The legal roadblock to the conversion or liquidation of closed-end mutual funds has been cleared, as the Chamber Court of the Appellate Division stayed the status quo orders issued on writ petitions challenging the regulatory move.
"We have no bottlenecks now to enforce [the regulatory mandates]," said Md. Abul Kalam, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC).
The market watchdog can now go ahead with the process to liquidate or convert deeply discounted mutual funds as per the revised BSEC (Mutual Fund) Rules 2025.
Meanwhile, the same court, presided over by Honourable Justice Farah Mahbub, stayed a status quo order issued by the High Court following a petition that challenged an enquiry report on Best Holdings.
As asset manager of Best Holdings, RACE Asset Management was found to be involved in financial irregularities, unauthorised transactions and fund mismanagement.
The probe report said RACE had conducted unauthorised block transactions between different funds. A key part of the "scam" involved money being taken away from mutual funds to invest in Best Holdings' placement shares at high premiums, when investment should have been made at face value. Moreover, there was a conflict of interest, as RACE, while acting as the issue manager of Best Holdings' IPO, used its managed funds to invest in the company's shares on suspicious terms.
Under the revised mutual fund rules, any closed-end mutual fund trading at a discount of more than 24 per cent to its Net Asset Value (NAV) - calculated on a six-month rolling average - is legally bound to either convert into an open-ended fund or wind up.
Welcoming the apex court's breakthrough decision, Md. Moniruzzaman, managing director of Prime Bank Securities Ltd., told the Financial Express, "This milestone directive will provide immense relief to small and general investors who have been trapped in protracted financial losses, which in turn will significantly boost overarching capital market confidence." Investors have been reluctant to sell assets at heavy discounts in the secondary market, as they had no means to redeem units at net asset value. The removal of structural barriers has granted affected unitholders a fair mechanism to partially recover their hard-earned equity value, Moniruzzaman explained.
With the six-month window officially concluding on May 12, the commission issued an operational directive on May 7 demanding compliance. However, five unitholders quickly mounted a legal challenge, securing a two-month status quo order from the High Court.
The legal standoff severely disrupted administrative efforts. Documents reveal that the Investment Corporation of Bangladesh (ICB), one of the trustees of listed mutual funds, was forced to indefinitely postpone a critical trustee committee meeting scheduled for June 3, which was originally set to decide the record date, trade suspension date and special general meeting (SGM) schedules for two prominent underperforming schemes.
Even as the BSEC issued letters on June 9 and June 11 instructing trustees such as ICB, Bangladesh General Insurance Company Limited (BGIC), and Grameen Fund to bypass the writ petitioners and continue implementation across the broader market, legal ambiguities remained.
With the stay order now in place, the process is set to get back on track, with trustees mandated to comply with the regulatory timeline to execute the conversion or liquidation process.
Why does BSEC prefer conversion?
The regulatory body prefers conversion over liquidation of the listed funds. BSEC officials warn that liquidating portfolios worth billions would result in catastrophic selling pressure on underlying capital market assets.
That would severely drive down equity prices. Moreover, unitholders would bear additional tax obligations on the proceeds.
Conversion, by contrast, offers an immediate shield for institutional and retail investors alike. Units heavily discounted on the secondary market are safely converted into open-ended fractions mirroring fair NAV equity values. Investors also retain immediate redemption rights directly through designated fund managers, taking the pressure off the stock exchange.
Enforcement drive to follow probe findings on Best Holdings
The inquiry report recommended severe punitive measures against those involved in the fraudulent acts.
Major recommendations include a fine of at least Tk 100 million each on Amin Ahmed, chairman of the accused company, and Hasan Ahmed, managing director, for their personal liabilities.
The report also suggested cancelling the registration of RACE Asset Management, along with imposing a fine of Tk 250 million. It further sought a Tk 200 million penalty and a lifetime ban on the widely criticised financial figure Chowdhury Nafees Sarafat and RACE Managing Director Hasan Taher Imam.
The HC stay order had effectively tied the hands of the commission, blocking any form of regulatory action.
With the stay formally vacated, the BSEC is now legally cleared to pursue strict punitive measures, account freezes and structural sanctions targeting RACE Management, its core directors, and any other market intermediaries or high-profile individuals explicitly implicated in the probe.
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