The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has initiated a technical exercise to assess the current exit or insolvency regime and practices to identify the necessary reform measures.
The garment makers’ body has also sought participation of different stakeholders, including the National Board of Revenue (NBR), in the exercise for effective completion of the assessment even as BGMEA President Rubana Huq on 16 January 2021 wrote a letter to NBR Chairman Abu Hena Md Rahmatul Muneem, seeking nomination of a representative in the working group.
While according to the trade body’s plan, representatives from various regulatory agencies, RMG entrepreneurs, international buyers, legal professionals, chartered accountants, retired senior policymakers, retired High Court officials, experienced liquidators and economic policy experts would be included in the working group, which in turn will advise the BGMEA on technical and practical aspects of exit policies and practices and identify the critical reform issues as well as engage the regulatory authorities and private sector players for successful implementation of reforms and enforcement.
A background note prepared by the BGMEA has meanwhile underlined that insolvency and bankruptcy proceedings in Bangladesh are organised under the Bankruptcy Act 1997 and it said that the act is not very popular and is rarely used. Further, as per the apparel manufacturers’ body, the bankruptcy regime favours the cause of banks and financial institutions over the debtors facing financial distress and, so far only one company has been declared bankrupt under the law, it underlined.
The exit and insolvency policy even if is a long-discussed issue in the Bangladesh’s business circles, especially in the garment industry, gained a new dimension, perhaps in the light of the COVID-19 pandemic — due to pandemic-induced shutdown and resultant economic downturn in the main export destinations of apparel products — as firms in the sector have come across many business hurdles, including the prospect of voluntary and involuntary exit.
It’s not that things have been drastically different earlier from the industry’s perspective as according to industry insiders, manufacturers in the country’s apparel sector, over the years, had been facing financial distress arising from a host of factors, including increased competition globally and rising production costs. The Coronavirus pandemic has exacerbated the hurdles for the industry, with prospects of voluntary and involuntary exit for some firms.
It may be mentioned here that as per industry insiders, due to the rising production cost driven by wage and energy cost hikes, compliance costs and declining international market prices, the competitiveness of the readymade garment industry has taken a hit and subsequent to which many factories have been forced to bow out of business as well.
In such a scenario, insolvency law policies and regulations, experts maintain, play a very important role in the economy and in society as they allow what they term the ‘honest but unfortunate debtors’ to obtain a fresh start by relieving them from their debts even as the insolvency law policies also facilitate resources to be quickly returned to productive use by enabling financially troubled but viable companies to restructure instead of filing for bankruptcy.
The BGMEA thus reportedly initiated a technical exercise to assess the current exit or insolvency regime and practices to identify necessary reform measures as the trade body took the move to facilitate improvement and reform in Bangladesh’s insolvency law or business exit regime and practices with the particular focus on highlighting improvement relevant to entrepreneurs in the readymade garment sector.
BGMEA aims to form a working group with the participation of stakeholders to ensure reflection of ground realities and context, and to create the necessary awareness and broad-based support for successful implementation of the recommendations the group will make on the policy initiative.
In this context, the working group will act as a forum for discussion on the issues and challenges in the existing legal and regulatory framework as well as on the possible reform measures for the resolution of insolvency and bankruptcy.
It may be mentioned here that Bangladesh ranked 154th on resolving insolvency indicator in the overall Ease of Doing Business Report 2020 with the report maintaining that resolving insolvency takes four years in Bangladesh while the recovery rate is 29.1 cents on a dollar with a cost of 8 per cent of estate value.
Experts maintain that Bangladesh being a part of the then British-India, principles of common law assimilated into the legal system and Bangladesh also inherited the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 and the said acts remained enforceable until 1997, when the Bankruptcy Act, 1997 was enacted in Bangladesh, thereby repealing the above two laws.
They further maintain that Preamble to the Bankruptcy Act, 1997 without assigning specific reasons for such enactment only provided that such a law is expedient relating to management of bankruptcy issues in Bangladesh and it brought legal entities/companies within its ambit and also established new Courts in the name of ‘Bankruptcy Courts’ to expedite bankruptcy proceedings as well as to facilitate recovery of debts of creditors in general and one of the reasons of such new enactment was that during mid-nineties, there grew a ‘loan defaulting culture’ within the business community.
Meanwhile, as per the BGMEA, the bankruptcy regime reportedly favours the cause of banks and financial institutions over the debtors facing financial distress and, so far only one company has been declared bankrupt under the law, underlined the background note created by the trade body.
Most creditors prefer to use the Money Loan Courts Act 2003 which provides time-bound and faster recovery mechanism, underlined the BGMEA even as according to some experts as things went on from the enactment of Bankruptcy Act 1997, it was found that the same could not become successful as a recovery law to facilitate realisation of public money from what they called ‘unscrupulous’ business persons/entities as more than 85 per cent orders/decisions of the newly established Bankruptcy Courts were challenged before High Court Division of the Supreme Court of Bangladesh under revisional jurisdiction and were stayed reportedly, thereby frustrating the purpose of early loan recovery.
Thus, the Government had to resort to enact a new recovery law called the Money Loan Courts Act, 2003 to overcome the bottlenecks and to facilitate banks and non-banking financial institutions to overcome and bail out.
Nevertheless, as per some news report that were published in 2019, money loan courts (Artha Rin Adalat), which were created in 2003 to help expeditious resolution of disputes between banks and their clients over loan repayment, were overburdened even as these courts were reportedly failing to meet the very objectives behind their formation, to a large extent.
“Capacity needs to be improved; we need more money loan courts and judges. Lengthy process of trial system should be stopped,” reportedly underlined banker Syed Mahbubur Rahman in an earlier interview with the media.
Now, if BGMEA’s endeavours to assess the current exit or insolvency regime and practices to identify necessary reform measures so as to facilitate improvement and reform in Bangladesh’s insolvency law or business exit regime and practices, focusing on highlighting improvement relevant to the apparel manufacturers, will bring some positive changes for the entrepreneurs of this sector, is to be seen.