Insolvency Law at Nepal
Nepal's insolvency framework is governed by the Insolvency Act, 2063 (2006), which provides a structured approach to managing both corporate insolvency and bankruptcy. The Act encompasses provisions for insolvency proceedings, creditor rights, company restructuring, liquidation, and the regulation of insolvency professionals.
🏢 Corporate Insolvency Proceedings
1. Initiation of Insolvency Proceedings
Insolvency proceedings can be initiated by:
The company itself,
Creditors holding at least 10% of the company's debt,
Shareholders owning at least 5% of the company's shares,
Debenture holders holding at least 5% of the company's debentures,
An appointed liquidator, or
Regulatory bodies for specific sectors like banking or insurance. (Section 4: Application to be made for insolvency proceedings - Nepal Laws)
Before filing, a 35-day notice period is required after a debt demand is served.
2. Conditions for Deemed Insolvency
A company is considered insolvent if:
The shareholders or board pass a resolution declaring insolvency,
The court orders payment of a debt, and it's not paid within 35 days,
The company fails to pay a debt within 35 days after receiving a creditor's notice and does not challenge the notice in court. (Section 7: Company deemed to have become insolvent - Nepal Laws)
🔄 Restructuring and Liquidation
3. Restructuring Scheme
Companies may propose restructuring plans subject to court approval. The court evaluates the plan's feasibility, creditor interests, and overall fairness. If approved, the restructuring becomes binding. The court can also modify or revoke the plan if circumstances change.
4. Liquidation Process
If restructuring is not viable, the company may enter liquidation:
A court order initiates the liquidation.
The company ceases operations, and assets are liquidated to pay creditors.
The court oversees the process, ensuring compliance with the law.
⚖️ Creditor Rights and Claims
Creditors can file claims during insolvency proceedings.
The court may address claims related to contingent or undetermined liabilities.
Certain transactions, like preferential transfers or fraudulent conveyances, can be challenged and reversed. (Insolvency Act, 2063 - Nepal Laws)
👨⚖️ Regulation of Insolvency Professionals
Practicing insolvency professionals must obtain a license.
An Insolvency Administration Office is established to regulate and oversee insolvency practices. (Chapter-8 Insolvency Practice, and Regulation and Administration Thereof - Nepal Laws)
🏛️ Court Oversight and Management
The Debt Recovery Tribunal (DRT) adjudicates bankruptcy and insolvency matters.
During insolvency proceedings, the company's management may be supervised or replaced by a court-appointed official if necessary. (bankruptcy law, Section 15: Management of company during inquiry period - Nepal Laws)
🌐 Regional Collaboration and Capacity Building
Nepal is enhancing its insolvency framework through regional collaboration. The Regional Centre for Insolvency and Bankruptcy at Kathmandu University, in partnership with the Insolvency Law Academy, aims to promote research, training, and knowledge exchange in insolvency law. (The Regional Centre for Insolvency and Bankruptcy - Nepal - Insolvency Law Academy)
For comprehensive details, you can refer to the full text of the Insolvency Act, 2063 here: Nepal Laws – Insolvency Act, 2063. (Insolvency Act, 2063 - Nepal Laws)
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