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Company Exit in Nepal: Policies and Practices

In Nepal, there are primarily three options to exiting a market, based on the company’s situation. These are: the cancellation of registration (for companies registered on paper but who have not engaged in any form of transaction), voluntary liquidation (when businesses are active and solvent) and insolvency resulting into either restructuring or liquidating the company.

In analyzing these concepts, we find that certain costs are blanket expenses to small entrepreneurs, such as having to hire liquidators compulsorily for voluntary liquidation. Additionally, certain blacklisting policies seem to discourage entrepreneurship rather than punish criminal offences alone. A case in point here is blacklisting shareholders who own more than a stipulated percent in a business run by a defaulter. Questions regarding the ability or the lack thereof of the existing commercial bench in handling cases efficiently have also come to light time and again.

Deliberations have shown a need to bring reforms in the existing Companies Act and blacklisting directives in order to primarily remove blanket costs to entrepreneurs and incentivize business ventures. Another recommendation is creating better human resource in handling company exit at the government administration level and honing expertise in the same. Reducing the cost and time taken for insolvency is also another need of the hour. Only looking to encourage new companies is a job half-done, enabling easier mechanisms for exit are a fundamental necessity and notable of higher economic freedom.

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