This presentation gives an overview of the laws and regulations regarding insolvency, liquidation and winding up in Nepal PLEASE HIT LIKE IF IT'S HELPFUL! :D

1. Presented By:
Group 3
SSS
RB
IM
MB
BS

2. • Nepalese Law
• Introduction
• Liquidation Process
• Restructuring
• Powers of Stakeholders
• Few Cases
• Qualification of Liquidator
• Problems/Challenges of Liquidation/Winding up
• World Overview Overview
Table of Contents

3. • Insolvency Act 2063 (2006)
• Companies Act 2063 (2006)
• Insurance Act 2049 (1992)
• Bank and Financial Institution Act 2063 (2006)
• Nepal Rastra Bank Act 2002
Nepalese Law

4. Insolvency
• Insolvency Act 2063 (2006), Chapter 1, Section 2(b)
“being insolvent” means “a state of being unable, or
appearing to be unable to pay any or all of the debts
due and payable in the failure to creditors or a
situation where the amount of liabilities of a
company exceeds the value of the assets”.
• Confusion of Insolvency in Nepal

5. Liquidation
• Insolvency Act 2063 (2006),
Chapter 1, Section 2(d)
• “Liquidation of company”
means a situation where the
registration of a company is
cancelled by fulfilling the
procedures referred to in this
Act”.

6. Types of Liquidation
Liquidation
Voluntary
Company is able
to fully pay its
debts
Company is not able to
fully pay its debts i.e.
Insolvency
Forced/
Compulsory

7. Forced Liquidation
Parties Requirement
Creditors 10% of creditor or creditors of the
company (Section 4(b))
Shareholders Shareholder or shareholders subscribing
at least 5% of shares, out of the total
shareholders. (Section 4(c))
Debenture-
holders
Debenture-holder or Debenture-holders
subscribing at least 5% of debentures, out
of the total shareholders. (Section 4(d))

8. Forced Liquidation
Parties Requirement
Authorized
Body/
Regulator
Special Business
•For Banks and Financial Institutions : Nepal
Rastra Bank
•For Insurance Companies :
Insurance Board
•For a company which cannot undergo
Voluntary Liquidation without the approval
of the competent body or authority, such
authority.
(Section 4(f), 8), Insolvency Act 2063, 2006

9. Winding up
• No legal definition in Nepalese law
• But same meaning as “Liquidation” in Nepal
• Interpretation from Company Act 1956, India
• process through which the corporate existence of a
company is ended and it is finally dissolved.
• Section 425 of Company Act 1956 states that winding
up can be made in the following two ways:
– Winding up under supervision of the tribunal or
compulsory winding up.
– Voluntary winding up

11. (1) Application by any one of the six stakeholders
• Company itself
• Liquidator appointed by the company
• Creditors
• Shareholders
• Debenture-holders
• Authorized Body or Regulator
• Application to be accompanied by necessary
documents

12. (2) Registration of application at the court and
Preliminary study of application
• Court registers application
• Court sets the date of hearing
• Gives chance to revoke application (7 days)
• Court may ask concerned body to submit
statement of reasons
• Court gives formal public notice in a national
daily newspaper at least twice

13. (3) Hearing and Order by court (Section10,
Insolvency Act 2063,2006)
• Hearing takes place
• Court may accept or dismiss the application
• If accepted, court gives order to appoint Inquiry
Officer (IO)

14. (4) Inquiry Period: Inquiry and submission of
report by IO
• IO makes a detail inquiry to check
– Whether the company has been insolvent or not,
– Whether its financial situation can be improved
through restructuring or not,
– Whether it’s a lost cause and the company should be
liquidated
• IO convenes a meeting of creditors
• IO submits a report to the court

15. (5) Court gives order within 7 days of the
receipt of IO Report
• To liquidate
• To restructure
• To stay/wait for a specified time period, if the
company can be improved without liquidating
• To make further inquiry

16. (6) Appointment of a Liquidator
• Court gives order to appoint a Liquidator
• For example, Chartered Accountant Narayan Bajaj
was appointed as the liquidator for the liquidation
of Nepal Development Bank.
• Court also sets the time limit for completing the
liquidation proceeding
• Usually 5 years in Nepal
• But in practice, this time is extended to more than
10 years, especially in case of liquidation of Public
Enterprises in Nepal.

