Not till the liquidation of Nepal Development Bank did the government realise that companies need sound exit strategies. In 2006 they passed the Insolvency Act but took many years to decide how it would be implemented. So now, shareholders and creditors of failed companies can recoup some part of their investment. Lawyers can handle insolvency and perhaps revive the flailing companies. This will attract foreign investors who are just as concerned about entering an industry as exiting one.
Supreme Court judge Bharat Upreti and the Nepal Insolvency Practitioners Association (NIPA) worked tirelessly to institute the law. NIPA has sought help from the International Association of Restructuring, Insolvency & Bankruptcy Professionals (INSOL) to determine how Nepal can work with other countries on the matter.
After the 2008 financial crisis, governments worldwide are waking up to the threat failed companies have on their subsidiaries in other countries. How will a bankruptcy of the magnitude that Lehman Brothers suffered impact the world? How would we in Nepal react? How would our workers respond?
As competition becomes cut-throat more companies will fail, but their owners can still start news ones. So it's important that proprietors be able to quickly exit dying industries and compensate their shareholders and creditors.Creditors and shareholders of our defunct airline companies would have greatly benefited from sound insolvency laws.
Struggling and idle firms can also use insolvency laws and procedures to decide whether it would be more profitable to exit or atake a stab at recovery under new management.
But, all eyes will be on Nepal Investment Bank to see if it springs any surprises on us. Nepalis have a knack for unique and sometimes dubious legal interpretations. Let's hope we make proper use of the law.