Bankruptcy in Bangladesh: A Fractured Legal Framework and the Path to Reform

Executive Summary: The Dual-Track Insolvency Landscape of Bangladesh

This report provides a comprehensive analysis of the legal framework and procedures for bankruptcy in Bangladesh. It posits that Bangladesh does not operate under a single, functional insolvency regime. Instead, its landscape is a fractured, dual-track system defined by a critical conflict between its stated law and its practical application.

The de jure framework is the Bankruptcy Act, 1997. This statute, theoretically comprehensive, is in practice a "legal relic". It is widely considered "outdated"^[2], "ignored by Bankers"^[2], and fundamentally misaligned with modern corporate needs. Its architecture and mechanisms are rooted in 19th-century concepts of individual insolvency, focusing on punitive measures rather than corporate rescue.

The de facto framework—the law as it is actually practiced—is a combination of two aggressive, pro-creditor recovery mechanisms. For financial institutions, the dominant law is the Artha Rin Adalat Act, 2003 (Money Loan Court Act)^[4], a "speedy"^{[6, 7]} recovery statute. For corporate bodies, the only functional dissolution tool is the liquidation-focused Companies Act, 1994.

This report demonstrates how the profound failings of the 1997 Act—its slow procedure, punitive nature, and inability to handle corporate reorganization—directly led to the creation of the parallel Artha Rin system.^[3] This parallel track prioritizes secured bank recovery, effectively atomizing collective insolvency proceedings and precluding holistic business rescue.

The failure of this patchwork system, evidenced by rock-bottom international rankings in "Business Insolvency"^[14] and a severe non-performing loan (NPL) crisis^[17], has created an urgent impetus for reform. The proposed Insolvency and Bankruptcy Ordinance, 2025^[19] and the Bank Resolution Ordinance, 2025^[26] represent a potential paradigm shift, aiming to move Bangladesh’s legal philosophy from liquidation to a modern "rescue culture".

This report will first provide an exhaustive analysis of the 1997 Act. It will then critically deconstruct this Act by contrasting it with the de facto laws before concluding with an analysis of the transformative 2025 reforms.

Part I: The Legal Framework of the Bankruptcy Act, 1997

A. Jurisdictional Scope: Who May Be Adjudged Bankrupt

The Bankruptcy Act, 1997 (the "Act") defines its jurisdiction broadly. Section 11 of the Act states that it applies to any "person"^[1], which is defined to include both individuals and "other entities".^[1] The jurisdictional test covers any person or entity that:

• Is domiciled or has a principal place of business in Bangladesh ^[1];
• Ordinarily resided, had a dwelling, or a place of business in Bangladesh within the year before proceedings began ^[1]; or
• Carries on business in Bangladesh, including through an agent ^{[1, 2]}.

The Act explicitly excludes certain state-related and non-commercial bodies, such as government organisations, Parliament, judicial bodies, charitable or religious bodies, and certain statutory/autonomous bodies.

While the text's inclusion of "other entities" suggests it was intended to cover corporations, this ambiguity is the Act's foundational failure. A significant body of legal commentary argues that the Act's framework, mechanisms, and historical context mean it "primarily functions for individuals"^[2] or "deals with bankruptcy of individuals only".^[3] The framers appear to have envisioned an individual "trader" who might "divert" funds^[3], not a complex modern corporation. This structural inadequacy—the lack of specific tools for corporate reorganization, such as debtor-in-possession financing or sophisticated plan formulation—is the direct cause of the Act being "ignored" by financial institutions dealing with corporate debt.^[2] This forced creditors to seek more effective remedies, leading directly to the creation of alternative legal tracks.

B. Initiating Proceedings: The Plaint and Acts of Bankruptcy

Bankruptcy proceedings are formally initiated by the filing of a "Plaint".^{[1, 2]} This document, analogous to a petition, must be in writing and verified in the manner prescribed by the Code of Civil Procedure.

