Kathmandu University School of Management

Balkumari, Lalitpur

Individual Assignment I
Corporate Law In Nepal

Submitted By:
Anamika Shakya
Roll Number: 18785
Section: C
BBA Year III, 6th Semester

Submitted To:
Mr. Sharan Shankar Paudel
Lecturer of Corporate Law in Nepal
KUSOM

Date: 2nd May, 2021

1)"Liquidation/Winding up of a particular company is a process and dissolution is the end

result." Discuss and justify this statement with legal grounds and example.

Answer:

Yes, it is true that liquidation/winding up of a particular company is a process and

dissolution is the end result. Liquidation of a particular company is defined as a process by

which the life of a company is brought to an end and its assets is administered for the benefit of

its members and creditors. It is a process that usually occurs when a company is insolvent i.e., it

cannot pay its obligations when they are due. When the company’s operations end, the remaining

assets are used to pay creditors and shareholders, based on the priority of their

claims.Liquidation of a company can be either voluntary or compulsory. A liquidator plays an

important role for the process of liquidation of a company.

The process of liquidation involves the act of collecting and assessing its liability and

assets. Further, it involves selling company’s assets and converting them into cash as well as

settling liabilities as per the set priority. Likewise, the company also requires to distribute the

proceeds, if remained to shareholders uniformly. Then the company also needs to remove the

name of the company from the register book maintained by OCR.

The liquidation of a company can be of two types:

 Voluntary Liquidation

 Compulsory Liquidation
 Voluntary Liquidation

Voluntary Liquidation process takes place at the choice of the company. It is a type of

liquidation which is not forced by insolvency and is voluntarily decided by the owner of the

company to liquidate. The voluntary liquidation is carried out for the solvent company where the

company’s asset outweighs its liability. For instance, if a company A’s asset is greater than its

liability and willing choose to liquidate then it goes through voluntary liquidation process.

The voluntary liquidation process in Nepal takes place according to the Company’s Act

2063. It involves the action taken up by the General Meeting of the company itself. There are

different conditions that should be considered as per the Section 126 of the Company’s Act 2063.

Some of the condition that should be taken in consideration while going for voluntary liquidation

are that the company should be able to settle its liabilities. Directors should present the deed of

declaration in GM that the company is able to pay all its liabilities within one year. General

Meeting should have passed Special Resolution and there should not be any proceedings of

insolvency running against the company.

The procedures for the voluntary liquidation are that first of all, a special resolution should be

passed by the General Meeting along with the appointment of the liquidator and auditor where

the liquidator is responsible for collecting the assets of the company and is also responsible to

settle the payment to the required claimants. The liquidator also requires to submit the reports to

the OCR as well as to remove the name of the company from the register book maintained in

OCR and publishing notice in national level newspaper by OCR. Likewise, in voluntary

liquidation, the court doesn’t conduct detailed investigation for the liquidation process as well as

no investigation officer is required.

 Compulsory Liquidation

The Compulsory Liquidation is mostly initiated by a creditor that is looking to force a

company into closure with the help of a court order application. The process is usually instigated

with a winding up petition and once it is heard at court, it can become a winding up order. The

compulsory liquidation is done for the insolvent companies where the liabilities is greater than

the assets of the company. For instance, a company B has 45 lakh worth asset but its liability

consists of 95 lakhs so here the liability is greater than its assets and it is seen that the company

will be unable to pay its debt so in that case, company B needs to follow compulsory liquidation

process as per the Insolvency Act 2063 as the company B is insolvent.

Compulsory liquidation is carried out in accordance to the Insolvency Act 2063.The

liquidators are usually appointed by the company of the court. In case of the compulsory

liquidation the liabilities might not be repaid as the liabilities are greater than its assets as well as

there is prioritization while repaying the stakeholders of the company. A detailed investigation

process is carried out by the court to declare a company insolvent. Similarly, the court also has a

responsibility to appoint investigation officer and liquidator for the entire process.

There are many cases of both voluntary and compulsory liquidation. Some of the companies

that went through the process of liquidation due to different reasons were the company Enron (an

American Energy company), Payless Shoesource (an international footwear chain company).

Both the companies had to go through liquidation process as both the companies went bankrupt

and its liabilities exceeded its assets and were not able to pay its dues.

Further when we talk about dissolution of a company, the dissolution of a company refers to

the systemic closing down of a business entity, while liquidation refers to the selling of assets
and payment of debts prior to closing a business. Dissolution of a company/business takes place

after the liquidation process is completed and thus is considered as the end result. Dissolution

can also be either voluntary dissolution or involuntary dissolution.

There are two methods by which a company may be dissolved. The first method is voluntary

dissolution, which is an elective decision to dissolve the company where majority votes for the

dissolution is required while the second method is involuntary dissolution, which occurs upon

the happening of statute-specific events such as a failure to pay taxes, exceeding or abusing the

authority. It is very important for a dissolved company to provide notice to its creditors about the

upcoming dissolution of the company.

Thus, we can say that liquidation/winding up of the company is a process from the above-

mentioned legal grounds of the Company’s Act 2063 and Insolvency Act 2063 and dissolution is

the end result. Liquidation of a company does not mean ending of the legal existence of the

company as liquidation is a starting process during which the company still exist as a legal entity

therefore dissolution of the company takes place after the liquidation process and thus is

considered to be the end result.