Chapter-2

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:
(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 evidence 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;
(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 debt was
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 liquidation 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.
(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 shareholder 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 thenotice received pursuant to Section 5 is not reasonable or where there are any other reason for not repaying the debt immediately, 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  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 Subsection (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 become 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 to the Court within the said period to void such notice.
(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 forth 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  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 any 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 and 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 not instituting 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 to institute insolvency proceedings in relation to the company concerned.
(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 Subsection(3), a person whom the Court thinks fit, out of 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 on in the ordinary course of business;
(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 prescribed 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.