A plaint can only be filed if the debtor has committed an "Act of Bankruptcy" as defined in Section 9 of the Act.^[1] This list is largely derived from archaic English law and is primarily based on acts of "fault" or public signs of insolvency. A debtor commits an act of bankruptcy if they, for example:

• Fraudulent Dealings with Property: Transfer property to a third party for the benefit of creditors generally^[1], make any transfer with the intent to defeat or delay creditors^[1], or create a fraudulent preference.
• Evading Creditors (Personal Acts): Abscond, leave Bangladesh, or seclude themselves to avoid creditors.
• Acts of Public Insolvency: Have their property sold in execution of a court decree for payment of money^[1], or give formal notice to creditors that they have suspended or will suspend debt payments.
• Imprisonment: Are imprisoned in execution of a money decree.
• Self-Declaration: File a plaint to be declared bankrupt themselves.
• The "Modern" Test: Fail to comply with a formal, prescribed demand for an unsecured, matured debt of at least Tk. 5,00,000 within 90 days of the demand being served.^{[1, 2]}

Filing by Creditors (Section 12): An "eligible creditor" or group of creditors may file an "involuntary" plaint, but only under strict conditions^[1]:

• Debt Threshold: The total, matured, and unsecured debt owed to the petitioning creditor(s) must be at least Tk. 5,00,000.
• Act of Bankruptcy: The debtor must have committed an act of bankruptcy within the one year preceding the filing of the plaint.

Filing by Debtor (Section 13): A debtor may file a "voluntary" plaint under more lenient financial conditions^[1]:

• Debt Threshold: The debtor must state they are unable to pay their debts, and their total debts must amount to at least Tk. 20,000.
• Alternative Grounds: Regardless of the debt amount, a debtor can file if they are currently under arrest or imprisonment for debt, or if their property is under attachment for a debt.

This framework creates a profound asymmetry. The low Tk. 20,000 threshold for debtors theoretically encourages a "fresh start," but this is a legal fiction. In practice, debtors are "often reluctant to self-declare"^[3] due to the intense "social dogma"^[11] and the severe, punitive legal disqualifications that follow (see Part III-B). The high Tk. 5,00,000 creditor threshold, meanwhile, was likely intended to prevent frivolous liquidations. However, its practical effect is to make the Act unusable for smaller creditors, while large institutional creditors (i.e., banks) simply bypass the Act entirely in favour of the "far speedier" Artha Rin Adalat Act.

C. The Bankruptcy Procedure: From Plaint to Adjudication

The procedure outlined in the Act is a formal, court-driven process:

1. Admission and Hearing: Once the plaint is filed, the Court admits it, sets a hearing date (typically within 60 days), and notifies creditors.^[1] The hearing requires the plaintiff (creditor or debtor) to prove the debt, the service of notice, and the commission of the act of bankruptcy.
2. Debtor's Duties: The debtor is placed under an immediate statutory duty to cooperate fully. This includes producing all books of accounts, providing inventories of property and lists of creditors, and submitting to an examination by the court or Receiver.
3. Interim Measures (Sections 23 & 24): Before issuing a final order, the court has potent powers to protect the estate from dissipation.^[1] These powers are not a "breathing spell" for the debtor but rather tools of seizure and control. The court can:
   • Appoint an Interim Receiver (Section 23) to take immediate possession of the debtor’s property.
   • Order the debtor to provide security for their appearance.
   • Order the attachment of the debtor’s property.
   • Issue arrest warrants (Section 24) if the debtor absconds, hides assets, or fails to comply with court orders.^[1] This power underscores the Act's punitive character, aligning with the view that the debtor is a defaulter to be controlled, not a distressed entity to be rescued.
4. Order of Adjudication (Section 30): If the court is satisfied that the conditions are met and does not dismiss the plaint, it issues the "Order of Adjudication".^[1] This order formally declares the debtor a bankrupt. This order is then published in the official Gazette for public notice.

D. Effects of Adjudication and Debtor Protections

The Order of Adjudication triggers profound legal and financial consequences, chief among them the creation of the bankrupt's "Estate."

Vesting of Property (Section 31): Upon adjudication, all of the bankrupt’s property—worldwide, present, and future—automatically vests in the appointed Receiver (or in the Court if no Receiver is appointed).^[1] This property, known as the "Estate," becomes the pool of assets divisible among the creditors.

