Bankruptcy Declaration Process in Bangladesh – The conditions and the proceedings in 2021

Bankruptcy Declaration Process in Bangladesh

This article will explain the concept of Bankruptcy, the process by which a person/Company is declared as Bankrupt in Bangladesh and its consequences. These are the frequently asked questions regarding Bankruptcy from clients to its lawyers. 

What is Bankruptcy? 

In order to understand the term Bankruptcy, the term ‘default’ and ‘insolvency’ must be understood. Default in essence means a debtor has not paid back a debt owed to banks. On the other hand, Insolvency is a legal term which means a debtor is unable to pay his debts. Now keeping in mind the definition of default and insolvency, Bankruptcy is a legal finding that put into effect court supervision over the financial affairs of those who are insolvent or in default due to misfortune or mismanagement.

What amounts to Bankruptcy? 

The Bankruptcy act 1997 contains the provision of declaring a debtor as bankrupt due to the acts of debtors. The acts that amounts to bankruptcy are:

  1. if, in Bangladesh or elsewhere, he makes a transfer of all property kept in his name or in the name of his wife, son or daughter by benami to a third person for the benefit of his creditors generally;
  • if, in Bangladesh or elsewhere, he makes a transfer of property in his name or in the name of his wife, son or daughter by benami or of any part thereof with intent to defeat or delay his creditors’ demand if he, without receiving reasonable value therefore, made such transfer at a time when he was unable to pay his debts.
  • if, in Bangladesh or elsewhere, he makes any transfer of his property or of any part thereof or mortgages, pledges, hypothecates or creates charge thereon, which would, under this Act or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged bankrupt;
  • if, with intent to defeat or delay his creditors’ demand-
    • he departs or remains out of Bangladesh;
    • he departs from his dwelling-house or usual place of business or otherwise absents himself;
    • he secludes himself so as to deprive his creditors of the means of communicating with him;
    • submits collusively or fraudulently to an adverse decree, judgment or order of any court or other authority;
  • if any of his property has been sold in execution of a decree of any court for the payment of money;
  • if he files plaint to the court for being adjudged bankrupt under the provisions of this Act;
  • if he gives notice to any of his creditors that he has suspended, or that he is about to suspend, the payment of his debts;
  • if he is imprisoned in execution of a decree of any court for the payment of debt; or
  • if one or more creditors, having a valid and matured debt against the debtor for an amount of not less than Tk. 5,00,000.00 has or have served on such debtor a formal demand under this Act requiring such debtor to pay the debt or to give security for it to the satisfaction of such creditor or creditors and, within 90 days after service of the demand, the debtor does not comply with the requirements of the demand.

The Bankruptcy Court 

The bankruptcy court for dealing with and disposing of the proceeding under this act shall be the District Court. The bankruptcy court will have the same powers as it has in the exercise of original civil jurisdiction. 

Where default is made by a debtor or any other person in obeying any order or direction given by the court, the court may:

  • order such defaulting debtor or person to comply with the order or direction so given or 
  • Upon finding good cause therefore, it may make an immediate order for committal of such defaulting debtor or other person in civil prison on such terms and conditions determined by the court. 

The Process of Bankruptcy proceeding

The process for bankruptcy initiates with a petition filed by debtors or on behalf of creditors. If the debtor commits an act of bankruptcy as mentioned above, a plaint may be presented by one or more eligible creditors or by the debtor. Thereafter, the court may on such plaint make an order of adjudication, adjudging the debtor a bankrupt. 

Conditions for filing plaint by creditor 

Only eligible creditors are entitled to file a plaint against a debtor and if:

  • The debt owing to an eligible creditor or two or more eligible creditors joint in the plaint is of an aggregate amount of Tk. 5,00,000 (five lakh) and 
  • Such creditors have a prima facie case that the debtor has committed an act of bankruptcy and 
  • The act of bankruptcy has occurred within one year before the presentation of the plaint.
  • Conditions for filing plaint by debtor

A debtor is only be entitled to file a plaint if he specifically mentions in the plaint that he is unable to pay his debts and:

  • His debts amount to Tk. 20,000 (twenty thousand); or 
  • He is under arrest or imprisonment in execution of a decree of any court for the payment of debt; or 
  • An order of attachment in execution of such a decree has been made, and is subsisting against his property at the time of filing the plaint.  
  •  Withdrawal and dismissal of plaint 

Not plaint, whether presented by a debtor or creditor, shall be withdrawn without the permission of the court. However, the court shall dismiss the plaint presented by a debtor if it is not satisfied about the debtor’s right to present the plaint.

 On the other hand, a plaint presented by a creditor shall be dismissed if:

  • The court is not satisfied with the proof of creditor’s right to present the plaint, and 
  • The court not satisfied with the proof of  service of notice on the debtor regarding the order fixing the date of hearing the plaint and 
  • The court not satisfied with the proof of the alleged act of bankruptcy or 
  • The debtor  can satisfy the court that he is able to pay the debts and 
  • The debtor can satisfy the court that he is not a wilful defaulter. 

 Compensation for dismissal of Plaint 

Where a plaint presented by a creditor is dismissed for the reasons mentioned above, and the court is satisfied that the plaint is frivolous or vexatious, the court may, on the application of the debtor, award against the creditor such amount not exceeding Tk. 1,00,000 (one lakh) as compensation to the debtor.  

Consequences of Bankruptcy order

On the making of an order of adjudication, the bankrupt shall assist to the utmost of his capacity in the realization of his property and the distribution of his proceeds among his creditors in accordance with the provisions of the Bankruptcy Act 1997. On the making of an order of adjudication, all the property of the debtor, except the exempted property, shall stand vested in the court and shall become divisible among the creditors. The property so vested shall be known as the Estate. 

Each creditor, shall in respect of the debt owed to him, be barred during the pendency of the bankruptcy proceedings from having any remedy against the exempted property of the debtor or from commencing any civil case except with the permission of the court. 

  • Exempted property 

The properties of the debtor that shall not be liable to be taken over or vested are known as exempted property. Such exempted properties are:

  1. The tools used by the debtor himself 
  2. Wearing apparel and household furnishing and other like accessories of himself, spouse and children
  3. Debtor’s un-mortgaged dwelling place or homestead (it must not exceed specific square feet mentioned under the act) 

It is to be noted that the total value of the articles mentioned in (a) and (b) above, shall not exceed Tk. 3,00,000 (three lakh). 

LEGAL ADVICE ON BANKRUPTCY AT CLP

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with Bankruptcy matters. In addition to handling various issues related to domestic clients on a regular basis, it also has experience in consulting and assisting numerous international clients with utmost care and attention throughout their legal troubles.  For queries or legal assistance, please reach us at:

 E-mail:[email protected] 
Phone:+8801727983838
 Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.

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