Even five years after the COVID-19 pandemic, the once-thriving streets of Dhaka still bear visible signs of its economic impact. Behind shuttered shutters and empty stores are hidden tales of companies fighting to survive under growing debts and declining opportunities. The pandemic not only changed people’s lives but also drew attention to the clear shortcomings of Bangladesh’s bankruptcy and insolvency system, which remains rooted in the Bankruptcy Act, 1997.
The COVID-19 outbreak has raised concerns about Bangladesh’s bankruptcy and insolvency system, which is mostly overseen by the Bankruptcy Act, 1997. The economic crisis revealed legal system weaknesses in handling rising financial distress among individuals and companies. Bangladesh Bank policy taken in March 2025 classifies loans as substandard after only three months of being past due, exacerbating these challenges. Business executives believe that tighter loan categorization may increase financial challenges for small and medium-sized businesses (SMEs), who are already struggling following the pandemic.
A Framework Frozen in Time: The Outdated Bankruptcy Act
The Bankruptcy Act of 1997 came into being during a time when Bangladesh’s economy was mostly rural, simple, and had no connection to outside markets. The economic scene today has changed dramatically. Digital commerce, global supplier networks, and complex debt structures characterise the modern business scene. The norm, however, remains constant; it operates as though time had ceased flowing ahead.
The Bankruptcy Act, 1997, emphasises liquidation above repair for financially challenged firms. This liquidation-focused strategy ignores the economic effects of company shutdowns. Consider closing a Gazipur factory. Closing would hurt the business and cause major disruptions. Suppliers and creditors receive fractional payments, employees lose their livelihoods, and regional economies collapse. Since a single shutdown affects employees, suppliers, and communities, similar scenarios may happen in other sectors.
The Human Cost of Legal Inertia
Typically presented as a question of assets and obligations, insolvency really hurts people. The recent Narayanganj textile factory shutdowns, which left almost 6,000 people unemployed, show how a bad bankruptcy system can ruin towns. Without steady pay cheques, many workers took out informal loans and incurred high-interest debt to meet basic needs. In December 2024, the Beximco Group closed 16 textile operations, leaving approximately 40,000 workers unemployed and generating economic stress in their homes and families.
The judicial system in this setting is a vital lifeline, not only procedural. The present structure, on the other hand, provides little protection for weak stakeholders. Business owners in bankruptcy have two dismal options: surrender assets for liquidation or traverse the informal lending sector, where interest rates might be astronomical.
Japan is among the nations that acknowledge the human toll of financial hardship. The phrase “karoshi” meaning death from overwork, aptly describes the great strain company owners and workers suffer. There might not be a term for it in Bangladeshi, but the reality is just as awful. While business owners struggle under growing debt, workers experience job insecurity and financial uncertainty.
Global Lessons: Models of Resilience and Reform
Outside Bangladesh, COVID-19 has had financial repercussions. To avoid financial instability and the failure of major corporations, countries all around have been compelled to re-examine their bankruptcy systems. India’s Bankruptcy Code (IBC) allows quick reorganisation using pre-packaged bankruptcy processes. Pre-packs enable businesses to negotiate debt settlements with creditors before the beginning of official procedures, hence reducing asset depletion and accelerating recovery schedules.
Singapore’s insolvency reform, implemented under the Insolvency, Restructuring and Dissolution Act (IRDA) on July 30, 2020, provides essential insights for nations with antiquated regimes. The IRDA replaces the Bankruptcy statute by combining numerous insolvency systems into one comprehensive statute, signalling a purposeful move towards a more coordinated and effective financial crisis response. It includes the UNCITRAL Model Law on Cross-Border Insolvency, enabling local and international courts to cooperate on transnational debt concerns.
The way the United Kingdom handles bankruptcy is rather fascinating as well. Enacted in reaction to the pandemic, the Corporate Insolvency and Governance Act 2020 set moratoriums on creditor actions, enabling struggling companies to reorganise free from the risk of rapid liquidation. Preventing economic disaster has been made easier by this emphasis on corporate rehabilitation rather than asset liquidation.
However, the judicial system in Bangladesh, on the other hand, still operates under the belief that liquidation is the main remedy. Still relevant is this approach, which ignores the prospect of economic recovery.