Stay on Legal Actions (Section 31): The order creates an "automatic stay." Creditors are barred from initiating or continuing any lawsuits or other legal remedies against the bankrupt’s property regarding any provable debt, unless they obtain specific permission (leave) from the Bankruptcy Court.

Secured Creditors (Section 31(4)): This is the single most important exception to the stay. The Act explicitly states that the stay does not affect a secured creditor’s right to realize or otherwise deal with their security ^{[1, 53]}. This provision fundamentally undermines the collective nature of the proceeding, as a secured creditor (typically a bank) can seize the most valuable assets, leaving nothing for the general body of creditors. The Act further details this process for secured creditors. If a secured creditor realizes their security, they may prove for any remaining balance. If they do not realize their security before the adjudication order, the unrealised security vests in the Receiver. The Receiver then determines the property's value. If the value is sufficient to cover the claim, the Receiver sells the property, pays the secured creditor in full (after fees), and adds the remainder to the Estate. If the value is not sufficient, the Receiver, at the creditor's option, must either sell the property and pay the proceeds to the creditor (less fees) or deliver the property directly to the creditor with a proper title document.

Despite its punitive nature, the Act provides two significant social protections for individual debtors:

1. "Exempted Property" (Section 32): Certain assets are legally protected and do not form part of the Estate.^[1] These include:
   • Tools used by the debtor for their work or livelihood.
   • Wearing apparel, household furniture, and other necessities for the debtor and their family.
   • Value Cap: The total value of these exempted tools and household items is capped at Tk. 3,00,000.
   • Homestead Protection: The debtor’s un-mortgaged dwelling place or homestead, subject to specific size limits (e.g., 2500 square feet in urban areas).
2. "Protection Order" (Section 35): An individual bankrupt can apply to the court for an order protecting them from arrest or detention for any debt provable in the bankruptcy.^[1] The court can also order the release of a debtor who is already imprisoned for debt at the time proceedings begin.

These progressive social protections create a paradox. They exist only within the 1997 Act, which is almost never used. The de facto law for debt, the Artha Rin Adalat Act 2003, contains no such exemptions and, in fact, includes provisions for the civil imprisonment of defaulters.^[10] This creates a contradictory system where a bank-debtor (the vast majority of cases) is subjected to a harsh recovery regime, while a non-bankrupt (a rare case) theoretically receives social protections under a dormant statute.

Part II: Administration of the Bankrupt's Estate

A. The Role of the Receiver and Creditors' Committee

Once adjudication occurs, the process moves from a legal proceeding to an administrative one, managed by the Receiver.

The Receiver (Section 64): The court appoints a Receiver (often an "Official Receiver" from a government-approved list^{[1, 2]}) to manage the Estate.^[1] The Receiver’s powers and duties (Section 65) are comprehensive.^[1] They are the central administrator, tasked to:

• Take possession of all assets, books, and documents^[1];
• Investigate the debtor's conduct and financial affairs^[1];
• Collect all debts owed to the bankrupt^[1];
• Sell and liquidate all non-exempt Estate assets^[1]; and
• Distribute the proceeds to creditors according to the statutory priority.

The Creditors' Committee (Section 36):

• Formation: Where the number of eligible creditors (those with claims over Tk. 5,00,000) is more than 10, the court may form a Creditors' Committee of up to five members.^[1]
• Role: The committee’s role is described as primarily advisory; it is empowered to "advise the Receiver" on matters of administration.^[1]

This contrasts sharply with modern insolvency regimes, where creditors' committees are powerful, active bodies. In systems like the US Chapter 11, the committee has a fiduciary duty to all unsecured creditors, retains its own legal and financial advisors, investigates the debtor, and plays a central, often adversarial, role in formulating and negotiating a plan of reorganization.^[12] The passive, "advisory" nature of the committee under the 1997 Act reinforces its fundamental design: it is a Receiver-driven liquidation, not a creditor-driven reorganization.

B. The Distribution Waterfall: Priority of Debts (Section 75)

After liquidating the Estate, the Receiver distributes the funds according to a strict order of priority, often called the "waterfall," defined in Section 75.

