A. Introduction
The lifecycle of a company involves various phases, from its incorporation to its eventual dissolution. While much attention is often given to the establishment and operation of companies, the process of closing a company is equally important to understand. In Nepal, closure of company can be done is 3 ways, which includes:
- Deregistration of Company as per Companies Act;
- Voluntary Liquidation as per Companies Act;
- Compulsory Liquidation as per Insolvency Act.
This article provides a general overview of the cancellation of registration/closure of company in Nepal.
B. Governing Laws
- Companies Act, 2006 (“Companies Act”) deals with deregistration, and voluntary liquidation process;
- Insolvency Act, 2006 (“Insolvency Act”) deals with compulsory liquidation/insolvency process.
C. Deregistration of Company
Deregistration of a company refers to the legal process by which a company’s registration is canceled by the Office of Company Registrar (“OCR”), effectively terminating its existence as a legal entity. This process occurs voluntarily upon application by the promoters who failed to commence business operations, or involuntarily due to regulatory non-compliance or when the OCR has reasonable grounds to believe the company is not in operation.
1. Power of the OCR to cancel registration
Pursuant to the Companies Act, the OCR has authority to cancel a company’s registration under specific circumstances, details of which are as follows:
| S. N. | Conditions |
|---|---|
| a) | When the promoter of a company submits an application detailing the company’s failure to commence business operations; |
| b) | If the company fails to submit annual returns or fails to pay fines for three consecutive financial years; |
| c) | When the OCR has reasonable grounds to believe, based on evidence gathered during administration, that the company is not undertaking business or is not in operation. |
2. Procedure of cancellation
The procedure of voluntary cancellation of company involves the following steps:
| Steps | Procedure |
|---|---|
| Step 1 | The shareholder of the company must pass a written resolution from the General Meeting and submit an application to the OCR; |
| Step 2 | Letter of confirmation from auditors to the OCR regarding no economic activities of company; |
| Step 3 | Confirmation from Inland Revenue Department (“IRD”) to the OCR regarding financial status of the company; |
| Step 4 | Deregistration of company at the OCR. |
The procedure of involuntary cancellation of company involves the following steps:
| Steps | Procedure |
|---|---|
| Step 1 | The OCR issues a notice to the company stating the reasons for the proposed cancellation; |
| Step 2 | The notice may also be published in a national daily newspaper, if required; |
| Step 3 | The company within 2 (two) months from receipt of the notice must submit an application explaining why its registration should not be canceled; |
| Step 4 | If no response is received within the two-month period, or if the reasons provided are deemed unreasonable, the OCR can proceed with cancellation; |
| Step 5 | Upon cancellation, information is provided to the company’s directors and published in a national daily newspaper. |
3. Restoration of canceled registration
Restoration of a canceled company registration provides a legal pathway for reinstating a company’s existence when its registration has been previously canceled. This process allows the company to regain its legal status and continue operations as if the cancellation had never occurred. The procedure in relation to restoration of canceled registration is provided below:
| Steps | Procedure |
|---|---|
| Step 1 | A company, its shareholder, or creditor may file petition at the court for restoration within 5 (five) years of the publication of the cancellation notice; |
| Step 2 | The court can order restoration if: a) The registration was canceled while the company was actually carrying on business, or b) The court deems restoration for the proper management of the company’s assets and liabilities. |
D. Voluntary Liquidation
A voluntary liquidation is the process where a company’s shareholders willingly decide to dissolve the company by passing a special resolution, and appointing a liquidator to settle debts and distribute remaining assets. Chapter 10 of the Companies Act deals with the provisions relating to voluntary liquidation.
For the conditions and procedure of voluntary liquidation under Nepalese law, please refer to the article:
Liquidation of Companies: Company Closure in Nepal.
E. Compulsory Liquidation/Insolvency
Compulsory liquidation/Insolvency in Nepal is a court-ordered process that forces a company to close when it cannot pay its debts, initiated through a petition by creditors or regulatory authorities and overseen by a court-appointed liquidator who takes control of all company affairs.
For the conditions and procedure of compulsory liquidation/insolvency under Nepalese law, please refer to the article:
Disclaimer: This article is for general informational purposes only and does not constitute legal advice, advertisement, personal communication, solicitation or inducement. No attorney-client relationship is created through this content. Gandhi & Associates assumes no liability for any consequences resulting from actions taken based on information contained herein.
For quick legal assistance:
Phone/Viber/WhatsApp: +977 9709035477