Termination is the process of coming to an end of any business entity. It is prospective in the sense that rights and liabilities accrued to the date of termination are not affected, but the parties are discharged from future performance of their contractual obligations.
There is various reason for Business Termination which are discussed below:
Reason for Business Termination
Governing Laws:
The major laws that govern termination of companies in Nepal are:
- Companies Act, 2063 (Section-132)
- Insolvency Act, 2063
Companies Act, 2063
According to the Companies Act, 2063 Winding up or Liquidation is the Mode of Terminating a Business:
- Winding up or Liquidation
Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. A liquidator who is appointed, takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.
Modes of Winding up:
There are 4 modes of winding up under Nepalese law:
1. Voluntary winding up
It refers to winding up of a solvent company. It can be done by:
- Special resolution adopted by shareholders in the annual general meeting.
- Provisions provided in Memorandum of Association or Articles of Association.
- Provisions in the unanimous agreement.
2. Compulsory winding up
It refers to winding up of an insolvent company by the office of Registrar of Companies. -Though company law of Nepal recognizes and regularized the compulsory liquidation, the proceedings of compulsory liquidation have been mentioned in detail in Insolvency Act 2063. No procedure under Insolvency Act is started without the permission of court. Court means commercial bench by notification in Nepal Gazette.
Section 4 of Insolvency Act,2063 describes the situation to apply for the proceedings of insolvency:
- The company itself which is in insolvent condition.
- The creditors who invested at least 10% of total credit into the company.
- The shareholders who subscribed at least 5% shares of the company.
- The debenture holders who subscribed at least 5% debentures of the company.
- The liquidator appointed for liquidation of company.
- Concerned authority or regulatory: Department of Industries (DOI) and Nepal Rastra Bank (NRB)
3. Liquidation by the order of the court.
Section 139 (4) (f) of the Companies Act 2063.
If a company is carried on or is likely to be carried on as to be prejudicial to rights and interest of any shareholders of the company, a shareholder may make a complaint/ petition to the Court for an appropriate order as remedy. If the complaint / petition is accepted by the court, the company, by the order of the court, may be liquidated.
4. Cancellation of Registration or deregistration, striking off registration
Section 136 of the companies Act 2063.
The company registrar office may cancel the registration of company on the following grounds:
- In a situation of failure to commence business.
- In a situation of default in submitting the report, for three consecutive financial years
- If the company registrar office has reasonable grounds to believe that company is not carrying on its business or the company is not in operation.
