Insolvency Act, 2063 (2006)


Published: 2006

Subscribe to a Global-Regulation Premium Membership Today!

Key Benefits:

Subscribe Now for only USD$20 per month, or Get a Day Pass for only USD$4.99.
Insolvency Act, 2063 (2006) 1
Insolvency Act, 2063 (2006) Date of authentication and publication:
4 Mangsir 2063 (20 November 2006)
Act number 20 of the year 2063 (2006)
An Act Made to Provide for Insolvency Proceedings
Preamble: Whereas, it is expedient to make legal provisions immediately in
relation to the administration, insolvency proceedings of companies which are
insolvent or going to be insolvent being unable to pay debts to creditors or which
are facing financial difficulties, and in relation to the restructuring of such
companies;
Now, therefore, be it enacted by the House of Representatives in the First Year of
the issuance of the Proclamation of the House of Representatives, 2063(2006).
Chapter - 1
Preliminary
1. Short title and commencement: (1) This Act may be called “Insolvency
Act, 2063 (2006)."
(2) It shall come into force immediately.
2. Definitions: Unless the subject or the context otherwise requires, in this
Act,-
(a) “company” means a company incorporated under the companies law
in force, and this expression also includes such other body corporate
with limited liability as specified by the Government of Nepal by
notification in the Nepal Gazette;
(b) “being insolvent” means a state of being unable, or appearing to be
unable, to pay any or all of the debts due and payable to or payable in
the future to creditors or a situation where the amount of liabilities of
a company exceeds the value of the assets;
2
(c) “financial difficulty” means a situation where company becomes or
may become insolvent immediately or in the near future if the
company is not restructured made pursuant to this Act;
(d) “liquidation of company” means a situation where thregistration of a
company is canceled by fulfilling the procedures refe red to in this
Act;
(e) “restructuring” means a process to be adopted under this Act in order
to a company which may become insolvent because of financial
difficulty;
(f) “restructuring program” means a restructuring program as referred to
in Chapter-4;
(g) “Court” means the commercial bench of such court as de ignated by
the Government of Nepal, in consultation with the Supreme Court, by
notification in the Nepal Gazette;
(h) “debt” means a certain amount due and payable immediately or as
claimed due and payable;
(i) “creditor” means a person who is entitled to receive payment from a
company which has become insolvent or may become insolvent; and
this expression also includes a secured creditor;
(j) “security” means any or all property furnished as pledge, mortgage or
any other kind of security of a debt;
(k) “secured creditor” means a creditor that lends money to a company
against a security;
(l) “company which has become insolvent” means a situation where an
order has been issued under this Act for the liquidation of the
company;
(m) “Office” means the Insolvency Administration Office stablished
pursuant to Section 65;
3
(n) “insolvency practitioner” means a person licensed un er Section 64 to
carry on business relating to insolvency;
(o) “inquiry officer” means an inquiry officer appointed pursuant to
Section 10;
(p) “restructuring manager” means a person who is appointed by order of
the Court pursuant to Sub-section (2) of Section 22 to operate and
manage the restructuring scheme of a company;
(q) “liquidator” means a person who is appointed by an order of the Court
or a resolution adopted by a meeting of creditors to liquidate the
affairs of a company, and this expression also includes the Office;
(r) “associated person” means any director, officer, share older of a
company which has become insolvent or any director, officer or
shareholder of a company that is holding or subsidiary company of
such company; and this expression also includes the husband, wife,
son, daughter, adopted son, adopted daughter, father, mother, step
mother, elder brother, younger brother, elder sister, younger sister of
any director, officer, shareholder of that company or of a company
that is holding or a subsidiary of such company;
(s) “prescribed” or “as prescribed” means prescribed or as prescribed by
the Rules framed under this Company.
Chapter-2
Insolvency Proceedings
3. Prohibition on commencing insolvency proceedings without order
of Court: Save as ordered by the Court pursuant to this Act, no person shall
commence insolvency proceedings against any company.
4. Application to be made for insolvency proceedings: (1) Where it
is required to institute insolvency proceedings against any company, any of
the following persons may make an application to the Court in the prescribed
form for the institution of such proceedings:
4
(a) A company itself which has become insolvent;
(b) Out of the total creditors of a company which has become
insolvent, at least ten percent creditor or creditors who has or
have lent money;
(c) Shareholder or shareholders that has or have subscribed at least
five percent of shares, out of the total shareholders of a
company;
(d) Debenture-holder or debenture-holders that has or have
subscribed at least five percent of debentures, out of the total
debenture-holders of a company;
(e) A liquidator who has been appointed to liquidate a company; or
(f) In the case of a company that carries on any specific type of
business set forth in Section 8, a body authorized to administer
and regulate such business.
(2) In order for an application to be made pursuant to Sub-section
(1), a period of thirty five days shall have been expired after a notice issued
to pay the debt referred to in Section 5 has been duly served on the
concerned company.
(3) Every application to be made pursuant to Sub-section (1) shall
be accompanied by the reason for making the application, short description
of the financial condition of the company and the evid nce supporting the
fact that the company has become insolvent and the following details, as
well:
(a) Where the company itself which has become insolvent makes
such application:
(1) A document certified by the board of directors of the
company, mentioning that the company has become
insolvent;
5
(2) A special resolution adopted by the board of directors of
the company to institute the insolvency proceedings
pursuant to this Act;
(3) Certified copies of the balance sheet and audit report of
the company available at the time of making application
for the institution of insolvency proceedings.
(b) Where the creditor of a company which has become insolvent
makes such application:
(1) A statement of the principal and interest of the debt
which the creditor claims to be due and payable by the
company;
(2) The date on which the company borrowed the debt
claimed by the creditor and the reason why the debtwas
borrowed;
(3) Description that the amount referred to in Clause (1) is
due and such amount is payable immediately;
(4) That the debtor believes or the reason and ground the
debtor has to believe that the company in respect of
which demand is made for insolvency proceedings has
become insolvent.
(c) Where the liquidator makes such application:
(1) Evidence that the company in respect of which
application is made for insolvency proceedings has
appointed the liquidator for the purposes of liquidat on
of the company; and
(2) The opinion expressed by the liquidator on the matter
that the company in respect of which application is made
for insolvency proceedings has become insolvent, and
the ground for such opinion.
6
(4) Notwithstanding anything contained elsewhere in this Section,
any shareholder or debenture-holder of a company shall obtain permission of
the Court to make an application for insolvency proceedings pursuant to
Clause (c) or (d) of Sub-section (1), and the share older or debenture-holder
may, if so permitted, make an application on such terms and conditions as
may be specified by the Court.
(5) The Court shall not give permission referred to in Sub-section
(4) unless and until sufficient evidence proving that the company has
become insolvent is produced.
5. Notice to be given for payment of debt: (1) Prior to making an
application to the Court pursuant to Section 4 for insolvency proceedings, a
notice shall be sent to the registered office of the company in the prescribed
form for the payment of debt.
(2) The notice referred to in Sub-section (1) shall be signed by the
creditor himself or herself or by a person authorized by the creditor, on his
or her behalf.
6. Application to void notice issued for payment of debt: (1) Where the
notice received pursuant to Section 5 is not reasonble or where there are
any other reason for not repaying the debt immediatly, the concerned
company may make an application to the Court in order to void the notice,
not later than thirty five days after the date of receipt of that notice.
(2) Where the application referred to in Sub-section (1) is made,
the Court shall issue a notice summoning the creditor giving the notice
referred to in Section 5 to appear before the Court within seven days; the
notice to be so issued shall also be accompanied by a copy of such
application.
(3) The Court may make a decision to void or not to void the
notice issued pursuant to Section 5 no later than seven days after the date of
appearance of the creditor pursuant to Sub-section (2) or after the date of
7
expiration of the time prescribed for the appearance before the Court where
the creditor has failed to make such appearance.
(4) The Court may issue an order to void the notice issued pursuant
Section 5 on the following condition:
(a) There is a clear dispute as to whether the creditor has
extended debt to the company or not; or
(b) The debt due to be paid by the company to the credit does not
appear to be payable immediately.
