Liquidation vs. Bankruptcy: Understanding the Differences

When running a business, facing financial difficulties can be challenging. If you’re in Nepal and wondering about your options when a company struggles, it’s important to understand the key differences between liquidation and bankruptcy.

Both terms are often used interchangeably, but they have distinct meanings and legal implications. At Company Sewa, we provide expert company registration and company closure services, and in this blog, we’ll break down what liquidation and bankruptcy really mean.

What is Liquidation?

Liquidation is the process of closing down a company by selling off its assets to pay off debts. When a business can no longer continue operations, liquidation helps to convert its assets into cash to settle outstanding obligations. There are two main types of liquidation:

• Voluntary Liquidation: Initiated by the company owners or shareholders when they decide to close the business.
• Compulsory Liquidation: Ordered by a court when a company cannot pay its debts.

Once the assets are sold and debts paid, the company is officially dissolved and removed from the company register.

Related: If you’re planning to close your business, check out our step-by-step guide on how to legally close a company in Nepal for detailed legal procedures.

Why Choose Liquidation?

• To close an unprofitable business.
• To pay off creditors in an orderly manner.
• To legally dissolve the company.

What is Bankruptcy?

Bankruptcy is a legal status that applies to individuals or companies that cannot repay their debts. In Nepal, bankruptcy involves a court process where the debtor’s assets are managed to repay creditors, but it can also involve restructuring or protection from creditors while trying to recover financially.

Key Points About Bankruptcy:

• It’s a legal declaration of insolvency.
• It often results in debt restructuring or asset liquidation.
• It may allow for protection from creditors during the process.

Key Differences Between Liquidation and Bankruptcy

Aspect	Liquidation	Bankruptcy
Definition	Closing the company by selling assets	Legal insolvency status of debtor
Applicable to	Companies only	Individuals and companies
Process Initiated by	Company owners or court order	Court or debtor initiates
Outcome	Company is dissolved	Debt restructuring or asset sale
Purpose	To wind up business	To manage or discharge debts

How Company Sewa Can Help

Navigating liquidation or bankruptcy procedures can be complex. At Company Sewa, we specialize in company registration, company updates, share transfers, and company closure services in Nepal.

Whether you’re looking to close your business through liquidation or need guidance on bankruptcy, our expert team is here to support you every step of the way.

Ready to close your company or need professional advice?
Contact Company Sewa today for hassle-free company closure and related services in Nepal.