Debt Collection in Nepal

Debt collection in Nepal begins with a legal, financial and procedural assessment of the debtor, the basis of the claim and the evidence available to the creditor. At this stage, it is important to verify the debtor’s exact legal identity, registered office or business address in Nepal, current commercial activity, solvency indicators, asset position, ongoing court cases, existing enforcement proceedings and the probability that the debt will be disputed.

For a foreign creditor, the initial assessment should also determine whether the claim is based on a Nepal-related contract, delivery of goods, services, guarantee, acknowledgment of debt, foreign judgment or another legal basis. The choice of strategy depends on the documents, the debtor’s connection with Nepal, the location of assets and whether payment can realistically be obtained through negotiations, court proceedings, enforcement or insolvency-related measures.

If the debtor continues to operate, has no visible insolvency proceedings and there is no urgent need to move directly to court or insolvency action, the creditor may begin with the pre-court stage. If the documents already show a disputed claim, the debtor’s assets are at risk, or there are signs of insolvency, the strategy may move more quickly to judicial debt collection, enforcement of an existing judgment or insolvency-related recovery.

The pre-court stage involves structured negotiations with the debtor to obtain payment, agree on instalments or reach another lawful settlement option, such as return of goods, assignment of the claim, set-off, exchange of services or goods, or another commercially reasonable arrangement recorded in writing.

Communication with the debtor should be lawful, proportionate and documented from the beginning. A written demand should identify the creditor, debtor, amount of debt, legal basis, payment deadline and evidence supporting the claim. Further communication through mail, email, phone or messaging applications should support the same documented position and help determine whether the debtor admits the debt, requests time, proposes settlement terms or disputes liability.

The duration of out-of-court debt recovery in Nepal depends on the debtor’s response, the quality of evidence, the amount of the debt, settlement willingness, the debtor’s solvency and whether formal proceedings are already necessary. If voluntary payment or a workable settlement is not achieved, the creditor should proceed to the appropriate legal route without losing time for limitation or enforcement reasons.

Before initiating judicial collection, the creditor should assess the applicable limitation period. For many contract-based debt claims in Nepal, including claims arising from breach of contract, a two-year limitation period is relevant from the accrual of the cause of action. Similar two-year limitation periods may also apply to several commercial contract categories, including sale of goods and guarantee-related claims, depending on the legal basis of the claim.

The limitation analysis should be connected to the exact source of the debt: contract, invoice and delivery documents, guarantee, acknowledgment of liability, unjust enrichment, secured transaction, foreign judgment or insolvency-related claim. Different causes of action may follow different statutory periods, so the filing strategy should be selected according to the underlying legal basis and the date when the creditor’s claim became enforceable.

If the debt is supported by a guarantee or surety undertaking, the written form and the scope of the guarantee are important. Under Nepalese civil law, a guarantee arrangement should define the terms and conditions of the guarantee, and a surety becomes relevant when the debtor fails to repay or fulfil the secured obligation. For continuous commercial relationships, the guarantee should be reviewed together with the principal contract, payment history and the specific transactions covered by the guarantee.

Debt collection in Nepal may be pursued through the general judicial procedure when the debtor does not pay voluntarily or when court protection is required. The procedure usually begins with filing a statement of claim before the competent court. The court examines whether the claim meets the statutory requirements, registers it if the requirements are satisfied and issues the plaintiff a receipt confirming registration of the claim.

Within three days from registration of the claim, the court sends the procedural documents to the defendant for submission of a statement of defense. After receiving the procedural documents, the defendant has 21 days to submit a statement of defense. The defense should address whether the defendant admits or denies the claim, the reasons for denial, any counterclaim, objections concerning standing, limitation and jurisdiction, and the evidence relied upon by the defendant.

If the defendant raises timely objections concerning the plaintiff’s right to sue, the limitation period or the court’s jurisdiction, the court may hold a preliminary hearing before entering into the examination of evidence. At this stage, the court determines whether the plaintiff has standing, whether the claim was filed within the limitation period and whether the court has jurisdiction to hear and determine the dispute. If the objections are rejected, the case proceeds to consideration of the merits.

After the statement of defense is filed, the court examines the statement of claim, the statement of defense and the documents submitted by the parties. The court may question the plaintiff and the defendant on unclear points and determine which issues are admitted and which remain disputed. If the defendant admits the creditor’s claim, the court may enter judgment without a full evidentiary dispute.

Where disputed issues remain, the court examines the evidence and decides the case after the relevant factual and legal issues have been clarified. The practical duration of the proceedings depends on service of documents, objections, evidence, the parties’ procedural conduct, court workload and whether the case proceeds to appeal.