(5) Where the Court issues an order pursuant to Sub-section (4), no
notice that is issued to pay the debt can be given to the company again on the
same matter nor can an application be made for the institution of insolvency
proceedings until the condition set forth in that Sub-section continues to
exist.
(6) Where the Court does not issue an order pursuant to Sub-
section (4), the company shall pay the debt of creditor no later than thirty
five days from that date.
7. Company deemed to have become insolvent: (1) Save as proved
otherwise, a company shall be deemed to have becom insolvent on the
following condition:
(a) The general meeting of shareholders adopts a resolution that
the company has become insolvent or a meeting of the board of
directors of the company makes such decision; or
(b) The Court issues an order requiring the company to pay the
debt and the debt is not paid up within thirty five days from the
date of receipt by the company of such order; or
(c) The company fails to pay the debt within thirty five days after
the service by the creditor on the company a notice for the
payment of the debt or fails to make an application o the Court
within the said period to void such notice.
8
(2) Nothing contained in this Section shall prevent the establishing
of the fact that a company has become insolvent where it is proved from any
other matter that the liability of the company exceed the value of the assets
of the company or the company itself admits that it has become insolvent.
8. Application for insolvency proceedings: (1) Notwithstanding
anything contained in Section 4, no application may be made to the Court for
insolvency proceedings in relation to the following company without
obtaining prior approval of the following authority:
(a) In the case of a bank or financial institution carrying on
banking and financial business, the Nepal Rastra Bank, or
(b) In the case of an insurance company carrying on insurance
business, the Insurance Board formed pursuant to the Insurance
Act, 2049(---), or
(c) In the case of a company which cannot undergo voluntary
liquidation without approval of the competent body or
authority, except that mentioned in Clause (a) or (b), such
authority.
(2) Every application to be made for insolvency proceedings in
relation to a company mentioned in Sub-section (1) shall be accompanied by
a copy of the approval given by the authority set for h in that Sub-section for
that purpose.
9. Action on application: (1) Where an application is made to institute, or
cause to be instituted, insolvency proceedings in relation to any company
pursuant to Section 4, the Court shall register the application where it has
been made duly and so appoint the date for hearing the same that such
hearing can take place within fifteen days.
(2) Except where a company itself makes an application for
insolvency proceedings, after the registration of an application referred to in
Sub-section (1), a notice shall be issued in the name of the concerned
9
company to submit statements in writing, if any, for not instituting such
proceedings within seven days and be delivered to the registered office of
such company.
(3) Where the Court considers reasonable, it may, prior to the
hearing on an application referred to in this Section, and as per necessity,
order the authority set forth in Sub-section (1) of Section 8 to submit
statements of reasons, if any, for not instituting a y proceedings as requested
by the applicant prior to the date appointed for hearing and shall publish a
notice thereof at least twice in any daily newspaper of national circulation so
that the shareholders, creditors of the concerned company or any other
persons having dealing with the concerned company ad the Stock
Exchange, as well, where such company is enlisted in the Stock Exchange
get such information.
(4) Any company or person that receives a notice issued or
published pursuant to Sub-section (2) or (3) shall submit statements in
writing, accompanied by the reason, if any, for noti stituting the insolvency
proceedings of the concerned, within the time specified by the Court.
10. Decision to be made upon keeping on hearing: (1) Notwithstanding
anything contained in the laws in force, the Court shall keep on hearing an
application made pursuant to this Chapter after commencement of the
hearing on the application on the day appointed for the hearing on the
application pending the final settlement thereof and make a decision thereon.
Provided that this provision shall not prevent the keeping of
hearing on that matter on the day on which the Court remains open where the
hearing cannot be completed or decision cannot be made on the day of
hearing because of time constraint.
(2) Upon the completion of hearing referred to in Sub-section (1),
the Court shall make an order to institute or not t institute insolvency
proceedings in relation to the company concerned.
10
(3) In making an order pursuant to Sub-section (2), the Court shall
order to appoint an insolvency professional as an inquiry official for the
purposes of making insolvency related inquiry.
(4) In making appointment of an inquiry authority pursuant to Sub-
section (3), a person whom the Court thinks fit, out f the persons whose
names are included in the list approved by the Office for that purpose, shall
be appointed.
11. Power to issue interim order: (1) Where, in making hearing on an
application made to the Court pursuant to Section 4, it appears that there
exists in the company any of the following situations which may prejudice
the interests of the creditor or any other person having dealing with the
company, the Court may, on an application by the concerned party or at its
own discretion, issue an interim order:
(a) The assets of the company have been sold and disposed of
wrongfully or there exists a possibility of such sale and
disposal;
(b) The management of the company has not been carried out
properly;
(c) Any legal action is going to be instituted or such action is going
to be enforced or there exists a possibility of such enforcement
in such a manner as to prejudice the assets of the company.
(2) In issuing an interim order pursuant to Sub-section (1), the
Court may issue order restraining from doing any or all of the following acts:
(a) Transferring, selling and disposing of, or otherwise mortgaging
or pledging, any assets of the Company, other than that
business of the company which it has been carrying o in the
ordinary course of business;
11
(b) Transferring the shares of the company in any manner or
altering the status of the shareholders of the company in any
manner;
(c) Withholding or foreclosing any assets of the company by any
person; or
(d) Instituting any legal action or keeping on such action or taking
any action or foreclosing by any creditor or person against the
assets of the company or any assets owned or possessed or
foreclosed by the company.
(3) Where an order is issued by the Court pursuant to Sub-section
(2), information thereof shall be given to the concerned company, company
registrar and Office, and where the Court thinks fit, it may also issue order
requiring to publish such information in a daily paper of national circulation
in a manner that the general public can gat such information.
(4) The Court may, if it considers necessary, issue order to appoint
any appropriate person as the interim administration of the company for the
interim management of the company during the currency of the interim
order.
(5) The functions, duties and powers of the interim administrator
appointed pursuant to Sub-section (4) shall be as pre cribed by the Court at
the time of such appointment.
(6) Notwithstanding anything contained elsewhere in this Act,
where the Court issues order for inquiry into insolvency proceedings or
dismisses the application, the interim order issued pursuant to this Section
shall ipso facto be ineffective.
12. Application not to be withdrawn : Notwithstanding anything contained
in the laws in force, an application made to the Court for insolvency
proceedings pursuant to Section 4 cannot be withdrawn except as permitted
by the Court.
12
Chapter-3
Inquiry into Insolvency Proceedings
13. To inquire into insolvency proceedings: (1) Where the Court issues
order to inquire into insolvency proceedings pursuant to Sub-section (3) of
Section 10, the inquiry official shall independently inquire into the financial
situation of the concerned company in order to determine the following:
(a) Whether or not there should be issued an order for immediate
liquidation of the company by the reason that its fnancial
situation cannot be improved;
(b) Whether or not the period of inquiry as referred to in Section
14 should be extended;
(c) Whether or not there should be issued an order for the
restructuring of the company through the restructuring
program;
(c) Whether or not the company has become or is likely to become
insolvent.
(2) The inquiry official shall make inquiry pursuant to Sub-section
(1) and submit an inquiry report to the Court within the period specified by
the Court, and such report shall contain, i ter alia, the resolution, if any,
adopted by the meeting of creditors, the company’s report and evaluation
and recommendation made by the official.
14. Power to extend period of insolvency proceedings: (1)Where the
inquiry officer, showing a reasonable reason why the financial situation of
the company cannot be inquired into within the period of inquiry as specified
pursuant to Sub-section (2) of Section 13, makes an application to the Court
for the extension of that period, the Court may, if it inds the reasonable
ground , extend the period as appropriate.
13
(2) Where the period of inquiry is extended pursuant to Sub-
section (1), the information thereof shall be given to the concerned company.
15. Management of company during inquiry period: (1) Notwithstanding
anything contained in the laws in force, the board of irector of the company
shall carry out the management and ordinary transactions of the company
during the period of inquiry of insolvency proceedings, under the regular
supervision of the inquiry official.
