Liquidation is the process of closing a company and converting its assets into cash to pay off its debts. If there is any money left after paying the debts, it is distributed to the shareholders. Liquidation can occur due to the company’s inability to continue its business or when shareholders voluntarily decide to close it.
Voluntary Liquidation Process under Company Act 2063 of Nepal
1. Passing a Resolution
The shareholders of the company hold a general meeting and pass a special resolution to close the company. This decision is made when the shareholders agree that the company cannot or should not continue its business.
2. Appointing a Liquidator
The shareholders appoint a liquidator, who is a person responsible for managing the liquidation process. The liquidator’s job is to sell the company’s assets, pay off debts, and distribute any remaining money to the shareholders.
3. Notifying the Office of Company Registrar (OCR)
After the resolution is passed, the company must inform the Office of the Company Registrar (OCR) within 7 days. This is to officially notify the government about the decision to liquidate.
4. Publishing a Public Notice
The liquidator publishes a public notice in a national newspaper. This notice informs the public and creditors about the liquidation and gives creditors a chance to submit their claims. Creditors are usually given 30 days to respond.
5. Assessing Assets and Liabilities
The liquidator examines the company’s financial position by reviewing all the assets and liabilities. This helps determine how much money is available to pay off the company’s debts.
6. Paying Off Debts
The liquidator sells the company’s assets, such as property or equipment, and uses the money to pay creditors. Debts are paid in a specific order of priority, starting with secured creditors.
7. Distributing Remaining Funds
If there is any money left after paying all debts, the liquidator distributes it to the shareholders. Each shareholder gets their share based on how much they own in the company.
8. Preparing the Final Report
The liquidator prepares a final report that summarizes everything, including the assets sold, debts paid, and how the remaining funds were distributed. This report ensures transparency in the process.
9. Deregistering the Company
The final report is submitted to the OCR, along with an application to close the company. After reviewing the report, the OCR officially deregisters the company and declares it dissolved.
This process ensures that the company is closed legally and fairly, protecting the interests of creditors, shareholders, and the public.