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Corporate Insolvency and Bankruptcy Law in Bangladesh

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The rules regulating corporate insolvency and bankruptcy are crucial components of any comprehensive legal framework that governs business and economic operations. In recent years, Bangladesh has seen substantial changes to these regulations, which have been brought into alignment with worldwide standards of excellence and the expanding economy of the country. This article dives into the “Corporate insolvency and bankruptcy” laws in Bangladesh, examining its history, the sections that are most important, and the influence that they have had on the corporate environment.

The Development of Bangladesh’s Corporate Insolvency and Bankruptcy Laws

The path that Bangladesh has taken toward updating its laws governing Corporate insolvency and bankruptcy has been distinguished by numerous significant changes, including the following:

1997’s Insolvency and Bankruptcy Act stipulates the following: The passage of this Act was an important step in formalizing the bankruptcy framework of the nation. It formed the groundwork for resolving concerns pertaining to insolvency, provided a legal basis for beginning bankruptcy procedures, and established a legal framework for the insolvency of corporations.

The following is an amendment to the Insolvency and Bankruptcy Act, which was passed in 2013: This modification attempted to simplify the process of filing for insolvency, cut down on the amount of time needed for bankruptcy proceedings, and provide measures for the rehabilitation of firms that were experiencing financial difficulties. In addition to this, it presented the idea of “insolvency practitioners” who would be responsible for facilitating and monitoring the insolvency process.

Act of 1994 Relating to Companies: This legislation describes the processes that must be followed in order to liquidate a company in Bangladesh and gives legal advice on the winding up of enterprises. It addresses the assignment of assets to creditors, the selection of liquidators, and the rights and responsibilities of stakeholders during the process of liquidation.

2019’s Companies (Corporate Insolvency Resolution Process) Rules provide the following: These regulations, which were enacted in order to operationalize the process of corporate insolvency resolution, offer precise processes for the resolution of insolvency, beginning with the appointment of insolvency resolution specialists and ending with the submission and approval of resolution plans.

Principal Provisions and Operating Mechanisms

The laws of Bangladesh pertaining to “Corporate insolvency and bankruptcy” include a number of essential clauses and processes, including the following:

The Procedure for Resolving Insolvency:

The insolvency resolution process offers a method that is both structured and organized for dealing with the issue of corporate insolvency. It entails the appointment of an insolvency resolution professional (IRP), who supervises the activities of the bankrupt firm, enables the establishment of a committee of creditors, and monitors the design and adoption of a resolution plan. Those are the three main responsibilities of the IRP.

Strategy for Resolving:

The approach that will be used to either bring the struggling business back to life or sell off its assets is outlined in a resolution plan. It might entail the selling of the business as an operating concern or the reorganization of the company’s business activities. The plan is presented to the committee of creditors, and approval from a sufficient majority of those creditors is required before it can go further.

The process of liquidation :

Liquidation is an option that may be pursued after the insolvency resolution procedure has been tried and found to be unsuccessful. The sale of the company’s assets is one of the steps involved in the liquidation process. The profits from the sale are then divided up among the creditors based on the priority and hierarchy of their claims.

The Committee of Creditors:

The establishment of a committee comprised of a company’s creditors is an essential step in the process of resolving bankruptcy. This committee, which is made up of financial creditors and operational creditors, is the one that votes on whether or not the resolution plan should be approved. In order for the resolution plan to be put into action, it must first get approval from a sufficient majority of the committee members.

Insolvency across International Borders:

The bankruptcy and Bankruptcy Act of 1997 includes procedures for managing bankruptcy situations that occur across international borders. This framework makes it easier to cooperate and coordinate with processes taking place in other countries, and it guarantees that international creditors will be treated fairly.

The Effect on the Context of Doing Business

The rules in Bangladesh pertaining to “Corporate insolvency and bankruptcy” have important repercussions for companies, investors, and Bangladesh’s broader economic environment, as follows:

Enhanced Protection for Lenders and Investors:

Creditors have increased confidence in lending money to firms as a result of the better protection afforded to them by the legal framework. In the event that a firm goes bankrupt, creditors have a greater chance of getting back what is rightfully theirs.

Restoring Financial Stability to Struggling Businesses:

The purpose of the procedure for resolving insolvencies is to make it easier for financially struggling businesses to be saved and resurrected. These rules help to the maintenance of economic value and employment opportunities by facilitating the reorganization of firms.

Encouragement of Investment from Abroad:

The presence of a comprehensive insolvency and bankruptcy legislation contributes to Bangladesh’s desirability as a location for the receipt of foreign direct investment. When there are legal safeguards in place for investors on the resolution of bankruptcy problems, international investors are more ready to participate in commercial activity.

Bringing the Work Load Down on the Courts:

By offering a methodically organized approach to dealing with the issue of corporate bankruptcy, effective procedures for insolvency resolution contribute to the alleviation of pressure placed on the court system. This has the potential to speed up the procedures and encourage an expeditious settlement.

Promoting Socially and Environmentally Responsible Business Practices:

These rules promote good business practices by holding corporations and their directors accountable for financial mismanagement. This discourages irresponsible conduct that might lead to bankruptcy and helps to prevent businesses from going bankrupt.

Both difficulties and prospects are involved.

While Bangladesh’s rules governing “corporate insolvency and bankruptcy” have undergone substantial revisions in recent years, the country still faces a number of difficulties and possibilities.

Backlog in the Judiciary:

There are still substantial backlog difficulties plaguing Bangladesh’s legal system, which results in delays in the insolvency processes. It is necessary to streamline court procedures in order to guarantee that matters are resolved in a timely manner.

Construction of Capabilities:

It is very necessary for the successful application of insolvency legislation to invest in the training and education of insolvency experts and practitioners. Those who are engaged in the bankruptcy process may benefit from specialized training and certificates, which may help them improve their abilities.

Cooperation Across Borders in Cases of Insolvency:

Increasing collaboration between Corporate insolvency and bankruptcy authorities in different countries might make the process of resolving international insolvency cases go more smoothly. The recognition of bankruptcy processes that take place in other countries may be facilitated by cooperative efforts with other nations.

The importance of education and awareness:

It is essential to educate companies and other stakeholders about the positive aspects of insolvency and bankruptcy legislation via education and awareness campaigns. Businesses may benefit from education and awareness efforts, which can help them make more educated choices and participate in more responsible financial practices.

The final word

The Corporate insolvency and bankruptcy laws in Bangladesh have developed throughout time to accommodate the problems posed by the nation’s expanding economy as well as the complexity of today’s commercial dealings. These legislative frameworks offer a mechanism that is designed for resolving problems related to insolvency, preserving the interests of creditors, and fostering the resuscitation of troubled firms.

The “Corporate insolvency and bankruptcy” rules serve a critical role in establishing a fair and effective framework for managing insolvency difficulties, as Bangladesh continues to attract foreign investment and develop a strong economy. This is one of the many reasons why these laws are so important. These regulations are positioned to contribute to a more strong and resilient business climate in the nation as a result of continuous reforms and capacity-building activities that are currently being undertaken.


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