17. (7) Consequences of the commencement of
Liquidation proceedings
• Liquidator: the supreme authority
• The directors and officers of the company are
relieved of their position/office and the liquidator
exercises all powers of directors/officers.
• All employees are also terminated, except the few
retained by the liquidator to help him manage the
company.
• The liquidator takes into custody all assets,
properties and books of accounts except the
properties in possession of secured creditors.

18. (8) Activities performed by liquidator
• examines the business and financial situation
• calls the meeting of creditors within 15 days of his
appointment
• asks creditors to submit their debt claims along with
evidences and calculates the total debt of the
company
• obtains and recovers all properties or amounts
required to be obtained and recovered
• valuates the total assets/properties of the company

19. (8) Activities performed by liquidator
• examines whether any director, shareholder, or
employees has committed fraud, cheating or
deception and takes legal action against them
• settles any legal matters or claims against parties
• prepares and submits the statements of accounts of
incomes and expenditures in the course of
liquidation in every 6 months (Section 132.
2(a),Companies Act, 2063)
• submits progress report to the court and the Office
of the registrar (after 3 months of appointment)

20. (9) Sale of assets and distribution of proceeds
• The Liquidator
– sells the assets of the company
– distributes the sale proceeds to all the concerned
parties in the order of settlement of claims/order
of priority of payment of liability.

21. Order of settlement of claims or liability of a
company (Insolvency Act 2063)
1
• All expenses incurred by Interim Administrator, liquidator,
Restructuring Manager, Inquiry Officer.
2
• All remuneration due to Interim Administrator, liquidator,
Restructuring Manager, Inquiry Officer
3 • All debts borrowed by Inquiry Officer and Liquidator
4
• Wage, remuneration payable to the workers/employees at the
time of the issue of the order to liquidate or restructure the
company. NO DIRECTORS
5 • Gratuity, and Employee Provident fund, NO DIRECTORS
6 • Distribution to Creditors
7 • Distribution to Preference Shareholders
8 • Distribution to Common Shareholders

22. Order of settlement of claims of BFIs according to
Section 77(c) BAFIA 2063 (2006)
1 • All expenses incurred in liquidation
2 • Payments outstanding to depositors on savings accounts
3 • Payments outstanding to depositors on fixed accounts
4 • Payments outstanding to other depositors
5 • Taxes, fees and other charges payable
6 • Credit obtained from NRB
7
• Salary, allowances, provident fund, gratuity, and other amounts
outstanding to employees
8 • Other credits obtained by the licensed institution
9 • Shareholders

23. (10) Report Submission by the Liquidator (Section 131,
2(d), (e), (f), Companies Act, 2063 (2006))
(11)Cancellation of registration of the company
(Section 132, (1), (2), Companies Act, 2063 (2006))
• Office of the Registrar
– strikes the name of the company off the company
register
– issues an order that the registration of the company
has been cancelled
– publishes in a national daily newspaper a notice that
such company has been dissolved.

24. Restructuring
• According to Section 2 (e) of Insolvency Act:
“Restructuring” means a process to be adopted
under this Act in order to a company which may
become insolvent because of financial difficulty

25. Procedure
1. Court order to the appointment of
restructuring manager
2. Preparation of restructuring program
– To capitalize the debt of the company and alter the
capital structure or management structure ;
– To pay the claims of creditors by selling any portion of
the assets of the company;
– To amalgamate the company with any other company;
– To do any such other act which the Court considers
appropriate to restructure the company

26. Procedure
3. Call meeting of creditors
– Discuss the “Restructuring Program Proposal”
4. Prepare report
– The restructuring manager submit to the Court a
report, accompanied by the transactions, assets
and financial situation of the company and its
restructuring program, if any proposed.

27. 5. Claim and objection to approved
restructuring program:
– A creditor who does not agree may make an
application of claim and objection within seven
days
6. Consequences of approval by court
– If the Court approves the restructuring program
adopted by the meeting of creditors the program
shall be binding on all creditors of the company,
directors and shareholders of the company

28. 7. Restructuring manager is to operate
company
– Management and control of the business,
properties and transactions of the company;
– Termination, sale and disposal of any business or
property of the company;
– Doing or exercising any such act or power that
the company or its officer may do or exercise.