Economic Fallout: The Ripple Effect of Business Collapse
The financial consequences of a poor bankruptcy system extend beyond individual companies. Bangladesh Bank claimed the proportion of non-performing loans (NPLs) had risen markedly from 9% a year earlier to 20.2% by the end of December 2024. The increase in non-performing loans indicates greater widespread economic distress as well as financial distress.
Companies that fail to repay loans make it harder for financial institutions to recover their investments. Unstructured restructuring alternatives push creditors to asset seizures, hence intensifying the already present financial crisis. The loss of one business might set off a chain reaction affecting employees, distributors, and suppliers.
Workers in Dhaka’s industrial area were financially vulnerable after more than 100 garments, knitwear, and textile factories closed in 2024. In December 2024, the Beximco Group announced 16 textile factory closures, affecting 40,000 employments. All Beximco Textiles closed by March 2025, prompting worker protests over unpaid wages and factory reopening. Due to market volatility and low job orders, Keya Group in Gazipur closed unexpectedly, leaving many workers unpaid for months. Some relied on charity for food. These incidents show how our legal system fails to address the devastating effects of factory bankruptcies on workers’ livelihoods.
A Call for Comprehensive Reform
Addressing these systematic shortcomings requires thorough improvements instead of merely cosmetic changes. To properly handle the difficulties caused by the financial crisis, Bangladesh has to match its bankruptcy system with the best practices in the world. Among the main changes are:
- Debtor-in-Possession Models: Allowing business owners to have control during restructuring might motivate financial recovery over asset liquidation. In places like the United States, where Chapter 11 bankruptcy processes let debtors run their companies while reorganizing obligations, this strategy has been successful.
- Pre-Packaged Bankruptcy: Engaging in debt discussions prior to legal procedures helps save superfluous asset depletion. India’s bankruptcy and Bankruptcy Code implemented pre-packaged bankruptcy resolution processes for MSMEs (Micro, Small, and Medium Enterprises.), facilitating restructuring initiatives.
- Specialized Insolvency Courts: Establishing specialized business courts staffed with trained judges can accelerate complicated restructuring cases and alleviate court backlogs. Countries such as Singapore have established specialized courts to improve the efficiency of insolvency processes.
- Regulatory Oversight of Insolvency Practitioners: Implementing licensing systems ensures that insolvency practitioners adhere to ethical and professional standards, mitigating risks of asset mismanagement. The UK, for example, has a regulatory framework overseen by the Insolvency Service to maintain practitioner integrity.
- Cross-Border Insolvency Provisions: Developing legislative frameworks to address cross-border debt difficulties is essential in a globalised economy. The implementation of the UNCITRAL Model Law on Cross-Border Insolvency, exemplified by Chapter 15 of the United States Bankruptcy Code, promotes collaboration across jurisdictions and safeguards the rights of both local and foreign creditors.
These changes will not only update Bangladesh’s bankruptcy system but also improve its ability to properly handle financial crises. Such modifications can help to preserve development and stability by encouraging a more resilient economic environment.
Conclusion: A Critical Juncture for Reform
Bangladesh faces a turning point. COVID-19’s economic shock has shown the weaknesses in a legal system that views insolvency as a final failure rather than a road to recovery. This obsolete strategy destroys employment, destabilises families, and closes genuine businesses, not just trade. The need for reform is evident. Bangladesh risks economic instability if insolvency is still considered liquidation. The legal structure must support corporate reorganisation and economic resiliency rather than creditor recovery. Companies should be considered as national recovery contributors, not expropriated assets. Law change is needed for recovery. Continue closure and creditor control or develop a forward-looking framework that promotes rehabilitation and long-term economic stability.
When the economic engine stalls, legal reform must be the fuel that reignites it.
When businesses crumble, the law should not stand as a silent spectator.
Latest posts by Advocate Joydeep Chowdhury (see all)
- Post-COVID Fallout: Why Bangladesh’s Bankruptcy Laws Need Urgent Reform - May 28, 2025
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- The Digital Pharmaceutical Revolution in Bangladesh: Regulatory Challenges and Public Health Risks Under the Drugs and Cosmetics Act, 2023 - April 19, 2025
