Closing a Company in Nepal

Do you have a company that has been sitting dormant and accumulating fines at the Office of the Company Registrar (OCR)? Many people assume that a non-operating company simply fades away, but that is not the case.

Closing a registered company in Nepal is not a single process. The route that applies depends on two things, namely why the company is closing and what financial condition it is in at the time.

The Companies Act, 2063 (2006) governs two of the three available ways: deregistration and voluntary liquidation. The Insolvency Act, 2063 (2006) governs the third: compulsory liquidation which is the court-ordered process for insolvent companies. All three ways ultimately end with the Office of the Company Registrar (OCR) removing the company's name from the register, but the procedures, forums, and conditions for each are distinct.

One clarification before proceeding is that this guide does not cover the closure of banks or financial institutions. Their liquidation falls under the Bank and Financial Institutions Act, 2073 (2017) and is governed by a separate regulatory process.

Deregistration

Deregistration is the cancellation of a company's registration by the OCR, which terminates its existence as a legal entity. It applies to companies that either never started operations after incorporation or are no longer operating. It is not designed for companies that have active assets and creditor obligations to settle. Those situations call for liquidation and not deregistration.

The process runs on two tracks: one initiated by the company, one initiated by the OCR.

Voluntary Deregistration

Voluntary deregistration is the route available when shareholders decide to close a company that never actually began business operations. A company that was registered, obtained a PAN, opened a bank account, but never traded or operated in any substantive way falls in this category.

The procedure requires three things to reach the OCR simultaneously:

First, the shareholders must pass a written resolution at a general meeting authorizing the application for deregistration. Second, the company's auditor must provide a formal confirmation to the OCR stating that the company has not undertaken any economic activity. Third, the Inland Revenue Department must confirm the company's financial status. That third step is frequently the one that causes delays, since companies that have been passive may have outstanding filing obligations even if they did not conduct any business.

Once the OCR receives the application supported by both confirmations, it reviews the documents and proceeds with cancellation, if satisfied.

Involuntary Deregistration

The OCR has its own statutory authority to cancel a company's registration without the shareholders initiating the process. This typically applies to companies that have gone dormant and stopped complying with their annual obligations. The specific conditions under which the OCR can act are:

• The company has failed to submit annual returns or pay applicable fines for three consecutive financial years
• The OCR has reasonable grounds to believe the company is not carrying on business or is not in operation, based on administrative evidence

The procedure the OCR follows in these cases is that a notice is issued to the company by setting out the reasons for the proposed cancellation. If necessary, the notice is also published in a national daily newspaper. Then the company has two months from receipt of the notice to respond in writing by explaining why its registration should not be cancelled. If no response is received within that period, or if the reasons provided are considered insufficient, the OCR proceeds with cancellation. Upon cancellation, the company's directors are formally notified and a cancellation notice is published in a national daily newspaper.

For companies that have simply fallen out of compliance (like missed filings, unpaid fines), the two-month response window is the opportunity to regularise their status and avoid cancellation. Missing or ignoring the notice removes that option.

Restoring a Cancelled Registration

A company whose registration has been cancelled can seek restoration through the courts. The petition must be filed within five years of the date on which the cancellation notice was published. Beyond that window, restoration is no longer available.

The petition may be filed by the company itself, by any of its shareholders, or by a creditor. The court may order restoration in two situations: if it finds that the registration was cancelled while the company was actually carrying on business, or if it concludes that restoration is necessary for the proper management of the company's outstanding assets and liabilities. If the court grants restoration, the company is treated as if the cancellation had never taken place.

Voluntary Liquidation

Voluntary liquidation is the structured process through which a solvent company winds itself up by realizing assets, settling debts in full, and distributing whatever remains to shareholders before the OCR formally dissolves it. Chapter 10 of the Companies Act governs the process.

The financial condition of the company at the time of initiating liquidation is the primary question. Voluntary liquidation is only available to solvent companies i.e. those that can pay all outstanding debts and liabilities in full. A company that cannot do this cannot take the voluntary route. That distinction is not administrative; it is the legal dividing line between voluntary liquidation and compulsory liquidation.

Before the process moves forward, the Board of Directors must submit a solvency declaration: a formal written confirmation that all outstanding liabilities can be fully settled within one year of the liquidation resolution. This declaration is a legal prerequisite, and directors who submit it knowingly inaccurately carry personal exposure for the consequences.

Special resolution

Shareholders approve the liquidation by passing a special resolution at a general meeting. The resolution requires a 75% majority. A copy of the resolution, along with the formal application, must be submitted to the OCR within seven days of the vote.

Liquidator and auditor

The shareholders appoint a licensed liquidator and an auditor, specifying their remuneration and the target timeframe for completing the liquidation. The OCR must be notified of these appointments within seven days. The liquidator's appointment triggers two immediate consequences: the Board of Directors is dissolved, and employees cease to hold their positions. From that point, the liquidator has full control over the company's affairs and assets.

Creditor notification

The liquidator publishes a notice in a national daily newspaper informing creditors of the liquidation and inviting the submission of outstanding claims. This is the mechanism by which the company's full liability picture is established and verified. Creditors who do not come forward within the notified period may find their claims addressed differently in the distribution process.

Asset realization and debt settlement

The liquidator takes custody of all company assets and realizes them in an orderly manner. Debts and liabilities are settled in the statutory priority order set out under the applicable provisions of the Companies Act. Shareholders receive a progress update every six months through the liquidation process.

Distribution and final report

Once all debts have been discharged, the liquidator prepares a proposal for distributing residual assets among shareholders. This distribution requires approval from shareholders holding at least 75% of the company's shares. Following distribution, the liquidator submits a final report to the OCR by covering assets realized, creditor payments made, and distributions to shareholdersaccompanied by an auditor's certification that the company has been fully liquidated. The OCR strikes the company from the register after receiving the report and publishes a dissolution notice in a national daily newspaper.

Compulsory Liquidation

Compulsory liquidation is a court-ordered process governed by the Insolvency Act, 2063 (2006). It applies when a company is insolvent and the voluntary routes are no longer available or appropriate. The forum is the Commercial Bench of the relevant High Court.

A petition for compulsory liquidation can be filed by several parties: a creditor whose debt the company has failed to pay within 35 days of a court order, the company itself through a special resolution or a Board decision acknowledging insolvency, debenture holders representing at least 5% of the company's total debentures, an already-appointed liquidator, or a regulatory authority with statutory oversight over the company's sector.

Once the court admits the petition, it appoints a liquidator, orders the dissolution of the Board of Directors, and publishes notice of the proceedings to stakeholders. The liquidator takes control of all company assets and settles outstanding liabilities in the priority order set out under Section 57 of the Insolvency Act. The process concludes in the same way as voluntary liquidation i.e. a final report to the OCR followed by the striking of the company from the register. But the path to that point is court-driven rather than shareholder-driven.

Compulsory liquidation is the most adversarial of the three routes. The liquidator's primary obligation runs to creditors, not shareholders, and the company's directors lose control of the process from the moment the court acts. By the point a company reaches compulsory liquidation, legal representation is not an optional consideration.

Conclusion

The route chosen at the very start determines the procedure, the timeline, and the obligations that follow. Deregistration suits the company that never got started or has been inactive without liabilities. Voluntary liquidation suits the company that is solvent and ready to close in an orderly way. Compulsory liquidation is not a choice and happens when the financial situation has overtaken the company's options. Getting the initial assessment right, before an application is filed or a window is missed, is where legal advice adds the most value.