“Opening a company is easy, but maintaining and closing is tough.”
– Everyone who owns a company
Opening a company in Nepal is quite easy and straightforward. Closing a company can be a difficult and emotional decision for business owners, but it is sometimes necessary to avoid further financial losses or legal liabilities. In Nepal, the process of closing a company involves several legal and administrative procedures that must be followed to ensure a smooth and lawful closure. Whether you are a sole proprietor or a company director, understanding the steps involved in closing a company in Nepal is crucial to minimize any negative impact on your personal or professional reputation, as well as to comply with the country’s regulatory requirements. In this article, we will provide a comprehensive guide on how to close a company in Nepal, including the legal requirements, necessary documentation, and the roles of different stakeholders involved in the process.
Why could anyone consider closing a company?
There are various reasons why someone may consider closing a company. Some of the most common reasons are:
- Business is not profitable: If a company is not making enough profit to cover its expenses, the owner may decide to close the business to avoid further losses.
- Change in personal circumstances: Sometimes, the owner may need to prioritize their personal life over running a business. For example, they may need to relocate to another city or country, or they may need to take care of a sick family member.
- Retirement: After years of running a successful business, the owner may decide to retire and close the company.
- Legal issues: If a company is facing legal issues, such as lawsuits or bankruptcy, the owner may decide to close the business to avoid further legal complications.
- Change in business strategy: Sometimes, the owner may decide to shift their focus to a different business or industry, and may decide to close the current company to pursue new opportunities.
Ultimately, the decision to close a company depends on the individual circumstances of the business owner and the company itself.
Guide to closing a company via liquidation
In Nepal, the liquidation of a company involves winding up its affairs and selling its assets to pay off outstanding debts and liabilities. The process of liquidating a company is regulated by the Company Act of 2063 (2006) and the Insolvency Act of 2063 (2007).
There are two types of liquidation procedures 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 adhere to 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’s legal existence comes to an end.
Voluntary Liquidation in Nepal
Voluntary liquidation is a legal process through which a company can opt to wind up its affairs and dissolve its legal existence in Nepal. The process is initiated by the company’s directors or shareholders when they determine 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 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, as follows:
- Board Meeting: The first step in the voluntary liquidation process is for the Board of Directors to hold a board meeting and pass a special resolution to liquidate the company. This resolution must be approved 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 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. The final report 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 cancelling its registration with the Office of the Company Registrar.
Overall, compulsory liquidation is a legal process that can be initiated by a creditor, the company, or the court to wind up a company’s affairs and settle its debts. This process is usually a last resort when other methods, such as debt restructuring, have failed.
If your company is facing financial difficulties in Nepal, it’s essential to understand the legal requirements and procedures involved in liquidating your company. Both voluntary and compulsory liquidation procedures are available, each with their own unique requirements and steps to follow.
By following the correct legal process, you can ensure that your company’s affairs are closed down in an orderly and fair manner, protecting the rights of both creditors and shareholders.
Compulsory Liquidation process in Nepal
Compulsory liquidation, also known as involuntary liquidation, is a legal process that can occur 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 related regulations.
If a company fails to meet its financial obligations or becomes insolvent, its creditors may apply to the court for compulsory liquidation. The court will then assess the company’s financial position and decide whether to initiate insolvency proceedings or not. If accepted, the court will direct the appointment of an inquiry officer.
The inquiry officer will investigate the company’s affairs and submit a report to the court. Based on the report, the court will decide whether to liquidate the company or not. If the court decides to liquidate the company, it will appoint a liquidator to manage the process.
Within three months of the liquidator’s appointment, a report of the company’s progress must be provided to the Office of the Company Registrar (OCR) and the court. 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.
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.
In summary, compulsory liquidation in Nepal is a legal process that can occur when a company fails to meet its financial obligations or becomes insolvent. The process involves appointing an inquiry officer, liquidator, and submitting progress reports to OCR and the court. The liquidator is responsible for selling the company’s assets, paying off creditors, and distributing remaining assets to shareholders. Finally, the OCR deletes the name of the company and releases an announcement that the registration of the company has been closed.
Closing a company in Nepal without liquidation (Darta Khareji)
In Nepal, it is possible to close a company without going through the compulsory liquidation process. This can be done by filing for voluntary dissolution or winding up of the company. This is only possible if your company hasn’t submitted any documents to the OCR.
The process for voluntary dissolution typically involves the following steps:
- Hold a board meeting to pass a resolution for voluntary dissolution.
- Publish a notice of the resolution in at least two newspapers, with one being a national daily newspaper.
- Hold a general meeting of shareholders to approve the resolution for voluntary dissolution.
- File an application for voluntary dissolution with the Office of the Company Registrar.
- Once the application is approved, publish a notice of the dissolution in at least two newspapers, with one being a national daily newspaper.
- After the completion of the above steps, the company will be officially dissolved.
It is important to note that both voluntary dissolution and winding up can only be done if the company is solvent, meaning that it is able to pay off all of its debts and liabilities. If the company is insolvent, it will need to go through the compulsory liquidation process.
What happens if I don’t close a company in Nepal and ignore it?
In Nepal, if you don’t close a company and ignore it, the government can initiate legal proceedings against you and the company. The consequences of not closing a company can be severe, including penalties and fines for not complying with the legal requirements for closing a company.
If you do not pay the penalties and fines, the government can also take legal action against you to recover the amount owed. Furthermore, not closing a company can damage your credit rating, making it difficult for you to obtain loans or conduct business in the future.
Additionally, you may be personally liable for any debts or obligations incurred by the company, which could have a significant impact on your personal finances. It’s important to follow the proper legal procedures for closing a company in Nepal to avoid these potential consequences.
