Insolvency is a financial state where a company’s liabilities exceed its assets or it is unable to pay its debts as they fall due. Liquidation (or winding up) is the legal process that follows a declaration of insolvency, where the company’s assets are sold off, debts are settled in a specific order of priority, and the corporate entity is ultimately dissolved.

Under the Insolvency Act, 2063, a petition can be filed by:

• The company itself (via a Board of Directors resolution).
• Creditors holding at least 10% of the company's total debt.
• Shareholders holding at least 5% of the total shares.
• Debenture-holders holding at least 5% of the total debentures.
• A government regulatory authority (e.g., NRB for banks or NIA for insurance companies).

Yes. Nepalese law allows for Corporate Restructuring. If the court-appointed Inquiry Officer believes the business is viable, a Restructuring Manager is appointed to develop a plan (debt rescheduling, new investment, or operational changes). If creditors and the court approve this plan, the company can continue its operations instead of being liquidated.

The timeline depends on the complexity of the case:

• Mutual Consent/Voluntary Liquidation: Often completed within 3 to 6 months
• Compulsory Liquidation (Court-ordered): Can take 9 to 12 months or longer, depending on the volume of assets and the number of creditor claims to be adjudicated.

Proceeds from the sale of assets are distributed in a strict "waterfall"   hierarchy:

1. Secured Creditors (Banks with collateral).
2. Insolvency Costs (Fees for the liquidator and court expenses).
3. Employee Salaries and Dues.
4. Government Taxes and Fees.
5. Unsecured Creditors (Vendors and suppliers).
6. Shareholders (Only if a surplus remains).

Yes. Non-Resident Nepalis (NRNs) or foreign investors can initiate or defend insolvency proceedings through Power of Attorney (Adhikrit Wareshnama). This allows a legal representative in Nepal to act on your behalf in the District Court and before the Office of the Company Registrar (OCR).

Yes. Once an insolvency petition is admitted by the court, a Moratorium (Stay Order) is usually issued. This temporarily freezes all other civil lawsuits, debt recovery actions, and foreclosure proceedings against the company, allowing the court-appointed officer to manage the assets collectively.

Once a liquidator or restructuring manager is appointed, the Board of Directors loses its management authority. Directors are required to cooperate fully with the liquidator by providing all financial records and statements. If evidence of fraud or "wrongful trading" is found, directors may face personal liability or criminal penalties.

After all assets are sold and the proceeds are distributed, the liquidator submits a final report to the court and the Office of the Company Registrar (OCR). The OCR then strikes the company’s name from the register and issues a Certificate of Dissolution, at which point the company legally ceases to exist