29. 8. Raise loan, if necessary
– Power to raise loan if amount to be necessary to
keep on running the company or operate the
business and transaction of the company
9. Implementation of restructuring program
– the restructuring manager responsible for the
supervision and management of the
implementation of the restructuring program

30. 10. Ceiling of remittance of loan of company:
– Where as per the agreement of creditors, the
restructuring program provides for the remission
or alteration in the terms of any loan or any
portion of the loan not secured, such remission or
alteration may be made in accordance with that
program.

31. 11. Alteration in and amendment to
restructuring program
– If the program cannot be wholly or partly
implemented, it can be altered or amended
through meeting of creditors. Alterations have to
approved by Court

32. 12. Termination of program
– The program may be terminated under two
circumstances:
1. The manager makes application that the
company has already implemented the program
2. The company fails to implement the
restructuring program, in such case the court
shall issue order to liquidate the company

33. Creditors
• According to Section 2(I)
“Creditor” means a person
who is entitled to receive
payment from a company
which has become
insolvent or may become
insolvent;

34. Rights of Creditors
1. Right to claim
– Right to claim for the loan due or payable to
him/her
– Provide proof and evidence if necessary
– Restructuring manager or liquidator will examine
the claim and accept or reject within 7 days
– If creditor is not satisfied, he/she can make
application to Appellate Court within 15 days
– Foreign creditors also have right to claim

35. Rights
2. Right to claim for interest
– Creditor has the right to claim the agreed upon
interest from the insolvent company
– No interest may be claimed for the period after
the date of issue by the Court of an order to
liquidate the company or implement the
restructuring program of the company.

36. 3. Right to complain
– If any creditor of a company thinks that there is
any irregularity in respect of any act or action of
the liquidator
– At least 10% of total creditors; and debenture-
holders that has or have subscribed at least 5%
of total debentures of a company have the right
to file an application.

37. 4. Right to claim amount paid in consideration
of preferential transaction
– Any creditor who pays any amount to the
liquidator in relation to any preferential
transaction made with the company, according
to the order of the Court or for any other reason,
may make a claim for that amount as a debt
claim against the company in liquidation

38. Secured Creditor
• A secured creditor means a creditor that lends
money to a company against a security.
• Rights to debt claim
• The amount to be claimed difference between
the amount received from the market value of
property and amount payable

39. Shareholder
According to Section 2(r) of Companies Act, 2063:
“Shareholder” means a person having ownership
in the share of a company

40. Shareholder
• Right to complain
• Right to residual claim

41. SOG Vs Margaretic
• Sons of Gwalia :Australian Gold Mining company,
listed on the ASX
• Luka Margaretic: Shareholder bought shares of
the company which went into liquidation 11 days
later
• Margaretic claimed damages based on misleading
or deceptive conduct and a failure to comply with
continuous disclosure obligations
• Compensation claim to recover the cost of his
shares plus brokerage

42. • Ruling: Ruled in favour of Margaretic
• Person who buys shares in a company relying
on deceptive information from that company,
or was misled as to the company's worth by its
failure to make disclosures, may have a claim
for damages against the company that ranks
on a par with other creditors.

43. Nepal Development Bank (NDB)
• NDB is the first company to be liquidated after
the Insolvency Act came into existence.
• Bad management, bad policy and bad luck as
well were main reasons – Narayan Bajaj.
• As per clause 74 of the BAFIA, case was filed in
Patan Appellate Court for liquidation.
• In January 2010, Court ordered to liquidate
NDB.

45. Some numerical data
• In first quarter of 2064 B.S., reserve deficit
was Rs.580 million.
• Furthermore, in first eight month period of
2065 B.S. NDB suffered Rs.680 million.
• Net worth turned negative by 25.02% which
further worsened to 30.43%by Chaitra.
• Non-performing loans were 50% with negative
Capital Adequacy Ratio of 48.31% (NRB
allowing up to 11% only).

46. How it started
• It started from January 19, 2010 with audit of
assets and liabilities.
• In first process of recovering loans, Rs.200 million
was recovered within 15 days of publication of
notice.
• As per the Insolvency Act, “the liquidator will
have to submit report about assets and liabilities
of the bank to the court before reaching any
conclusion on sharing of the money to
stakeholders.”