(2) Notwithstanding anything contained in Sub-section (1), where
the inquiry officer submits to the Court a report indicating that the board of
directors of the company has not operated the company roperly, the Court
may issue an order to remove the board of directors and order the inquiry
officer to carry out the management and ordinary transactions of the
company.
(3) Where the Court orders the inquiry officer to carry out the
management and ordinary transactions of the company pursuant to Sub-
section (2), the inquiry officer shall carry out the transactions accordingly.
(4) Where any special transaction such as the sale of the assets or
business of the company shall be carried out in the course of operating the
ordinary business of the company pursuant to Sub-section (3), an application
setting out the reason therefor shall be made to the Court for permission, and
where the Court issues an order granting such permission, the inquiry officer
may carry out such transaction.
16. Report to be made by director: A person who has held the office of
director of the company at the time when the Court has issued an order to
inquire into insolvency proceedings pursuant to Sub-section (3) of Section
10 or during the period of one year prior thereto, shall submit to the Court a
report on the financial situation and transactions f the company as at the
time of his or her retirement, in the prescribed formet.
14
17. Power to raise loans: (1)Where the inquiry officer considers the need of
any amount to keep on the company or operate the ordinary transactions of
the company, the inquiry officer may borrow loans from any person, with or
without furnishing necessary security.
(2) Any loans borrowed pursuant to Sub-section (1) shall be
deemed to be the amount spent during the period of inquiry into insolvency
proceedings and such amount shall be paid in order of p iority as provided in
this Act.
Provided that where the security furnished by the company to borrow a loan
has already been furnished as a security with any person, the order of
priority shall not apply in relation to the claim for security except in the case
where the inquiry official has made an agreement of a person entitled to
claim the same.
18. Report to be submitted by inquiry officer : (1) The inquiry officer
shall inquire into the financial and business situation of the company and
submit a report thereof to the Court within the period of inquiry.
(2) The inquiry officer shall determine any one matter set forth in
Sub-section (1) of Section 13 and make a recommendation report referred to
in Sub-section (1) containing the reasons and grounds for such
determination, and such report shall contain, inter alia, the actual financial
situation of the company, details obtained by the inqu ry official upon
making inquiry and his or her opinion and findings.
(3) Where the recommendation made pursuant to Sub-section (2)
has been submitted to the meeting of creditors, whether a majority of the
creditors attending such meeting has accepted such recommendation or not
shall also be mentioned.
(4) A copy of the report submitted pursuant to Sub-section (1) shall
be sent to each of the concerned company and the Office; and the concerned
company and the Office shall make arrangements to maintain the report so
15
received that the shareholders, directors and creditors of the Company may
inspect such report.
19. Ipso facto suspension: (1) Notwithstanding anything contained in the laws
in force, where the Court issues order to institute insolvency proceedings in
relation of any company pursuant to Sub-section (2) of Section 10, any of the
following acts or actions shall not be done or taken; and any acts or actions
being done or taken but not completed shall ipso facto be suspended:
(a) Transferring, selling and disposing of the shares of the
company or altering the status of any shareholder;
(b) Transferring, selling and disposing of any assets of the
company or mortgaging or pledging the same as collateral in
any manner;
(c) Foreclosing any assets of the company or realizing any security
according to any judgment or order;
(d) Preempting any property leased to the company by the lessor or
instituting any legal action in relation thereto;
(e) Paying any debt whose payment was outstanding or which had
become payable at the time when the court made order to
institute insolvency proceedings pursuant to Sub-section (2) of
Section 10 or pledging of a security in consideration thereof;
and
(f) Transferring or withdrawing moneys in the fund of the
company.
(2) Notwithstanding anything contained in Sub-section (1), where
any person makes an application to the Court claiming that the automatic
suspension of any transaction pursuant to the said Sub-section will cause a
loss to that person, the Court may, if it holds that the statements of the
applicant are reasonable and that this does not prejudic the interests of the
company or its creditors, issue an order to do any transaction.
16
20. Prohibition on cutting down essential services: Notwithstanding
anything contained in the laws in force, where the Court orders the
institution of insolvency proceedings in relation to any company pursuant to
Sub-section (2) of Section 10, no institution or peson providing essential
services such as electricity, drinking water, drainage, gas and telephone or
any other telecommunication service to such company shall stop or cut down
such services during the period between the date of the said order and the
date of completion of the said proceedings, except without permission of the
Court.
21. Meeting of creditors to be convened: (1) The inquiry officer shall,
before submitting his or her report to the Court, convene a meeting of the
creditors of the company to discuss his or her report in order to know the
views of the creditors on the future plan of the company which has become
insolvent, and every person who is identified as a creditor of the company
from the accounts and other records of the company shall also be invited to
attend such meeting.
(2) A notice indicating the venue, date, time and agenda of the
meeting shall be given to every person identified as a creditor under Sub-
section (1) in advance of at least seven days, and the notice shall also be
published at least two times in a daily newspaper of national circulation.
(3) While giving a notice pursuant to Sub-section (2), it may be
given by a letter, telex, telefax, e-mail or any other means of electronic
communication which can be recorded.
(4) Where any person other than a person mentioned in Sub-section
(1) makes any claim against the company as a creditor, the inquiry official
may ask that person to submit evidence thereof and detailed description of
the claim against the company.
(5) The inquiry official may dismiss the claim of a person who
fails to submit the evidence or description referred to in Sub-section (4); and
17
where the claim is so dismissed, such person shall not be entitled to attend
the meeting of creditors.
Provided that a person shall not be considered to be a creditor of the
company by the reason only that the person has taken part in the
meeting of creditors.
(6) The inquiry official shall chair the meeting ofcreditors.
(7) The meeting of creditors shall make decision by majority. In
the event of a tie, decision shall be made by lot. The inquiry official may
ascertain the voting right of creditors in proportin to the claim made on the
debts due to be paid immediately by or payable by the Company and specify
the mode of voting.
(8) The directors of the company or the officers invited by the
inquiry official may participate in the meeting of creditors.
Provided that they shall not be entitled to take part in voting.
(9) Except where any concerned person makes an applic tion to the
Court showing the reasons and grounds that injustice has been done to that
person, no question may be raised in any court about the meeting of creditors
and the business executed by it.
22. Power to Court to make order: (1) The Court may, if it considers
appropriate, make any of the following orders, within seven days after the
receipt of the report submitted by the inquiry officer pursuant to Sub-section
(1) of Section 18, the resolution adopted by the meeting of creditors or the
restructuring scheme submitted by the company or any other resolution
adopted:
(a) To immediately liquidate the company;
(b) To implement the restructuring program of the company;
(c) In the event of possibility of improvement without liquidating
the company immediately, to stay until the period specified by
the court;
18
(d) To extend the period of insolvency proceedings as specified by
the Court for the submission of report by making further
inquiry; or
(e) To quash the order issued pursuant to Sub-section (2) of
Section 10.
(2) Where an order is made under Sub-section (1) to liquidate the
company or implement the restructuring scheme, the Court shall make an
order to appoint an insolvency practitioner as the liquidator of the company
or to operate the restructuring scheme of the company and implement the
liquidation or restructuring scheme of the Company; and the person so
appointed shall perform such act within such period as specified by the Court
at the time of his or her appointment.
(3) Notwithstanding anything contained elsewhere in this Section,
where the inquiry officer makes an application for any of the following
orders as per the understanding reached between any company which has
become insolvent or of which situation requires its immediate liquidation or
showing the reason that even though a company has become insolvent, there
is a situation that the proposal on the restructuring scheme prepared for the
improvement of the company can be considered in a meeting of creditors to
be convened pursuant to Chapter-4, the Court may, if it considers so
appropriate, make such order:
(a) To end the inquiry into insolvency proceedings before the
expiry of that period;
(b) To waive the requirement to convene the meeting of creditors
by the inquiry official; or
(c) To liquidate the company or carry out the restructuring of the
company.
