Company Closure in Nepal: Voluntary vs. Compulsory Liquidation
To close a company in Nepal, one must adhere to the legal frameworks established by the Companies Act of 2063 (2006) and the Insolvency Act of 2063 (2007). The closure process can be categorized into voluntary liquidation and compulsory liquidation, each with distinct procedures and requirements.
Voluntary Liquidation
Voluntary liquidation occurs when a company’s directors or shareholders decide to dissolve the business. This process is typically initiated due to financial difficulties or a strategic decision to cease operations. The following steps outline the procedure for voluntary liquidation:
Board Resolution: The board of directors must pass a resolution recommending the winding-up of the company.
Appointment of a Liquidator: A licensed liquidator is appointed to oversee the liquidation process.
Notification: Creditors must be informed about the liquidation, and a public announcement should be made.
Application for Liquidation: An application is submitted to the Office of the Company Registrar (OCR) for voluntary liquidation.
Tax Clearance: Obtain a tax clearance certificate from the Inland Revenue Department (IRD).
Settlement of Liabilities: All outstanding debts and liabilities must be settled using available funds.
Asset Distribution: Remaining assets are distributed among shareholders based on their ownership stakes.
Final Report and Cancellation: The liquidator submits a final report to the OCR, which then cancels the company's registration and issues a certificate of dissolution.
Required Documents for Voluntary Liquidation
Board resolution recommending liquidation
Special resolution from shareholders
Declaration of solvency signed by directors
Appointment letters for liquidator and auditor
Statement of affairs prepared by the liquidator
Auditor’s report on final accounts
Application for dissolution to OCR
Newspaper publications of liquidation notices.
Compulsory Liquidation
Compulsory liquidation is initiated by a court order, often due to insolvency or inability to pay debts. The process includes:
Filing an Application: An application for compulsory liquidation is filed with the relevant court.
Court Hearing: A hearing is conducted where evidence is presented regarding the company's financial status.
Appointment of an Inquiry Officer: If accepted, an inquiry officer may be appointed to investigate the company's affairs.
Liquidator Appointment: Following the court's order, a liquidator is appointed to manage the winding-up process.
Settlement of Debts: The liquidator settles all outstanding debts before distributing any remaining assets.
Conditions for Compulsory Liquidation
The court may order compulsory liquidation if:
The company fails to pay its debts within 35 days after receiving notice.
It is determined that continuing operations would not be viable.
Key Considerations
Time Frame: The duration for closing a company can vary significantly, often taking from six months to two years depending on complexity.
Legal Compliance: It is crucial to comply with all legal obligations throughout the closure process to avoid penalties or complications.
Employee Notifications: Companies are required to inform employees about closures and settle any outstanding dues as part of ethical business practices.
Closing a company in Nepal requires careful planning and adherence to legal protocols, whether through voluntary or compulsory means. Consulting with legal experts can facilitate a smoother process and ensure compliance with all obligations.