Insolvency Law at Bangladesh
Insolvency law in Bangladesh governs the legal process and frameworks available to individuals or businesses that are unable to pay their outstanding debts. The main laws related to insolvency and bankruptcy in Bangladesh are encapsulated in various provisions under the Bankruptcy Act of 1997 and related reforms that focus on corporate insolvency and restructuring.
Key Elements of Insolvency Law in Bangladesh:
Bankruptcy Act of 1997:
This Act governs the liquidation and bankruptcy proceedings for individuals and companies.
The Act outlines the process by which individuals or companies can be declared bankrupt, the appointment of a receiver or trustee, and how assets are distributed among creditors.
The law allows for both voluntary and involuntary bankruptcy filings.
Corporate Insolvency:
For corporate entities, the Companies Act of 1994 provides provisions on the insolvency process, including liquidation and restructuring procedures.
Under this Act, the company can be wound up voluntarily by shareholders or by a court order if it is unable to pay off its debts.
Restructuring and Rehabilitation:
In cases of corporate insolvency, there may be a provision for restructuring or rehabilitation under the guidance of the Bangladesh Bank and the Securities and Exchange Commission (SEC). This can help businesses recover from financial difficulties rather than liquidating them entirely.
Role of the Court:
Bankruptcy proceedings often begin with an application to the court. In some cases, creditors may file petitions for the bankruptcy of a company or individual.
The court may then appoint a receiver to manage the assets of the bankrupt party, ensuring that creditors are paid according to the law.
Priority of Creditors:
Creditors' claims are addressed in a priority order. Secured creditors typically have higher priority, followed by unsecured creditors, and then shareholders (in the case of companies).
Debtor Protection:
There are provisions in the law aimed at protecting honest debtors who may be given opportunities for rehabilitation or restructuring.
Recent Developments:
Bangladesh has been working on improving its bankruptcy and insolvency laws to make them more aligned with international standards, especially concerning ease of doing business and attracting foreign investment.
In 2018, the Insolvency Act was introduced to modernize the country’s bankruptcy laws and improve the process of company liquidation.
Challenges and Criticisms:
Lengthy Process: Bankruptcy proceedings in Bangladesh are often criticized for being slow and costly, which can discourage businesses from filing for bankruptcy or restructuring.
Limited Knowledge and Awareness: There is a lack of awareness about insolvency procedures among many businesses, which can lead to non-compliance with the law or ineffective resolution of insolvency cases.
Weak Enforcement: The enforcement of insolvency laws is still seen as inadequate, which can result in creditors not getting paid or bankruptcy proceedings dragging on for years.
Conclusion:
Insolvency law in Bangladesh is evolving, with a framework that provides for both liquidation and the possibility of corporate restructuring. The process aims to balance the interests of debtors and creditors while promoting economic recovery. However, the insolvency regime still faces challenges in terms of efficiency and awareness. Reforms and improvements are ongoing to make the system more transparent and effective.
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