19
(4) Where the Court considers it reasonable to make ny order
other than that mentioned in Sub-section (1) or (3), it may also make such
order.
Chapter-4
Restructuring Scheme of Company
23. Restructuring program to be prepared: (1) Where the Court makes
an order to restructure any company pursuant to Sub-section (2) of Section
22, the restructuring manager shall prepare a restructu ing scheme of the
company in writing.
(2) The scheme prepared pursuant to Sub-section (1) shall contain
the following programs:
(a) To capitalize the debt of the company and alter the capital
structure ;
(b) To pay the claims of creditors by selling any portion of the
assets of the company;
(c) To change the nature of claims of creditors of the company and
issue securities for the same;
(d) To get the creditors of the company to participate in capital
investment by issuing shares in consideration for their claims;
(e) To amalgamate the company with any other company;
(f) To change the management of the company; or
(g) To do any such other act which the Court considers appropriate
to restructure the company.
24. To call meeting of creditors: (1) The restructuring manager appointed by
order of the Court to make restructuring of the company pursuant to Sub-
section (2) of Section 22 shall give a notice, meeting he requirements set
forth in sub-sections (2) and (3) of Section 21, to all creditors to submit their
respective claims, along with their respective proofs and evidences, no later
than 15 days after the manager has commenced the business, and such notice
20
shall be published in a daily newspaper of national circulation for at least
two times; and such notice may also be put on the website.
(2) All creditors who have any kinds of credit claims against the
company shall submit to the restructuring manager statements of credit
claims with or without security, along with evidence substantiating such
claims no later than fifteen days after the issuance of the notice as referred to
in Sub-section (1).
(3) No later than fifteen days after the receipt of statements of
claims pursuant to Sub-section (2), the restructuring manager shall call a
meeting of creditors, by fulfilling the requirements set forth in sub-sections
(2) and (3) of Section 21. In calling such meeting, a copy of the restructuring
program shall be sent along with that notice.
(4) The restructuring manager shall chair the meeting called
pursuant to Sub-section (3).
(5) The meeting of creditors may be conducted and adjourned as
per necessity.
Provided that such meeting shall not be adjourned i a manner that it
exceeds the period of restructuring.
(6) The directors of the company may attend the meeting of
creditors and answer the questions raised by the credito s in relation to the
business and financial situation of the company.
(7) The meeting of creditors called pursuant to Sub-section (3)
shall discuss the details of restructuring program presented by the
restructuring manager and adopt a resolution on anyof the following
matters, subject to Sub-section (7) of Section 21:
(a) To adopt, with or without amendment, the proposal on
restructuring submitted by the restructuring manager, or
(b) To immediately liquate the company without accepting the
resolution referred to in Clause (a).
21
(8) Notwithstanding anything contained in Sub-section (7), the
secured creditor shall not be entitled to vote.
(9) The restructuring program adopted and approved pursuant to
Sub-section (7) or the resolution adopted to reject the program and liquidate
the company shall be submitted to the Court for approval; and if the Court
issues order approving that resolution, it shall be implemented.
25. Report to be submitted by restructuring manager: (1) The restructuring
manager shall, within the period of restructuring, submit to the Court a
report, accompanied by the transactions, assets and financial situation of the
company and its restructuring program, if any proposed.
(2) The report referred to in Sub-section (1) shall, where a
restructuring program is proposed, state the following matters in relation to
such program.
(a) summary and analysis of the proposed program;
(b) Details of effects likely to be caused to the cr ditors of the
company from the implementation of the proposed program;
(c) A comparison between the consideration and effects that would
have been available to the creditors if the company had been
liquidated immediately and the consideration effects that may
be available to the creditors on the implementation of the
restructuring program; and
(d) Opinion and description, accompanied by the finding of the
restructuring manager that the company would not be insolvent
if the restructuring program was implemented.
(3) There shall be no formal form and structure of a restructuring
program prepared pursuant to Sub-section (1), except th set forth below:
(a) All details of the program to be implemented by the company
in the future and written details of the relevant proposal;
22
(b) Details of the matter that the creditors of company will get
more benefits if the company is not liquidated immediately but
restructured and if the program is implemented;
(c) Details of the matter that no portion of the pro osed program is
illegal or prohibited by the laws in force;
(d) Details that if the program is implemented, the company will be
rescued from insolvency or will not become insolvent.
(4) The program prepared pursuant to this Section shall also
contain details of payment of expenses incurred during the inquiry period of
insolvency proceedings or the restructuring period an of the remuneration
of the inquiry officer or the restructuring manager.
26. To make information in the event of failure to submit details of
restructuring program : (1) Where it is not possible to submit the details
of the restructuring program of the company to the Court within the
restructuring period, the restructuring manager shall m ke an application,
accompanied by the reasons, to the Court.
(2) Where an application is made pursuant to Sub-section (1), the
Court may, if it considers to be reasonable, invalidate the order to make
restructuring and issue an order to liquidate the company.
27. Claim and objection to approved restructuring program: (1) A
creditor who is not agreed with the proposal of restructuring program
approved pursuant to Sub-section (7) of Section 24 may make an application
of claim and objection within seven days, setting out the following grounds
and reasons:
(a) The restructuring program approved by a majority in the
meeting of creditors is not in the interest of the cr ditors other
than the secured creditors;
(b) A serious irregularity has been committed in calling or
conducting the meeting of creditors, and the program approved
23
by that meeting is not in the interest of the creditors other than
the secured creditors;
(c) Any false or misleading information has been given or material
information has been concealed in relation to the company or
its restructuring program.
(2) Where an application referred to in Sub-section (1), the Court
shall order the company and the restructuring manager to submit written
statements in relation thereto within a period of seven days.
(3) On receipt of written statements referred to in Sub-section (2)
or on the expiry ration of the period for the submission of such written
statements, the Court shall hear the application referr d to in Sub-section (1)
and may, if the application is found to be based on grounds, invalidate to
make ineffective the resolution on the restructuring program adopted in the
meeting of creditors.
(4) If the Court invalidates to make ineffective the resolution
adopted in the meeting of creditors and approved pursuant to Sub-section
(3), the Court shall issue order to liquidate the company immediately.
(5) Information of the order issued pursuant to Sub-section (3) or (4) shall
be given to the concerned company and the restructuring manager.
28. Consequence of approval of restructuring program by Court : If the
Court issues an order to approve the restructuring program adopted by the
meeting of creditors pursuant to Sub-section (9) of Section 24, the program
shall be binding on all creditors of the company, directors and shareholders
of the company, other than the secured creditors of the company; and the
restructuring period shall end on that date.
29. Not to affect secured creditors: (1) No restructuring program adopted by
a meeting of creditors and approved by the Court pusuant to this Chapter
shall, except on the following condition, prevent the secured creditors from
executing or otherwise dealing the security:
24
(a) Where the secured creditor votes in favor of the restructuring
program or other wise gives his or her consent that such
program will be acceptable to him or her; or
(b) Where the Court orders that that program shall be binding to
the secured creditor.
(2) The Court may, if it is satisfied with the follwing matters,
issue order referred to in Clause (b) of Sub-section (1):
(a) Where the secured creditor executes the security that he or she
has taken, it may substantially prejudice the achievements to be
made from the implementation of the restructuring program;
(b) Where such program adequately protects the right of the
secured creditor to the security, and the security.
30. Not to affect the right of owner of any property or of any lessor: (1)
No restructuring program adopted by a meeting of creditors and
approved by the Court pursuant to this Chapter shall, except on the following
condition, prevent the owner of any property used or possessed or owned by
the company or the lessor of such property if it has been leased from
executing the right to such property or returning the same:
(a) Where the owner or lessor of such property votes in favor of
such program or otherwise gives his or her consent in writing
that such program will be acceptable to him or her; or
(b) Where the Court orders that the program shall be binding to the
owner or lessor of such property.
(2) The Court may, if it is satisfied with the follwing matters,
issue order referred to in Clause (b) of Sub-section (1):
(a) Where the owner or lessor of such property gets back that
property, it may substantially prejudice the achievements to be
made from the implementation of the restructuring program;
25
(b) Where such restructuring program adequately protects that
property and the right of the owner or lessor of such property.
