, the court may order restoration within 5 years if deemed necessary for justice.
Who can act as a liquidator?
A liquidator must be a licensed insolvency practitioner under Nepali law. Typically, this includes chartered accountants, lawyers, or other professionals with relevant experience in company liquidation.
What is the cost of closing company in Nepal?
Closing a company in Nepal typically costs between NPR 100,000 to NPR 500,000 for small to medium businesses. Larger or more complex companies may incur higher expenses for liquidation.
Disclaimer: This Article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation, or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein.
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