A company’s liquidation is the legal method of dissolving the company in which assets are discharged and sold to repay creditors, resulting in the business being dissolved and its name being removed from the Company Registrar’s Office’s record (OCR).
In Nepal, the major law governing the liquidation process of a company are:
Meanwhile, for liquidating a bank and financial institution, there is a specific act, Bank and Financial Institution Act, 2017 to govern liquidation.
Method of liquidation
There are mainly two exit options available for the companies that want to shut down their businesses which are mentioned below:
- Voluntary liquidation
- Compulsory liquidation
Voluntary liquidation occurs when a corporation is able to fully pay its debts and is in a position to meet all of its creditors’ claims. The decision to voluntarily liquidate the firm comes when the firm’s leadership determines that there is no reason for the company to continue running. The topic of voluntary liquidation is addressed in Chapter 10 of the Company Act.
Circumstances for voluntary liquidation
Section 126 of the Company Act has listed the circumstances which should be fulfilled to initiate the process of voluntary liquidation. The circumstances are mentioned below:
- If the company is able to pay its debts or other liabilities fully
- If an application for the review of insolvency of the company is reviewed and the company is not subject to an insolvency proceeding
- If the directors of the company have, after due inquiry, made a declaration in writing that the company is able to pay its debts and other liabilities in full and that the debts and liabilities to be paid on behalf of such company can be paid up or can be fully settled in any other process within one year from the date of the adoption of the resolution to liquidate the company, or
- If the written declaration made by the directors pursuant to clause (c) was presented in the general meeting called to discuss the matter of liquidation of the company or such declaration was made at the time of discussions on that matter in the general meeting
Procedure for voluntary liquidation
Step 1: The general meeting shall pass a resolution of liquidating the company. It shall be followed by the declaration from the board of directors regarding the company’s capacity to pay all the creditors. The boards of directors shall notify the Office of Company Registrar regarding the appointment of the liquidator and auditor to initiate the process of liquidation.
Step 2: Publishing of advertisement in any national daily with all the information for liquidation: After the maturity of the time, the general meeting shall pass a resolution as per the audit report prepared by the auditor and shall file it to the OCR along will all other documents of the company.
Step 3: After the OCR examines the report, it issues a letter to the regulatory body for in-principle approval.
Step 4: After receiving all the approval from t
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How and When to Liquidate a Company | In Nepal’s scenario