31. Restructuring manager is to operate company: (1) The restructuring
manager shall operate the company during the currency of the restructuring
period.
(2) In operating the company pursuant to Sub-section (1), the
manager may exercise the following powers:
(a) Management and control of the business, properties and
transactions of the company;
(b) Termination, sale and disposal of any business or property of
the company;
(c) Doing or exercising any such act or power that t e company or
its officer may do or exercise.
(3) In exercising the powers referred to in Sub-section (2), the
restructuring manager shall have power to inspect all books of account,
ledgers, records, accounts and documents of the company.
(4) In doing or exercising any act or power set forh in this Section,
the restructuring manager shall act in capacity of an agent of the company.
(5) If so sought by the restructuring manager, the dir ctor and other
officer of the company shall provide any kind of such assistance as may be
necessary for the management and control of the company.
(6) No director and officer of the company shall, exc pt with
written direction of the restructuring manager, exercise any power or do any
act of the company in capacity of the director or officer of the company.
(7) The director of the company shall provide such information
about the company and its business, property and transaction to the
restructuring manager as sought by the restructuring manager.
32. Power of restructuring manager to borrow loan: (1)Where, in acting
as the manager of the company, the restructuring manager considers any
26
amount to be necessary to keep on running the company or operate the
business and transaction of the company, he or she may borrow loan with or
without furnishing the company’s property as security.
(2) The amount of loan borrowed pursuant to Sub-section (1) and
terms thereof shall be as set forth in Section 17.
33. Ceiling of remittance of loan of company:
Where as per the agreement of creditors, the restructuring program provides
for the remission or alteration in the terms of any loan or any portion of the
loan not secured, such remission or alteration may be made in accordance
with that program.
34. Implementation of restructuring program : (1) The company shall be
responsible for implementing the restructuring program adopted by the
meeting of creditors and approved by the Court pursuant to this Chapter.
(2) The Court shall designate the restructuring manager for the
supervision and management of the implementation of the program referred
to in Sub-section (1).
35. Alteration in and amendment to restructuring program: (1)
Where it appears that the restructuring program cannot be
implemented wholly or partly at the time of implementation of that program
but that program can be implemented if it is altered or amended, the
restructuring manager shall call a meeting of creditors in order to alter or
amend that program.
(2) Where the meeting called pursuant to Sub-section (1) adopts a
resolution altering or amending the program, it shall be submitted to the
Court for approval.
(3) Where it is reasonable to approve the program submitted
pursuant to Sub-section (2) for the interest of creditors, the Court may order
to that effect.
27
(4) The program approved pursuant to Sub-section (3) shall be
implemented as per such alteration or amendment.
36. Termination of restructuring program : (1) Where the company has
already implemented the restructuring program or the Court, on application
by the restructuring manager, makes an order to terminate the program
because of the company’s failure to implement it, such program shall
terminate.
(2) Where the Court issues an order to terminate the restructuring
program because of the company’s failure to implement it pursuant to Sub-
section (1), it shall also issue an order to liquidate such company.
Chapter-5
Liquidation of Company
37. Liquidation of company on issuance of order for liquidation:
(1)Where the Court makes an order to liquidate a company pursuant to this
Act, the Court shall make an order to appoint one person as the liquidator,
from amongst the persons who are entitled to carry on insolvency business at
the time of making of such order.
(2) Following the making of order pursuant to Sub-section (1), the
liquidation proceedings of the company shall be deem d to have
commenced.
38. Consequences on the commencement of liquidation proceedings: (1)
On the commencement of the liquidation proceedings of any company, the
following provisions shall govern the following matters in relation to such
company:
(a) Where the director and officer of the company are relieved of
office, the liquidator shall exercise all such powers as may be
exercisable by the director and officer of the company in
relation to the management of that company;
28
(b) The liquidator shall take in his or her custody and control all
assets, accounts and books of account of the company, except
the properties in possession of secured creditors;
(c) Except as ordered otherwise by the liquidator, the service of all
employees appointed by the company shall terminate.
(2) The provision relation to ipso facto suspension set forth in
Section shall, except for the following matter, apply during the period of
currency of liquidation proceedings:
(a) Implementation of the right of secured creditors to execute
pursuant to this Act; or
(b) Implementation of the right of the lessor of any property leased
to the company to redeem the property pursuant to this Act.
39. Conversion of liquidation of company into restructuring program :
(1)Where, based on the study and examination of the business and assets of
the company, nature of the goods or services to be produced by the company
and market potentiality thereof, the liquidator thinks that the restructuring
program of the company can be adopted by a meeting of creditors and
approved, the liquidator may make an application, accompanied by the
reasons, to the Court for an order to keep pending the order on liquidation of
company issued by the Court pursuant to this Act for a certain period of time
and to implement the restructuring program pursuant to this Act.
(2) Where the Court is satisfied with the contents of the application
received pursuant to Sub-section (1), it may issue an order to suspend the
order on liquidation of a company issued previously for any certain period of
time and implement the restructuring program.
(3) Where an order is issued pursuant to Sub-section (2), the order
shall be implemented pursuant to this Act.
29
40. Functions, duties and powers of liquidator: (1) The functions, duties
and powers of the liquidator in addition to the other provisions set forth in
this Act shall be as follows,:
(a) To institute or defend any case or legal action on behalf of the
company;
(b) To appoint employees to assist in the discharge of his or her
functions;
(c) Where any installment on any share of the company is due, to
make a call on the shareholder for payment of such installment;
(d) To do and execute, or cause to be done and executed, all such
acts and deeds or documents as required to be done and
executed on behalf of the company and in the name of the
company and use the seal of the company for that purpose;
(e) To borrow loans against security of the assets of he company;
(f) Where the liquidator considers that the sale and disposal of any
property or termination of any contract or liability will render
benefits to the company, to sell and dispose of such property or
terminate such contract or liability;
(g) To enter into compromise with any creditor of the company or
any person who claims to be a creditor of the company in
relation to the claim made by such creditor or person;
(h) To enter into compromise with any person against whom the
company may make a claim in relation to any loan, liabi ity or
any other claim;
(i) To sell the assets of the company and distribute the proceeds of
such sale pursuant to this Act; and
(j) To perform, or cause to be performed, all such ot er acts as
may be necessary to liquidate the company.
30
(2) It shall be the duty of the liquidator to perform the following
functions, in addition to those set forth in Sub-section (1):
(a) To collect, protect and sell the assets of the company;
(b) To examine the business and financial situation f the
company;
(c) To accept debt claim of any creditor subject to Chapter-6;
(d) To distribute the proceeds of sale of the assets of the company
subject to the order of priority determined for the payment of
liability pursuant to this Act;
(e) To call and conduct the meeting of creditors;
(f) To prepare a report on his or her acts and actions and present it
to the Court and the Office;
(g) To facilitate the cancellation of registration f the company;
and
(h) To examine or inquire into whether any director or employee or
shareholder of the company or any person has committed any
fraud, cheating or deception against the company or its
creditors and institute necessary legal action against such
person.
(3) In addition to the functions, duties and powers set forth in Sub-
section (1) or (2), the liquidator may also perform other functions such as to
get back any property of the company if such property is used by any person
or to institute legal action to get back such propety or amount involved in a
void transaction.
Provided that the liquidator shall not be entitled to make such expenses as
may not be payable from the assets of the company.
(4) Even though the company does not have adequate amount to
pay necessary expenses or remuneration to the liquidator for the exercise of
31
the powers or performance of the duties set forth in Sub-section (1), (2) or
(3), the liquidator shall exercise such powers and perform such duties.
(5) Where the liquidator faces any difficulty with e exercise of
any power or the performance of any duty pursuant to his Chapter, the
liquidator may make an application to the Court forthe removal of such
difficulty; and where an application is so made, the Court may, if it holds the
application to be reasonable, remove difficulty.