A party dissatisfied with a judgment of the court of first instance may file an appeal to the concerned appellate court within 30 days from the date of knowledge of the judgment. Further access to the Supreme Court of Nepal is not an automatic second appeal in every commercial debt case. It may arise through revision or review mechanisms where statutory grounds exist, such as an error in the interpretation of law, departure from Supreme Court legal principles or the grounds applicable to review of a Supreme Court judgment. A petition for revision is generally made within 30 days, excluding journey time, from the appellate judgment or final order, while review of a Supreme Court judgment is generally requested within 35 days of knowledge and no later than one year from the judgment or final order.

For international creditors, recognition and enforcement of foreign judgments in Nepal is a separate issue that should be assessed before choosing the recovery route. A party seeking recognition and enforcement of a foreign court judgment applies to the concerned appellate court and usually provides a full certified judgment, proof of proper summons where the judgment was issued in the absence of a party, documents confirming that the judgment meets the required conditions, and a certified translation if the judgment is not in the Nepalese language.

If the foreign judgment qualifies for recognition and enforcement, the appellate court forwards it to the concerned district court, which enforces it as if it were its own judgment. Nepalese civil procedure also contains a treaty-based restriction: enforcement of a foreign court judgment in Nepal generally requires a bilateral treaty between Nepal and the state of origin. This makes the country of origin of the judgment, availability of treaty basis, debtor’s assets in Nepal and the possibility of starting proceedings in Nepal especially important in cross-border debt recovery.

After the court decision becomes enforceable, the creditor should initiate enforcement proceedings. In Nepal, execution is connected with the competent district court mechanism: the district court where the claim was filed generally executes the judgment, and where the executing district court cannot be identified because of the subject matter, the district court designated by the appellate court may execute it. Enforcement can be postponed while an appeal is pending or until the time allowed for appeal has expired, unless the law permits earlier execution in the relevant circumstances.

Within enforcement proceedings, the creditor’s claims may be satisfied through measures directed at the debtor’s identifiable assets, including funds in accounts, movable and immovable property, securities, company shares and other rights with financial value. The practical result depends on the debtor’s asset position, the accuracy of asset information, prior encumbrances, competing creditors and whether the debtor is already subject to insolvency or restructuring proceedings.

If there are signs of insolvency of the debtor company, the creditor may consider insolvency, restructuring or liquidation-related recovery in addition to ordinary court recovery and enforcement. Under Nepalese insolvency rules, proceedings against a company require a court order and may be initiated by the company itself, by creditors representing at least 10 percent of the company’s total debt, by qualifying shareholders or debenture holders, by a liquidator or by an authorized regulatory body in specific sectors.

A company may be treated as insolvent where it is unable to pay all or part of the debts payable to creditors at present or in the future, or where the amount of its liabilities exceeds the value of its assets. For a creditor’s application, a demand notice for payment must be sent to the company’s registered office before the insolvency petition. If the company does not pay within 35 days after receiving the notice or does not apply to have the notice cancelled within that period, this may support the insolvency route. Insolvency may also be indicated where a court order requiring payment remains unpaid within 35 days after receipt.

If a liquidation order is issued, the court appoints a licensed insolvency professional as liquidator, and liquidation proceedings begin after the order. The liquidator obtains control over the company’s assets, accounts, books and records, may conduct or defend legal proceedings in the company’s name, collect unpaid share instalments, sell assets, compromise claims, examine the company’s business and financial position, convene creditors’ meetings, accept creditor claims and distribute proceeds according to the statutory order of priority.

At this stage, where the debtor’s assets are insufficient to satisfy creditor claims, pre-insolvency transactions may become important. The liquidator may seek cancellation of transactions that harmed creditors or reduced the assets available for distribution, including preferential transactions, transactions with related persons, transactions at undervalue and fraudulent transactions.

Among such transactions, the following should be highlighted: preferential transactions concluded within six months before the commencement of insolvency proceedings; preferential transactions with persons related to the debtor concluded within one year before the commencement of insolvency proceedings; transactions concluded below market value within one year before or during the insolvency proceedings where the company became insolvent as a result of such transaction or similar transactions; and fraudulent transactions involving company assets concluded within two years before or during the insolvency proceedings with the purpose of deceiving creditors, delaying payments or adversely affecting their rights.

If a transaction is successfully cancelled, the court may order repayment of money to the liquidator, return of the transferred property or its value, release of a debt, security or guarantee connected with the voidable transaction, or make other orders needed to restore value to the liquidation estate. This can increase the estate available for satisfaction of creditors and may also help cover costs of the insolvency procedure. The liquidator may also investigate whether a director, employee, shareholder or another person defrauded, deceived or misled the company or its creditors and may initiate the necessary legal action.

If you need assistance with international debt collection in Nepal, Grandliga can support the recovery process at every stage: debtor and asset assessment, lawful pre-court communication, settlement negotiations, limitation analysis, preparation for judicial debt collection, recognition and enforcement of foreign judgments, enforcement proceedings, and insolvency-related recovery. The appropriate strategy depends on the documents, the debtor’s status, assets in Nepal, the legal basis of the claim and the procedural stage of the case.

18.10.2024

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