47. Cont.
• Small depositors had Rs.210 million.
• Employees Provident Fund (EPF) and Nepal
Army had Rs.330 million & Rs.180 million.
• Expenses of the liquidator, employees and
other liabilities were listed in its priority
gradually excluding directors of the company
• Ministry of Finance sent a list of 40 former
NDB officials to police for further
investigation.

48. Cont.
• Initially, 75% of deposits were expected to be
returned back.
• Notice was issued to pay back up to
Rs.800,000 up to small institutional
depositors.
• NA purchased land in Chitwan in auction of
NDB; from which Mr Bajaj decided to pay to
depositors.

49. Ranger PLC (Rangers)
• Rangers entered into financial
crisis during late 2000s.
• It owed substantial amounts to Her
Majesty’s Revenue and Customs, who
subsequently refused to allow Rangers to
exit administration via a Company Voluntary
Arrangement (CVA)
• A bill potentially of around £49 million was
assessed in 2010.

50. Liquidation
• RFC entered into the process of
liquidation on 31st October 2012.
• On 6 May 2011, it was confirmed
that David Murray had sold his
controlling interest in the club (85.3
percent) to Wavetower Limited,
ultimately owned by Craig Whyte,
for £1.
• They refused to remit the pay-as-you-earn
tax deducted from his employees to HMRC.

51. Cont.
• 13 Feb 2012 – Rangers filed legal papers with
intention to enter into administration.
• 14 Feb 2012 – HMRC made unsuccessful
attempt for petition of authority to appoint
their choice of administrator.
• Duff & Phelps were selected as administrators.
• April- Revealed debt could top £134M.
• HMRC rejected owner’s bid to exit
administration via CVA giving creditors 9 pence
a pound.

52. Cont.
• Business & assets were sold to Sevco Scotland
Ltd, with BDO appointed as liquidator.
• Reason behind liquidation was overspending
due to mismanagement.
• “For every £5 Celtic spends, we will spend
£10.” – Former owner of Rangers

53. Formation of New Company
• Club’s assets were sold to Sevco Scotland ltd.
owned by Mr Charles Green’s consortium.
• At present, a new company has been formed
legally with under new name.
• Any attempt to adopt the name “The Rangers
Football Club” would require the approval of
the liquidators.

54. Requirement to be a liquidator
• Section 63, Insolvency Act 2063, 2006
(a) Have completed the age of thirty five years;
(b) Being a member of the prescribed professional
association;
(c) Having acquired at least bachelor's degree in
commercial law, commerce, management, accounts
or any other prescribed subject from a recognized
university;
(d) Having abode in the State of Nepal;
(e) Being competent to carry on insolvency practice
under this Act.

55. Nepalese Scenario
According to data from companies that have
gone into liquidation
• 26% - due to poor supervision and lack of a
regulatory body
• 20% due to deficient bank management
• 11% due to political influence
• 15% due to connected lending and fraud.

56. ISSUES REGARDING
LIQUIDATION IN NEPAL

57. Issue 1
The Insolvency Act of Nepal doesn’t discuss
about the dissolution of the Board of
Directors. Which governing body has the
privilege to take the action?

58. On liquidation of a company the board of
directors does not automatically dissolve.
Nepal Rastra Bank (NRB) has the right to
liquidate the board under the NRB Act(In case
of BFI’s); however NRB is yet to do this.
(Ambiguities are there in case of other companies)

59. Issue
What is the role of the court except the
appointment of liquidator?
Essential in determining payment priorities
and distribution of surplus funds, as the
Insolvency Act does not differentiate between
creditors.

60. ISSUE
CONTRADICTIONS
BAFIA states that individual depositors will be
the first recipients of money while the
Insolvency Act states that employees and
other liabilities will have to be prioritized

61. How is the priority assigned among creditors
during liquidation?
This issue needs to be responded in the
respective act so that there lies no further
confusions regarding the topic. For, right now
court is responsible for the decision.

62. Is Insolvency the last resort? What about the
other options such as rehabilitating?
• Differentiate insolvency and liquidation
• There should be rehabilitation of the doomed
companies.
• Provisions to change of management for
restructuring

63. Recommendations
• The local elements need to be infused in our
strategies and vision.
• The priority list of creditors needs to be
prepared
• Insolvency and liquidation need to be
• It is time to make the acts in English so that
nothing is lost in translation
• The contradictions in the laws need to be
explained and amended

64. Thank You!
And
Any Questions?