Insolvency and Restructuring: The Framework and How Little It Is Used

Udayapur Cement Industry has not produced cement since February 2026. It carries liabilities above NPR 5 billion, of which more than NPR 1 billion is owed to its own employees: 47 months of unfunded provident fund contributions, 37 months of Citizen Investment Trust contributions, three years of unpaid insurance premiums. Wages are 17 months in arrears. Ten workers have died waiting to be paid. Nearly all of the company’s 30 bank accounts have been frozen after a supplier went to court. It employs 173 people against an approved complement of 580, and it is owned outright by the Government of Nepal.

By any test in Nepal’s insolvency statute, that is an insolvent company. No insolvency proceeding has been brought. What is being proposed instead is a public-private partnership: a rescue committee has recommended a structure with 45 percent held between federal, provincial and local government, residents and employees, and 55 percent private, requiring roughly NPR 20 billion of new investment in a new plant. Separately, eight former senior officials are on trial at the Special Court following an anti-corruption investigation into clinker worth NPR 460 million.

That is the honest picture of Nepali insolvency practice: a political rescue, a criminal prosecution, and individual creditors racing each other to the courthouse.

What the statute provides

The Insolvency Act 2063 (2006), published in the Nepal Gazette on 2063.5.4, is not a bad law. It contains most of what a modern insolvency regime is expected to contain.

Standing is broad. Under section 4, an application may be made by the company itself, by creditors holding at least 10 percent of total debt, by shareholders holding at least 5 percent of shares, by debenture holders holding at least 5 percent of debentures, by a liquidator already appointed, or by the regulator of a specialised business. A bank, an insurer and a securities firm therefore have their own supervisor as a potential applicant.

There is a warning period. A creditor must give 30 days’ written notice of debt recovery before applying.

Restructuring is available. The Act provides for a restructuring programme that can include capitalisation of debt, sale of assets to meet creditor claims, conversion of claims into securities or equity, merger with another company, and changes of management. A proposal must be approved at a creditors’ meeting before the court confirms it. That is a recognisable reorganisation procedure with creditor democracy at its centre.

An officeholder runs the company. An appointed insolvency practitioner manages the company’s affairs, represents it in legal proceedings, engages staff and collects unpaid share contributions from shareholders.

The forum is designated rather than fixed. The Act defines the competent court as the court designated by the Government of Nepal in consultation with the Supreme Court, which is how the jurisdiction was intended to be concentrated in a commercial bench.

Subordinate legislation exists: the Insolvency Rules 2064 (2007), published by the Registrar alongside the Act.

Why it is not used

We could not obtain a case count. Applications filed, admitted or concluded under the Act are not published in any statistical release we could reach, and the Registrar’s reports page returned no listings. We are not going to supply a number we do not have, and readers should treat the claim that the Act is little used as an inference from the absence of reported cases and from the visible handling of distressed companies rather than as a measured fact.

The inference is nonetheless strong, and four reasons for it are visible in the Udayapur case and in Nepali practice more generally.

Individual enforcement pays better. A supplier that freezes a debtor’s bank accounts through ordinary civil process gets paid ahead of everyone else. A collective proceeding would put that supplier into a queue. Rational creditors therefore avoid the collective route, which is the classic coordination failure that insolvency law exists to solve and which Nepal’s law has not, in practice, solved.

Secured creditors have a better route. A bank holding security over land or plant enforces the security. Collective proceedings offer it no advantage and a good deal of delay, so Nepal’s largest and most sophisticated creditors are the ones with least reason to invoke the Act.

The state does not let its own companies fail. Where the debtor is publicly owned, insolvency is a political question before it is a legal one, and the answer is a rescue committee and a capital plan rather than a petition. Udayapur is the current example, and not an unusual one.

Failure is treated as misconduct. The visible legal process at Udayapur is a criminal one, brought by the anti-corruption commission against former officials. Where the institutional reflex on corporate failure is to look for a culprit, directors have every incentive to keep a failing company technically alive rather than to file, because filing is an admission.