This order of payment, as detailed in legal commentary^[53], is as follows:

1. Costs of Administration: The costs of the bankruptcy proceeding itself, including the Receiver’s fees.
2. Government Debts: All taxes and other debts due to the Government.
3. Employee Wages: Wages or salaries owed to any clerk, servant, or labourer. This priority is capped at Tk. 2,000 per employee and is limited to services rendered within the six months before the plaint was filed.
4. Bank Debts: All "bank-debts," which are defined as loans or financing from a bank or financial institution.
5. Unsecured Claims: All other unsecured creditors (e.g., trade suppliers, service providers).
6. Subordinated Claims: Any claims that are contractually or legally subordinated to general unsecured creditors.
7. Interest: If any surplus remains, interest is paid on all proven debts.
8. Surplus to Debtor: Any final surplus after all debts and interest are paid in full is returned to the debtor.

The waterfall in Section 75 contains a highly unusual and controversial provision: it explicitly prioritizes "Bank Debts" (Tier 4) over general "Unsecured Claims" (Tier 5).^{[1, 53]} This is a radical departure from the foundational insolvency principle of pari passu, or equal treatment, which holds that all unsecured creditors should rank equally. In most common law jurisdictions, a bank (if unsecured) would rank in the same class as a trade supplier.

The 1997 Act codifies the superior political and economic power of the banking sector. This structure legally guarantees that in any insolvency with both bank debt and trade debt, the suppliers and other general creditors will likely receive nothing. This institutional bias helps explain why the general business community has no faith in the Act. It also, paradoxically, helps explain why banks still prefer the Artha Rin Act: despite this built-in advantage, the Artha Rin provides a faster and more direct path to seizing assets, bypassing the collective proceeding entirely.

This legal priority must also be distinguished from contractual subordination. While creditors may enter into intercreditor arrangements to mutually agree on priority (e.g., in pari passu lending), and such agreements are enforceable under the Contract Act, 1972, they do not override the mandatory legal subordination set by the Bankruptcy Act and Companies Act. In any formal insolvency, the statutory waterfall (secured, preferential, unsecured, subordinated) takes precedence over private contractual arrangements.

C. Claw-Back Risks (Section 60)

The Act provides the Receiver with significant "claw-back" powers. Under Section 60, the bankruptcy court has the authority to nullify and claw back any property transferred by the debtor within the 15 years immediately preceding the adjudication order, if the court determines the transfer was intended to "defeat any debt."^{[1, 53]}

This does not apply to:

• Transfers made for proper value.
• Property acquired through inheritance.
• Transfers made within 6 years before the adjudication, if the recipient can prove the debtor was able to pay all claims at the time without using the transferred property.

Part III: Alternatives to Liquidation and Finality

A. Composition and Reorganisation

The Act provides two mechanisms to avoid liquidation, though their practical utility is limited.

Composition or Scheme of Arrangement (Section 43): This is the primary tool for individuals to settle their affairs after being adjudicated bankrupt.

• Definition: A "composition" is an agreement to pay a percentage of the debts (e.g., 50 Taka on the 100 Taka), while a "scheme" is a more general plan to arrange the debtor's affairs, often over time.^[1]
• Procedure: The debtor submits a proposal. To be approved, it must be accepted by creditors representing two-thirds (2/3) in value of the total proven debts and subsequently be sanctioned by the court.^[1]
• Effect: If the composition or scheme is approved, the court may annul the bankruptcy adjudication, releasing the debtor from bankruptcy.

Reorganisation (Section 46): This provision is the Act's only dedicated corporate rescue mechanism, a theoretical equivalent to a US Chapter 11 reorganization.