41. Money to be lent by creditor: (1) Where any act to be done by any
company which has become insolvent may render or yield benefit or
advantage to the creditors, any creditor of such company may advance
money to the liquidator to do such act.
(2) Any amount borrowed pursuant to Sub-section (1) shall be paid
from the amount received from such act.
(3) Any creditor may make an application to the Court for any
order for making payment of a debt claim accepted by the company from the
amount received pursuant to Sub-section (1).
(4) Where an application is made pursuant to Sub-section (3), the
Court may, if it considers reasonable that such loan c n be repaid from the
amount referred to in Sub-section (1), make an order for that purpose.
42. Report to be submitted by liquidator: (1) The liquidator shall prepare a
progress report on the proceedings carried out in relation to the company and
submit it to the Court and the Office no later than three months after the date
of his or her appointment.
(2) The report submitted pursuant to Sub-section (1) shall state the
following matters, in addition to other matters:
(a) The amount of issued capital of the company, capital that the
shareholders have undertaken to subscribe and paid-u capital;
(b) Estimated value of the assets and liabilities of the company;
32
(c) Opinion of the liquidator in relation to the reason for financial
failure of the company;
(d) Opinion of the liquidator on the need to further xamine or
inquire into the promotion, incorporation of the company or the
affairs of the company and its directors and shareholders;
(e) Such other necessary matters as the liquidator considers
appropriate.
43. To call meeting of creditors: (1) The liquidator shall, prior to
preparing his or her report pursuant to Section 42 and thereafter from time to
time as per necessity, call a meeting of creditors of the company.
(2) A meeting of creditors shall be called pursuant to Sub-section
(1) by fulfilling the requirements set forth in sub-sections (2) and (3) of
Section 21.
(3) The liquidator shall chair the meeting of creditors.
(4) The provisions of Section 24 shall apply, mutatis mutandis, to
the other matters relating to the meeting of creditors.
44. Power to form committee of creditors:
(1) A meeting of creditors held pursuant to Section 43 may form a
committee consisting of a maximum of five creditors in order to assist
the liquidator in relation to the liquidation of the company.
(2) The scope of work of the committee formed pursuant to Sub-
section (1), rules of procedures relating to its meeting or other necessary
matters shall be as specified by the meeting of creditors at the time of its
formation.
45. To give time limit for submission of debt claim: (1) The liquidator
shall give a notice with the time limit of fifteen days to all creditors of the
company which has become insolvent to submit their respective debt claims
in the prescribed format.
33
(2) The notice given pursuant to Sub-section (1) shall be published
at least twice in a newspaper of national circulation.
(3) The liquidator may reject any claims of the creditors who have
not made claim within the time limit referred to in Sub-section (1).
Provided that where any creditor makes an application, accompanied
by the reason for failure to submit his or her claim within that time limit, to
the liquidator, the liquidator may accept such claim if the contents of such
application are found reasonable.
46. Power of the Court to make order in relation to liquidation of
company: Notwithstanding anything contained elsewhere in this Chapter,
the Court may at any time issue the following order in respect of any
company which is undergoing liquidation proceedings:
(a) To suspend or terminate the liquidation of the company;
(b) To require to hand over the assets of the company to the
liquidator;
(c) To pay any call made for payment of installment;
(d) Where there is a doubt that any person is possessing or using
any property of the company, to stop such possession or use; or
(e) To arrest any person who causes any hindrance in or
obstruction to the performance of functions or duties or the
exercise of powers by the liquidators.
47. Cancellation of registration of company: Any liquidator appointed to
liquidate any company pursuant to this Chapter shall, while liquidate the
company, cancel the registration of the company by following the procedures
determined by this Act or by other laws in force.



34
Chapter-6
Claims of Creditors and Mode of Payment
48. Creditors to submit claims: (1) A creditor of the company which has
become insolvent shall submit a claim for the loan due and outstanding or
payable by such company to him or her, in the prescribed format within the
time limit specified by the restructuring manager or liquidator.
(2) While submitting a claim pursuant to Sub-section (1), the
creditor shall also submit the proof and evidence substantiating such claim,
if any, where the restructuring manager or liquidator demands such proof
and evidence.
(3) The restructuring manager or liquidator shall examine the
submitted pursuant to Sub-section (2) and may accept or reject such claim
wholly or partly.
(4) Where the restructuring manager or liquidator accepts or rejects
the claim wholly or partly pursuant to Sub-section (3), the manager or
liquidator shall give written information thereof, accompanied by the reasons
for such acceptance or rejection, to the creditor submitting the claim no later
than seven days.
(5) The creditor who is not satisfied with the information received
pursuant to Sub-section (4) may make an application to the Appellate Court
for review no later than fifteen days.
(6) Even a foreign creditor who has lent money to the company
pursuant to the laws in force may, if he or she has any debt claim against the
company, submit a claim pursuant to this Section.
49. Claim for interest: Where any company which has become insolvent has
borrowed a loan on the condition of paying interest on it according to the
agreement entered into at the time of borrowing such loan, such interest may
also be included in the claim made pursuant to Sub-section (1) of Section 48.
35
Provided that no interest may be claimed for the period after the date of issue
by the Court of an order to liquidate the company or implement the
restructuring program of the company.
50. Claims on undetermined or contingent liability: (1) Except as set forth
in Section 48, any claim on any liability of an undetermined value which has
resulted from any loss caused by the company, or from any compensation to
be paid by the company to anyone as a result of its fa lure to comply with
any contract or for having violated any contract, or from any other action
which creates a civil obligation, or any claim on any contingent obligation of
the company whose value is yet to be determined but which has resulted
from the failure of a debtor to fulfill any obligation for which the company
has provided guarantee under any guarantee agreement ay be presented
pursuant to Sub-section (1) of Section 48.
(2) Where a claim is received pursuant to Sub-section (1), the
restructuring manager or liquidator shall either accept or reject such claim
pursuant to Sub-section (3) of Section 48 and give a notice thereof pursuant
to Sub-section (4) of the said Section.
(3) Where such claim is accepted pursuant to Sub-section (2), the
restructuring manager or liquidator shall also determine the estimated value
of such claim.
(4) Notwithstanding anything contained in Sub-section (3), the
restructuring manager or liquidator may make an application to the Court to
have the value of such claim determined; and where an petition is so made,
the Court shall determine the estimated value of such claim.
(5) Any person who is not satisfied with the decision to reject the
claim pursuant to Sub-section (2) or with the value of such claim determined
pursuant to Sub-section (3) may make a complaint to the Court within fifteen
days from the date of receipt of the notice thereof.
36
51. Immature claims: The restructuring manager or liquidator may make
prescribed exemption from the debt claims relating o immature debts made
against the company.
52. Claims involving foreign exchange: Any claims made in relation to any
debt or other liability in a foreign currency under this Act shall be settled by
calculating the value in the Nepali currency according to the exchange rate
fixed by the Nepal Rastra Bank for the day on which an application is made
to the Court for the liquidation, insolvency of the company or its
restructuring.
53. Adjustment of debts: (1) Where there has been any other transaction
between a company which has become insolvent and any creditor who makes
a debt claim against the company, the debt or such debt claim or transaction
shall be adjusted as follows:
(a) To determine the amount due to be paid by one party to the
other party;
(b) To deduct the amount payable by one party to the other party
from the amount determined pursuant to Clause (a);
(c) To fix only the amount that remains after making deduction
pursuant to Clause (b) as the claim of debt payable by the
company.
(2) Notwithstanding anything contained in Sub-section (1), any
person who has supplied to or obtained a debt from the company when that
person has knowledge or had a reasonable reason to have knowledge that
the company has become insolvent shall not be entitl d to make a claim to
have the amount due to be paid to that person by the company deducted from
the amount payable by that person to the company.
Explanation: For the purposes of this Section, the expression
"company which has become insolvent" shall mean a company in relation to
37
which an application has been filed in the Court for the restructuring or
liquidation of that company.
54. Right of secured creditor to make claim: (1) A secured creditor may
make a debt claim against the company at any time; and the restructuring
manager or liquidator may accept or reject that claim pursuant to Sub-section
(3) of Section 48.
