A petition has been filed with the High Court for winding up non-bank financial institution Fareast Finance and Investment Limited (FFIL) after it repeatedly failed to repay depositors' money.
Sterling Creations Limited, a garment-manufacturing company, filed the petition recently. They have also requested the court to appoint a liquidator to oversee the closure of Fareast Finance.
The petition is currently pending with the High Court bench of Justice Syed Refaat Ahmed.
According to the Dhaka Stock Exchange, Fareast Finance and Investment Limited has been struggling with recurring losses for years. In 2022 alone, it reported a loss of Tk 2.3 billion. This financial strain has left the company unable to meet its obligations to depositors.
The company, which was listed on the Dhaka Stock Exchange in 2013, has an authorised capital of Tk 2 billion and a paid-up capital of Tk 1.6 billion. Their shares last traded at a meagre Tk 4.8, with a current market capitalisation of Tk 787.5 million. Notably, they have not paid dividends to shareholders since 2016.
Sterling's petition details how they held two fixed deposit receipts (FDRs) with Fareast Finance, each worth Tk 56.97 million and Tk 54.33 million, both promising an attractive 11.50 per cent annual profit.
In January 2019, Sterling requested to encash one of their FDRs and transfer the funds to their bank account. Fareast Finance did manage to transfer Tk 15 million, but that is where things went south.
Despite both FDRs maturing in April 2019, the financing company has not paid Sterling any further amount, according to the petition. When Sterling pressed the issue, Fareast Finance allegedly cited liquidity problems as an excuse.
On June 8th, 2023, Sterling finally reached their breaking point.
They sent a formal demand notice through their lawyer, demanding the full repayment of their FDRs with accumulated profits.
The notice warned that failure to pay would be considered an inability to settle debts, entitling Sterling to petition the High Court for financing the company's winding up.
On the other hand, Fareast Finance responded that upon receiving the demand notice from the petitioner, it informed the petitioner in June 2023 that Fareast Stocks & Bonds Limited (FSBL) is an associate company of FFIL and that the directors and shareholders of the petitioner company, Md Fazlul Haque and Md Tanvirul Haque, operated BO Accounts with FSBL.
The two directors and shareholders used to obtain margin loans from FSBL. According to FFIL's reply, there was an outstanding margin loan amount of Tk 170.58 million in the BO account maintained by Md Fazlul Haque and Tk 54.01 million in the BO account maintained by Md Tanvirul Haque in FSBL as of 31 December 2018.
FSBL requested FFIL to suspend the accounts of Md Fazlul Haque and Md Tanvirul Haque by letters dated February 17, 2019 and February 18, 2019.
Following the request from FSBL, the 197th board meeting of FFIL decided that the encashment of the petitioner company's FDRs would be stopped until the liabilities of Md Fazlul Haque and Md Tanvirul Haque with FSBL were settled.
The High Court added the Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC) as parties to the case on March 3 this year. It set March 18 for a further hearing on the issue on Monday, March 11.
Barrister Mustafizur Rahman Khan and Barrister Mehreen Hassan represented the petitioner in the court hearing, while Barrister AM Masum, Barrister Sayed Mahsib Hossain and Advocate Kaniz Fatima Tunazzina acted for Fareast Finance.
Sterling Creations' lawyer, Barrister Mehreen Hassan, told The Financial Express that they filed the winding-up petition because FFIL had failed to encash their FDRs.
FFIL's lawyer, Barrister Sayed Mahsib Hossain, said this application had been filed to disrupt the financial sector as well as the capital market so that customers who maintain deposits with FFIL can encash their respective deposits.
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