• Applicability: It is available only to an "eligible debtor," which is defined as a debtor who is not an individual.^[1]
• Procedure: The debtor corporation applies for a reorganization order by submitting a plan. Like a composition, this plan requires approval from creditors representing two-thirds (2/3) in value of the debt, as well as court approval.^[1]
• Administration: If a reorganisation is approved, the debtor may be allowed to continue managing the business (as a "debtor-in-possession"), but only under the close supervision of the Receiver, who acts as a "special manager".^[1]

In practice, the Reorganisation under Section 46 is a dead letter. A viable corporate rescue requires a "breathing spell"—an automatic stay that binds all creditors, including secured ones, to allow the business to stabilize. As established, the 1997 Act's stay explicitly carves out secured creditors ^{[1, 53]}. Furthermore, the entire proceeding is pre-empted by the Artha Rin Adalat Act. A bank, as the primary secured creditor, has zero incentive to participate in a slow, uncertain Section 46 reorganisation when it can use the "speedy" Artha Rin Act to get a court order and auction the company's core assets. This effectively kills any chance of reorganization before it can begin. Section 46 is a rescue provision trapped in a liquidation statute, which itself is trumped by a recovery statute.

A-2. Alternative and De Facto Rescue Mechanisms

Given the non-functional nature of the 1997 Act's reorganisation provisions, distressed companies and creditors often turn to other legal mechanisms for corporate rescue:

• Scheme of Arrangement (Companies Act, 1994): The most viable alternative is a Scheme of Arrangement (SoA) under Section 228 of the Companies Act. This is a flexible, court-driven process initiated by the company, creditors, or members, requiring an application to the High Court Division. If a compromise or arrangement is proposed, it must be approved by a majority in number representing three-fourths (3/4) in value of the creditors or members (or class thereof) present and voting. Once sanctioned by the High Court, the SoA becomes legally binding on all parties and the company. This tool can be used for a wide range of restructuring, including reorganization of share capital, mergers, or transferring assets.
• Out-of-Court Debt Restructuring (Bangladesh Bank): The Bangladesh Bank (BB) has implemented policies and circulars (such as BRPD Circular No 16 of 2022) that provide an out-of-court mechanism for banks to reschedule and restructure distressed debts. These guidelines are intended for viable corporate entities affected by circumstances beyond their control, allowing for a supervised restructuring without formal insolvency proceedings.
• Prompt Corrective Action (PCA) for Banks: For stressed bank companies, Section 77A of the Bank Companies Act, 1991, and the associated PCA Framework (BRPD Circular No 17, 2023) allow the Bangladesh Bank to impose corrective measures, including compulsory amalgamation and restructuring.
• Substantial Share Acquisition (Publicly Listed Companies): Under the Bangladesh Securities & Exchange Commission Rules, 2018, financial institutions or other entities can rehabilitate a financially weak publicly listed company by acquiring its substantial shares and implementing a rehabilitation plan, which may include debt and capital restructuring.

B. Discharge and its Consequences (Individual Bankrupts)

For individual debtors, the final stage of the process is discharge.

Purpose of Discharge (Section 47): A discharge order from the court releases the individual bankrupt from personal liability for almost all "provable debts" (those incurred before adjudication).^[1] It is the "fresh start" that bankruptcy is designed to provide.

Grounds for Refusal/Suspension (Section 44/48): Discharge is not automatic. The court must refuse discharge, suspend it for a period, or grant it conditionally if the bankrupt is found to have committed certain acts.^[1] These include:

• Committing any bankruptcy offense.
• Failing to keep proper books of account.
• Continuing to trade after knowing they were insolvent.
• Contracting debts without a reasonable expectation of being able to pay.
• Contributing to the bankruptcy through rash speculation or extravagance.
• Giving an undue preference to a creditor shortly before bankruptcy.
• Having assets that are not equal to 50% of unsecured liabilities (unless this was due to circumstances beyond their control).

Non-Dischargeable Debts (Section 51): Even with a discharge order, the bankrupt is not released from certain debts, primarily those related to public policy^[1]:

• Debts due to the Government.
• Debts incurred by means of fraud or fraudulent breach of trust.
• Liabilities under a court order for maintenance (e.g., family support).

Consequences for Undischarged Bankrupts (Section 94): An individual who is not granted a discharge remains an "undischarged bankrupt".^[1] This status carries severe and lasting legal and civic disqualifications.^[1] An undischarged bankrupt is disqualified from:

• Being elected to Parliament or any local authority.
• Holding office as a Judge, Magistrate, or any other role in public service.
• Being appointed as a Receiver.
• Obtaining loans from banks or financial institutions.