(2) The amount to be claimed pursuant to Sub-section (1) shall be
limited to the difference between the amount received from the property
according to its market value and the amount payable by the company to the
secured creditor.
(3) Where there arises a dispute between the secured creditor and
the company which has become insolvent in relation t the difference
between the value of the secured property and the amount outstanding and
payable pursuant to Sub-section (2), a party who is not satisfied with that
matter may make an application to the Court; and the Court may examine the
application so made and determine the difference.
55. Shareholder’s claim: Where any creditor who is also a shareholder of a
company which has become insolvent makes a claim against the company,
and where that creditor has not paid any amount due on his or her share and
where the time has already matured to pay such amount or there may arise a
situation requiring him or her to pay the same, his or her claim up to the
extent of the amount likely to be so paid shall not be accepted.
56. Deemed to be creditor if debt is accepted: (1) Where a debt claim made
by a person making a claim against the company which has become
insolvent is accepted pursuant to this Chapter, that person shall acquire the
status of creditor.
(2) A person who acquires the status of creditor pursuant to Sub-
section (1) shall acquire the right to participate in a meeting of creditors,
38
exercise the voting right to the extent of the accepted debt claim and receive
payment of the amount of debt under this Act.
57. Order of settlement of liabilities: (1) While settling the liabilities of
a company which is being liquidated under this Act, the liquidator shall
make payment of liabilities from the available funds according to the
following order of priority:
(a) All expenses associated with the functions discharged by the
interim administrator appointed pursuant to Sub-section (4) of
Section 11 and remuneration;
(b) Other amounts to be settled pursuant to Chapter-2;
(c) All expenses associated with the functions discharged by the
inquiry officer appointed pursuant to sub-sections (3) and (4) of
Section 10 and remuneration;
(d) All expenses associated with the functions discharged by the
restructuring manager appointed pursuant to Sub-section (2) of
Section 22 and remuneration;
(e) All debts of the company borrowed during the period of
investigation of the insolvency proceedings;
(f) All debts of the company borrowed during the period of the
restructuring program of the company;
(g) All expenses associated with the functions discharged by the
liquidator appointed pursuant to Sub-section (1) of Section 37
and remuneration;
(h) Wages and remuneration due and payable to the workers or
employees of the company at the time of the issue of the order
under this Act to liquidate or restructure the company;
Provided that no director of the company shall be entitl d to
such amount.
39
(i) Amounts payable to the workers or employees of the company
in consideration of home leave, sick leave, gratuity and
employee provident fund, if any, at the time of theissue of the
order under this Act to liquidate or restructure thcompany;
Provided that no director of the company shall be entitl d to
such amount.
(j) All other amounts in consideration of debt claims accepted by
the liquidator.
(2) Every liability falling in the order of priority referred to in Sub-
section (1) shall be treated equally; and all liabities falling in such order
shall be settled fully.
Provided that if such liabilities cannot be settled fully, they shall be settled
proportionately.
(3) Where any liability of the company is insured, the amount
receivable under such insurance contract shall be paid to that person who is
entitled to it.
(4) Where the liabilities mentioned in Sub-section (1), (2) or (3)
are settled fully, the surplus shall be used by the liquidator to pay interest
payable on debts from the date of the order issued to liquidate or restructure
the company to the date of acceptance of the debt claim. The amount
remaining after such payment shall be distributed among the preference
shareholders, and the remaining amount shall be distributed among the other
shareholders proportionately.
58. Mode of settling liabilities: While settling the liabilities of the creditors
pursuant to this Chapter, the liquidator may do so at ne time or at different
times



40
Chapter-7
Voidable Transactions
59. Voidable transactions: (1) Where any company has become insolvent, the
following transactions shall be void:
(a) Preferential transactions carried on in advance of six months
immediately preceding the commencement of the insolvency
proceedings or within the period of six months after he
commencement of the proceedings;
(b) Preferential transactions carried on with the associated persons
of the company in advance of one year immediately preceding
the commencement of the insolvency proceedings or within the
period of one year after the commencement of the proceedings;
Explanation: For the purposes of Clause s (a) and (b), the
expression "preferential transactions" shall mean ay
transactions done or entered into with a provision for payment
of amount that exceeds the payment which any creditor of the
company other than a secured creditor would have been entitled
to get if the creditor had made a claim against the company at
the time of its liquidation.
(c) Any under-valued transactions have been carried on in advance
of one year immediately preceding the commencement of the
insolvency proceedings or within the period of one year after
the commencement of the proceedings and the company h s
become insolvent as a consequence of such transaction or other
under-valued transactions carried on after the commencement
of the insolvency proceedings;
Explanation: For the purposes of this Clause , the expression
"under-valued transactions" shall mean any transactions in
relation to which the company has received a value that is
41
lower than the prevailing market value or has not received any
value at all for any consideration given by the company to the
other party to the transactions.
(d) All fraudulent transactions carried on in advance of two years
immediately preceding the commencement of the insolvency
proceedings or within the period of two years after the
commencement of the proceedings;
Explanation: For the purposes of this Clause , the expression
"fraudulent transactions" shall mean any transactions carried
on, in relation to any assets of the company, with ulterior
motive to cheat the creditors of the company or delay making
payments to them or prejudice the rights of the creditors.
(2) The liquidator shall make an application to theCourt to have
the transactions referred to in Sub-section (1) declar d void.
(3) While making an application pursuant to Sub-section (2), the
liquidator shall prove that the company was insolvent when such transactions
were carried on or the company has become insolvent by the reason of such
transactions.
(4) Where any associated person of the company is found involved
in the proceeding carried out in relation to void any voidable transactions, it
shall be presumed that the company was insolvent when such transactions
were carried on or the company has become insolvent by the reason of such
transactions.
60. To defend voidable transactions: (1) The associated person may prove
the following matters in his or her defense:
(a) That the company was not insolvent when the transactions were
carried on;
(b) That he or she has not derived any benefit from the
transactions;
42
(c) That the company was insolvent when any benefit was derived
from the transactions or there was no reasonable reason to
suspect that the company might become insolvent by the reason
of the transactions.
61. Powers of the Court in relation to voidable transactions: (1) Where
the Court is satisfied that any transaction is voidable, the Court may issue
orders as follows:
(a) To order the concerned person to pay to the liquidator some or
all of the amounts paid by the company in connection with such
transaction;
(b) To order the concerned person to hand over to the liquidator the
asset so transacted or an amount equivalent thereto;
(c) To order that the debt obtained by the company through such
transaction, or the collateral or guarantee furnished by the
company for that debt be fully or partly remitted or released;
(d) To order that any remission or assignment made or agreement
entered into between the company and any other person in
consequence of the voidable transaction be void, inoperative or
unenforceable.
(2) The Court may also issue any such other additional rder any
may be required to enforce the order issued pursuant to Sub-section (1).
62. Right to claim amount paid in consideration of preferential
transaction: Any creditor who pays any amount to the liquidator in elation
to any preferential transaction made with the company, ccording to the
order of the Court or for any other reason, may make claim for that amount
as a debt claim against the company in liquidation.



43
Chapter-8
Insolvency Practice, and Regulation and Administration Thereof
63. Prohibition on carrying on insolvency practice without license: (1)
No person shall operate insolvency practice withou obtaining a
license from the Office pursuant to this Act.
(2) Any person who has not obtained the license pursuant to Sub-
section (1) shall not be appointed as the inquiry officer, restructuring
manager or liquidator in the course of carrying outinsolvency proceedings
under this Act. Where any person other than a license is appointed as the
inquiry officer, restructuring manager or liquidator, such appointment shall
ipso facto be void.
64. Application to be made for license: (1) A person who is desirous of
obtaining a license pursuant to Sub-section (1) of Section 63 shall make an
application, along with the prescribed fee, to the Office in the prescribed
format.
