Reform the failing insolvency law

FE Team | Published: May 14, 2026 19:08:49

Insolvency law is a cornerstone of a functioning economy. A well-designed system allows financially distressed but viable businesses to recover, ensures fair treatment of creditors and maintains confidence in the market. When such a system fails, the consequences ripple across the economy, affecting investment, employment and financial stability.
In Bangladesh, the insolvency regime is not fulfilling these essential functions.
The existing legal framework, particularly the Bankruptcy Act of 1997, has become increasingly disconnected from the realities of a modern economy. Despite being in force for decades, it remains rarely used in practice. Instead of serving as a reliable mechanism for resolving financial distress, it has become largely symbolic -- overshadowed by delays, inefficiencies and a lack of confidence among stakeholders.
One of the most pressing problems is delay. Insolvency proceedings in Bangladesh are often slow and procedurally complex with cases taking years to resolve. For creditors, this means prolonged uncertainty and low recovery rates. For businesses, it often means that by the time any resolution is reached, recovery is no longer possible. A system designed to manage financial distress ends up deepening it.
Equally concerning is the system's overwhelming tilt towards liquidation rather than rescue. In many cases, financially distressed companies are pushed towards closure, even when there may be a realistic chance of survival through restructuring. This results not only in the loss of businesses but also in job losses, reduced economic activity and wasted potential.
This approach stands in stark contrast to more developed insolvency regimes. In the United Kingdom, for example, insolvency law prioritises business rescue wherever possible. Mechanisms such as administration and company voluntary arrangements are designed to give struggling businesses breathing space, allowing them to reorganise and continue operating. The underlying philosophy is clear: preserving economic value is better than destroying it.
Bangladesh is yet to fully embrace this principle.
Another major challenge lies in institutional capacity. Effective insolvency systems require more than legislation-they depend on skilled professionals, specialised courts and efficient administration. Bangladesh currently lacks a strong ecosystem of trained insolvency practitioners who can manage complex restructuring processes. At the same time, courts are often overburdened, making it difficult to ensure timely resolution of cases.
The result is a system that exists on paper but struggles in practice.
Shefa Un Nessa
A lawyer
shefalaw@yahoo.com