The stigma of bankruptcy is not just social^[11]; it is codified. This is powerfully illustrated by an "interlocking" provision in the Companies Act, 1994. Section 94 of that Act also lists being an "undischarged insolvent" as a primary disqualification for being appointed a company director.^[5] This creates a powerful disincentive for any entrepreneur or businessperson to ever use the 1997 Act, as it signifies not only personal financial ruin but the end of their professional career.

C. Appeals and Review

Appeals (Section 96): Key decisions and orders of the Bankruptcy Court (which is the District Court^[1]) can be appealed. The appellate body is the High Court Division of the Supreme Court of Bangladesh.^[1] Appealable orders include the Order of Adjudication, orders regarding compositions or reorganisations, and orders granting or refusing discharge.

Review (Section 99): For orders that are not subject to appeal, an aggrieved party may apply to the original court or Receiver for a review.^[1] This is generally limited to correcting a clear mistake or considering new, material evidence.

Part IV: The De Facto Insolvency Landscape: A Critical Analysis

The preceding sections describe a law that is comprehensive on paper but, in reality, is almost entirely dormant. The true legal landscape for insolvency in Bangladesh is governed by two other, more aggressive statutes.

A. The Preferred Regime: Artha Rin Adalat Act, 2003

The Artha Rin Adalat Act (or "Money Loan Court Act") was enacted precisely because the Bankruptcy Act, 1997, and the old civil court processes were "not effective to recover the huge defaulted loan".^[6] Its stated purpose was to create a "special piece of legislation"^[7] to provide "speedy procedures for obtaining decrees"^[7] for loan recovery by financial institutions.

Jurisdiction: The Act establishes specialized "Artha Rin Adalat" (Money Loan Courts) in each district.^[4] These courts have exclusive jurisdiction for all loan recovery suits filed by financial institutions.

Key Pro-Creditor Provisions: The Act is overwhelmingly pro-creditor and designed for speed, not rehabilitation:

• Enforcement Without Court Intervention (Section 12): This is the Act's most powerful tool. Section 12 empowers financial institutions (holding the requisite security instruments and an irrevocable power of attorney) to sell the mortgaged or hypothecated property without court intervention to recover their dues. The Act frames litigation as a "last resort," requiring the institution to first exhaust all reasonable efforts to sell the secured property before filing a case.
• This right to enforce without court intervention also extends to a specific list of foreign lending institutions, including the International Finance Corporation (IFC), Asian Development Bank (ADB), and the International Bank for Reconstruction and Development (IBRD), among others. Other foreign lenders must typically appoint a local bank as a security agent to utilize this power.
• Strict Timelines: It imposes mandatory, tight timelines for every stage of the suit.
• Limited Borrower Defenses: Borrowers face "significant restrictions" under this law.^[8] A debtor cannot file a suit against a bank in this court; it is a one-way recovery tool.
• Appeal Restrictions (Section 42): In one of its most potent provisions, a borrower who wishes to appeal a verdict must first deposit 75% of the decreed amount with the court.^{[4, 9]} This makes appeals financially impossible for most defaulted borrowers.
• Civil Imprisonment (Section 34): The Act explicitly allows for the "Civil Imprisonment for Loan Defaulters" for up to six months for failing to pay the court-ordered amount.^[10]

This Act's dominance reveals the most important distinction in Bangladeshi commercial law: Insolvency vs. Recovery. An Insolvency Law (like the 1997 Act, in theory) is a collective proceeding. It is a "forum" that brings all creditors to one table, stays all individual actions, and divides the debtor's entire estate according to a set priority. A Recovery Law (the Artha Rin) is a bilateral proceeding. It is a "race to the courthouse"^[13] that allows one creditor (the bank) to seize and auction the debtor's assets to satisfy its own claim, outside of and ahead of all other creditors.

The dominance of the Artha Rin Act means that a collective insolvency proceeding is practically impossible for any company with bank debt. The bank will always win the race, seizing the most valuable assets and leaving an empty shell for employees, suppliers, and the government.