(2) A person who makes an application pursuant to Sub-section (1)
shall meet the following conditions:
(a) Have completed the age of thirty five years;
(b) Being a member of the prescribed professional association;
(c) Having acquired at least bachelor's degree in commercial law,
commerce, management, accounts or any other prescrib d
subject from a recognized university;
(d) Having abode in the State of Nepal;
(e) Being competent to carry on insolvency practice under this Act.
(3) On receipt of an application under Sub-section (1), the Office
shall, if it considers appropriate to issue a license to carry on the insolvency
practice, issue the license in the prescribed format.
(4) The license issued pursuant to Sub-section (3) shall be renewed
as prescribed.
44
65. Establishment of Insolvency Administration Office: (1) After the
commencement of this Act, the Government of Nepal shall establish an
Insolvency Administration Office, by notification in the Nepal Gazette.
Pending the establishment of such Office, the Government of Nepal may
designate any of its offices to perform the functions of the Insolvency
Administration Office.
(2) The Office established pursuant to Sub-section (1) shall
perform the following functions:
(a) To administer insolvency practice;
(b) To register insolvency practitioners, issue licnses to them, and
renew such licenses;
(c) To carry out general supervision of the management of
companies which have become insolvent;
(d) To conduct investigations of the code of office required to be
observed by insolvency practitioners;
(e) To maintain records of each company which has become
insolvent; and
(f) To perform such other functions as prescribed.
66. Power to suspend or cancel license: (1) Where a complaint is made that
any person licensed pursuant to Sub-section (3) of Section 64 has not
performed the functions as set forth in the license or the Office makes a
report to that effect or the Court itself so considers, then the Court may
institute action in this respect and issue an order suspending or canceling the
license of such person.
(2) Prior to issuing any order pursuant to Sub-section (1), such
person shall be provided with an opportunity to defend himself or herself.
(3) The Court may issue the order referred to in Sub-section (1) on
the following grounds:
45
(a) Where the licensee does any act that is prohibited under this
Act;
(b) Where the licensee does any acts required to be don under this
Act in a reckless manner or fails to act such acts in a proper
manner;
(c) Where the person licensed to practice insolvency himself or
herself becomes insolvent;
(d) Where the person licensed to practice insolvency is convicted
by a court of corruption, cheating, forgery or fraud.
67. Vacancies to be filled by Court: Where the office of the restructuring
manager or liquidator appointed under this Act falls vacant as a result of the
suspension or cancellation of license pursuant to Sub-section (1) of Section
66 or for any other reason, the Court may issue an order to appoint any other
person who has possessed the qualification referred to in this Act to fill the
vacancy by fulfilling the procedures followed while making the original
appointment.
68. Remuneration: (1) The remuneration of the inquiry official, restructuring
manager or liquidator appointed under this Act shall be as fixed by the
meeting of creditors from time to time.
(2) Where remuneration cannot be fixed pursuant to Sub-section
(1), the Court may specify such remuneration on the basis of the report of the
Office.
69. Separate account to be opened: (1) The restructuring manager or
liquidator appointed under this Act shall, while conducting insolvency
proceedings under this Act, open and operate a separate bank account of
every company to which he or she has been appointed.
(2) All amounts received by him or her shall be paid into the bank
account opened pursuant to Sub-section (1).
46
(3) Any amount balance in the bank account opened pursuant to
Sub-section (1) shall be invested only in the prescribed fields.
(4) In addition to those mentioned in Sub-section (1), the
restructuring manager or liquidator shall maintain other accounts and books
of accounts clearly reflecting the full and actual affairs of the insolvency
proceedings of every company which has become insolvent and submit the
statements of such accounts and books to the Court or the Office, as per
necessity.
(5) The restructuring manager or liquidator shall, on performance
of his or her duties, shall have the accounts and books of accounts, as well as
the statements thereof, maintained by him or her pursuant to this Section
audited in accordance with the laws and hand them over the same to the
Office.
70. Power to remove by order of Court: (1) Where a complaint is made
that a restructuring manager or liquidator appointed pursuant to this Act has
failed to work in accordance with this Act while carrying out the insolvency
proceedings of any company assigned to him or her or where his or her
conduct is found to be contrary to this Act, the Court may issue an order to
remove him or her.
(2) The concerned person shall not be deprived of an opportunity
to defend himself or herself, prior to issuing the order referred to in Sub-
section (1).
71. Reply to be made: Where the Court or the Office asks the restructuring
manager or liquidator appointed pursuant to this Act any question in relation
to any act or action done or taken by him or her, h or she shall make a reply
to such question promptly.



47
Chapter-9
Miscellaneous
72. Offense and punishment: (1) A person shall be deemed to have
committed an offense under this Act if he or she commits, or causes the
commission of, any of the following acts:
(a) Where a person holding the office of director of a company
does not submit to the Court a report on the financial condition
and transaction of the company in the prescribed format under
Section 16;
(b) Where any person acts as an insolvency practitioner without
obtaining a license from the Office pursuant to this Act;
(c) Where the director of a company deliberately conceals the fact
that the company has become insolvent or is going to become
insolvent;
(d) Where an insolvency practitioner fails to discharge any such
function in good faith as required to be discharged by him or
her under this Act; or
(e) Where any director or employee or shareholder or other person
of a company commits any act of fraud or forgery against, or
cheats or misleads, the company or its creditors.
(2) The Court may punish any director who commits the offense
referred to in Clause (a) of Sub-section (1) with a fine not exceeding fifty
thousand rupees.
(3) The Court may punish any person who commits the off nse
referred to in Clause (b) of Sub-section (1) with a fine from ten thousand
rupees to fifty thousand rupees.
(4) Any director who commits the offense referred to in Clause (c)
of Sub-section (1) shall be punished with a fine not exceeding two hundred
thousand rupees; and the director shall pay such fine personally.
48
(5) Where any company, creditor or concerned party suffers any
loss as a result of the failure of an insolvency practitioner to discharge such
function in good faith as required to be discharged by him or her as
mentioned in Clause (d) of Sub-section (1), compensation for such loss shall
be recovered from such practitioner, and he or she may also be punished
with a fine not exceeding five hundred thousand rupees.
(6) The Court may punish any director, employee, share older or
other person who commits the offense referred to in Clause (e) of Sub-
section (1) with imprisonment for a term from one yar to two years and
with a fine from one hundred thousand rupees to five hundred thousand
rupees; and the amount involved in the offense shall also be recovered from
such offender.
73. Cases to be filed: Where any person appears to have committed any of the
offenses referred to in Section 72, the liquidator, Office or concerned party
may file a case, along with the grounds for the same, in the concerned court.
74. Recovery of expenses and compensation: (1) Where any person makes
an appeal to the concerned court against any order issued or decision made
by the Court in relation to the insolvency proceedings instituted under this
Act and the order or decision of the Court is also substantiated by the
appellate level, the other party shall be entitled o have all expenses which he
or she had to incurred in the course of such action recovered from the person
making such appeal.
(2) Where it appears that the insolvency proceedings have
prolonged as a result of any action instituted by an person pursuant to Sub-
section (1), which has resulted in any loss or damage to the concerned
company or its creditors or shareholders, the Court may also order such
person to pay compensation for the actual loss or damage.
75. Power to frame Rules: The Government of Nepal may frame necessary
rules in order to implement the objectives of this Act.
49
76. Power to frame manuals: The Office may frame necessary manuals in
order to facilitate the insolvency proceedings.
77. Effect of inoperativeness of the Insolvency Ordinance, 2062(2005):
With the Insolvency Ordinance, 2062 (2005) being inoperative, unless a
different intention appears, the inoperativeness shall not:
(a) revive anything not in force or existing at the time at which the
Ordinance became inoperative;
(b) affect the matter in operation as per the Ordinance or anything
duly done or any punishment suffered thereunder;
(c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under the Ordinance;
(d) affect any penalty, punishment or forfeiture incurred under the
Ordinance;
(e) affect any action or remedy made or taken in respect of any
such right, privilege, obligation, liability, penalty or
punishment as aforesaid; and any such legal proceeding or
remedy may be instituted, continued or enforced as if the
Ordinance were in force.