What a creditor can do

If you are owed money by a Nepali company that is failing, the statutory collective remedy is available to you on a 10 percent debt threshold after 30 days’ notice, and it is the remedy nobody uses. The practical choices are the ones the market actually takes. Enforce security if you have it, obtain interim relief and attach assets if you do not, and negotiate. Where the debtor is state-owned or politically significant, the useful conversation is with the ministry rather than with the court.

For a lender pricing Nepali corporate credit, the consequence is direct. Recovery in Nepal does not follow a predictable statutory waterfall. It follows the quality of your security, the speed with which you can obtain an attachment, and whether other creditors got there first. Nepal’s non-performing loan machinery is covered in asset classification and non-performing loans, and the litigation route is in commercial dispute resolution.

The position of directors

A director of a Nepali company that is failing is in an uncomfortable position the statute does not fully resolve.

Continuing to trade while insolvent exposes directors to claims, and the Insolvency Act contemplates an officeholder who can pursue shareholders for unpaid share contributions. Filing invites scrutiny in a system whose reflex on corporate failure is to look for wrongdoing. At Udayapur the visible legal process is a criminal prosecution of eight former officials rather than a restructuring.

The incentive that produces is straightforward and unhelpful. Directors keep failing companies technically alive, creditors are paid in the order they can enforce rather than the order they rank, and the collective procedure that would resolve both problems sits unused. A foreign parent appointing a director to a Nepali subsidiary should understand that the exposure is personal, and that the practical exit is to resolve liabilities before the question arises.

The missing case law

A statute that is never invoked cannot develop. Nepal has had an insolvency framework for twenty years and, so far as we can establish, almost no body of decided cases interpreting it. The answers to the questions that matter to a creditor considering it are therefore not knowable in advance from precedent: what the court will do about a moratorium, how it will treat a dissenting class, how long confirmation takes.

The first substantial contested restructuring to run through the Act would generate more useful law than any amendment. Whether it will be Udayapur is a political question, and the current answer appears to be no.

Sources

1. Insolvency Act, 2063 (2006)

   Government of Nepal, published by the Office of the Company Registrar · Published in the Nepal Gazette on 2063.5.4 (2006) · Tier 1 — Primary legal instrument

   Supports: Section 4 on who may apply and the 10 percent creditor, 5 percent shareholder and 5 percent debenture-holder thresholds; section 4(2) on the 30-day notice of debt recovery; the definition of the competent court as one designated by the Government of Nepal in consultation with the Supreme Court; the restructuring programme and the requirement for a creditors' meeting to approve a proposal before court confirmation; and the functions of the appointed insolvency practitioner.

   Accessed 26 August 2026

2. Insolvency Rules, 2064 (2007)

   Government of Nepal, published by the Office of the Company Registrar · 2064 (2007) · Tier 1 — Primary legal instrument

   Supports: That subordinate legislation exists under the Insolvency Act and is published by the Registrar as a current instrument.

   Accessed 26 August 2026

3. Udayapur Cement, once Nepal's pride, teeters on the brink of bankruptcy

   The Kathmandu Post · 23 August 2026 · Tier 6 — Professional or news source

   Supports: Liabilities exceeding NPR 5 billion including over NPR 1 billion owed to employees, 47 months of unpaid provident fund contributions, 37 months of unpaid Citizen Investment Trust contributions and three years of unpaid insurance premiums; production halted since February; 173 of 580 approved staff in post; 17 months of unpaid wages; nearly all 30 bank accounts frozen after supplier legal action; a proposed public-private partnership restructuring recommended by the Industry Rescue and Vigilance Committee; and prosecutions of eight senior officials at the Special Court following investigation by the Commission for the Investigation of Abuse of Authority.

   Accessed 26 August 2026

4. Acts, Rules and Guidelines index

   Office of the Company Registrar, Government of Nepal · Retrieved 26 August 2026 · Tier 2 — Official publication

   Supports: That the Registrar publishes the Insolvency Act 2063 and the Insolvency Rules 2064 among its current instruments alongside the Companies Act 2063.

   Accessed 26 August 2026