B. The Corporate Conundrum: Winding-Up under the Companies Act, 1994

With the 1997 Act functionally limited to individuals and its corporate reorganization provision (Sec 46) being a "dead letter," a massive gap exists for corporate insolvency. This gap is filled, inadequately, by the Companies Act, 1994.

This Act provides three modes for the "winding up" (i.e., liquidation) of a company^[5]:

1. Winding Up by the Court (Involuntary): A petition can be filed on several grounds, most notably if the company is "unable to pay its debts" or if it is "just and equitable" to do so.^[5]
2. Voluntary Winding Up: Initiated by shareholders, typically for solvent companies, requiring a "Declaration of Solvency" from the directors.^[5]
3. Winding Up Subject to Court Supervision: A hybrid proceeding.

In a court-ordered winding-up, the court appoints a Liquidator. This liquidator takes custody of all company assets^[5], sells them, pays creditors, and then formally dissolves the company, terminating its legal identity.

The Companies Act is a liquidation statute, not an insolvency statute. The only remedy it provides for a company that is "unable to pay its debts" is a "winding-up" —a corporate death sentence. It contains no provisions for reorganization, restructuring, or rehabilitation. This creates a value-destroying gap in the legal framework. A viable company facing a temporary liquidity crisis (a "good company with a bad balance sheet") has no legal pathway to survival. Its only option is liquidation. This is precisely the "modern corporate insolvency complexity"^[2] that the 1997 Act failed to address.

C. The De Facto Landscape: Enforcement of Foreign Judgments

For foreign creditors, enforcing their rights in Bangladesh depends on the origin of the judgment, as governed by the Code of Civil Procedure, 1908 (CPC).

• Reciprocating Territories (Section 44A, CPC): If a judgment is from a "reciprocating territory" (a country designated as such by the Bangladeshi government), the process is straightforward. The decree-holder can file a certified copy of the judgment directly with the relevant District Court for execution. This process treats the foreign judgment as if it were a domestic one, bypassing the need for a new lawsuit. The court will enforce it unless it falls under one of the exceptions in Section 13 of the CPC (e.g., pronounced by a court without competent jurisdiction, not given on the merits, obtained by fraud, or sustains a claim founded on a breach of Bangladeshi law).
• Non-Reciprocating Territories: Judgments from non-reciprocating territories cannot be directly executed. The creditor must file a fresh suit in a Bangladeshi court, using the foreign judgment as the primary piece of evidence for the claim. The local court will then re-adjudicate the matter, though it will treat the foreign judgment as conclusive proof if the conditions of Section 13 (CPC) are met.

Part V: The Future: The Insolvency and Bankruptcy Ordinance, 2025

A. The Impetus for Reform: A "Perfect Storm"

The fragmented and dysfunctional system described above has created a "perfect storm" of legal, economic, and political pressures, culminating in a major push for reform in 2024-2025.

• Legal Failure: There is universal recognition among legal experts, international bodies, and the government itself that the 1997 Act is "outdated," "inadequate," and "applies mainly to individual insolvency".^[15]
• International Condemnation: Bangladesh receives its lowest score in "Business Insolvency" in the World Bank's "B-Ready" report, which notes a lack of digital services and modern reorganization proceedings.^[14]
• Economic Crisis: The country faces a severe economic crisis^[16], driven in large part by a catastrophic Non-Performing Loan (NPL) problem, which escalated to nearly 36% of sector credit by early 2025.^{[17, 18]} This has placed the entire financial system under acute stress^[18] and led to intense pressure from international bodies like the IMF for systemic reforms.^[17]
• Political Opportunity: The installation of an interim government in 2024^[24] with a broad mandate for systemic reform^[25] created a unique political opportunity. This government has the authority to pass "Ordinances"^[25], which have the force of law and can bypass a deadlocked parliament to address urgent national issues.

This causal chain—[Failed Acts] + [NPL Crisis] + + [Interim Government Mandate]—has led directly to the drafting of a new, modern insolvency framework.

B. Key Features of the Proposed 2025 Reforms

The reform agenda is not a mere amendment but a complete philosophical overhaul, embodied in two separate proposed laws.

