Corrected code and issue was resolved. Corrected code below:
SevenZipCompressor compressor = new SevenZipCompressor();
compressor.CompressionMethod = CompressionMethod.Deflate;
compressor.CompressionLevel = CompressionLevel.High;
compressor.ZipEncryptionMethod = ZipEncryptionMethod.Aes256;
compressor.ArchiveFormat = OutArchiveFormat.Zip;
compressor.CompressionMode = CompressionMode.Create;
compressor.EventSynchronization = EventSynchronizationStrategy.AlwaysAsynchronous;
compressor.FastCompression = false;
compressor.EncryptHeaders = true;
compressor.ScanOnlyWritable = true;
compressor.CompressFilesEncrypted(outputDir, password, filepath);
Output directory requires filename with proper extension. Turned out to be part of the problem.