1. The Insolvency and Bankruptcy Ordinance, 2025: This is the new, unified code (drafted by bodies like the Bangladesh Awami Jubo League's (BAIRA) legal team^[20] and consulted on by the Institute of Chartered Accountants of Bangladesh (ICAB)^[21]).

• A New "Rescue" Philosophy: Its primary objective is a paradigm shift: to "rescue Debtor as a going concern"^[19] and to achieve a "better result for the... Creditors as a whole" than liquidation would.^[19]
• Key Objectives (Section 2, Draft):
  • Rescue: To save viable businesses.
  • Efficiency: To provide "efficient liquidation" for non-viable businesses.
  • Cross-Border Insolvency: To establish a legal framework for cross-border insolvencies^[22], finally addressing the long-standing gap identified by UNCITRAL.
  • Speed: To create an "Accelerated Reorganization Procedure".^[23]

2. The Bank Resolution Ordinance, 2025: Recognizing that banks are systemically important, the government has drafted a separate, specialized law for their failure.

• Specialized Authority: This ordinance establishes the Bangladesh Bank (the central bank) as the "Resolution Authority".^[26]
• Specialized Tools: It gives the central bank powerful tools, such as "Temporary Administration"^[26], to take control of failing banks to protect depositors and ensure financial stability, outside of the general insolvency code.

This dual-ordinance architecture is a sophisticated and modern approach designed to solve the fragmentation this report has identified. The Insolvency and Bankruptcy Ordinance is intended to replace both the 1997 Bankruptcy Act and the 1994 Companies Act's winding-up provisions, creating a single, unified code for all other businesses and individuals. The Bank Resolution Ordinance carves out the systemic risk of the financial sector. The ultimate success of this new regime will depend on its supremacy—specifically, whether its collective stay provisions can legally and practically override a bank's right to race to the Artha Rin Adalat.

Part VI: Conclusion and Strategic Recommendations

This report confirms that the Bankruptcy Act, 1997, while the de jure law, is a "legal relic." It is a dormant statute, rendered obsolete by its own structural flaws—including its punitive character, pro-bank bias, and anti-business disqualifications—and the existence of a more powerful de facto regime.

The de facto reality of insolvency in Bangladesh is a predatory and fragmented patchwork:

• For financial institutions, the law is the Artha Rin Adalat Act, 2003—a "super-recovery" statute that prioritizes bilateral debt collection over collective, value-preserving rescue.
• For corporations, the only available law is the Companies Act, 1994—a "corporate undertaker" that offers only liquidation ("winding-up"), not reorganization.
• For unsecured trade creditors and employees, there is effectively no law. They are left with the scraps after a secured bank has used the Artha Rin to seize all valuable assets.

The Insolvency and Bankruptcy Ordinance, 2025, born of a severe economic and political crisis, is the only viable path forward. It represents a necessary philosophical shift from liquidation to rescue. Its passage and implementation are the single most important variables in the future of Bangladeshi commercial law.

Based on this analysis, the following strategic recommendations are offered:

• For Creditors: Creditors operating in Bangladesh must understand that their legal rights and remedies depend entirely on their classification. A secured financial creditor (a bank) has immense power under the Artha Rin. A non-financial, unsecured creditor (a supplier) has almost none and must rely on strong contractual protections (like letters of credit or retention of title) or personal relationships, as the de jure insolvency system will not protect them.
• For Investors: The passage and implementation of the 2025 Ordinances is the critical "watch-item." If passed and robustly enforced, this new code will significantly de-risk investment by providing a predictable, modern, and value-preserving framework for resolving corporate distress. If it is defeated, or neutered by the banking lobby, the high-risk, low-recovery, and bank-dominated status quo will persist.
• For Legal Practitioners: The transition from the current three-statute "patchwork" to the new unified code will be the most significant commercial law development in a generation. The immediate legal questions will be: (1) Does the new Ordinance's "stay" provision explicitly halt all pending Artha Rin proceedings? and (2) How will the judiciary, long accustomed to the "speedy recovery" model, adapt to the complex, nuanced valuations and negotiations of a "rescue" culture? The answers to these questions will determine the future of business in Bangladesh.