Bankruptcy of the debtor: a legal analysis

Although the Bankruptcy Act offers certain benefits to stakeholders, the Act suffers from several shortcomings. For example, the law did not address issues relating to legal persons and cross-border bankruptcies. Although the Companies Act 1994 contains some of the aspects of corporate bankruptcy in different forms, bankruptcy law should include company bankruptcy and also cross-border bankruptcy as per the UNCITRAL Model Law on cross-border insolvency.

Bankruptcy in Bangladesh is governed by the Bankruptcy Act 1997. An individual can be declared “bankrupt” by a judgment order of the bankruptcy court if he commits an act of bankruptcy as described in section 9 of the said law. The law offers creditors and debtors the possibility of initiating bankruptcy proceedings. However, a debtor is generally reluctant to initiate such a procedure due to certain unfavorable legal consequences and the social dogma attached to the word “bankruptcy”. Accordingly, the full potential for bankruptcy by the debtor is still an area that remains to be fully explored.

After a legally specific act of bankruptcy has been committed by the debtor, a petition can be made to the bankruptcy court by the debtor himself or by creditors to issue a bankruptcy order. According to article 13 of the law, in the event of a request by the debtor himself, certain conditions must be respected, for example (i) he must specifically mention in his complaint that he is unable to pay his debt and (ii) the amount of the debt is at least 20,000 or due to his inability to pay the debt he is not under arrest or being held in jail being executed by a court or his property is not not seized when filing the complaint.

The debtor’s application for bankruptcy must include certain information, for example a specific declaration of his inability to pay his debt, the amount of the claim against him, the detailed description of all his property and the value of those this, a statement of his willingness to submit all his assets with a book of accounts in court and a statement regarding his previous declaration of bankruptcy or petition for bankruptcy (if applicable), etc.

After hearing from both parties, the bankruptcy court can make an order declaring the debtor “bankrupt” and set a hearing date to determine whether or not the bankrupt will be declared discharged. When determining the issue, the court may take into consideration the normal behavior and other activities of the debtor during the continuation of the process or before. In the event of the debtor’s bankruptcy, a separate discharge application is not necessary, but his bankruptcy application will also be considered for discharge. When an adjudication order is made, the bankrupt must assist in the realization of his assets and the distribution of the proceeds thereof among creditors. Any court seized of a lawsuit or other proceeding relating to a monetary or other property claim against a debtor shall, on proof that a bankruptcy order has been made against him, transfer it to the bankruptcy court which made the order. of bankruptcy.

Sections 50, 60 and 94 of the Act impose certain obligations and restrictions on the bankrupt, for whom no discharge order is issued. For example, he must delegate all his property except for the maintenance costs of himself and his family and must submit, every six months, the report containing the ins and outs of his acquired property of any kind. within six months. Also, he will not be allowed to leave Bangladesh without prior permission from the court. Further, he shall be disqualified from being an elected member of the house of the nation or any other statutory organization or from acquiring any appointment, from attending or voting for such purpose, from being a receiver, from being appointed as a judge, magistrate , justice of the peace or be employed in the service of the republic and contract loans from financial institutions. Having satisfied itself of the intention of the debtor to defeat the creditors, the court may cancel any transfer of ownership made within 15 years preceding the publication of the order of adjudication, with the exception of goods sold at fair value or acquired by succession. In addition, an undischarged bankrupt cannot be a director of a company.

The other side of the coin is that a debtor benefits, before or after the issuance of a bankruptcy order, from certain immunities and protections under this law. According to section 32 of the law, the following exempt property of a bankrupt will not be subject to repossession or devolution, i.e. instruments or tools used by the debtor, clothing, household appliances and any other necessary instrument of his family, the property of the debtor unmortgaged dwelling house whose area does not exceed 2500 square feet in urban areas and 5000 square feet in local areas and the total price of which these instruments cannot be higher than Taka 3 Lac. Similarly, upon request, the eligible debtor may be, during the continuation of the proceedings or subsequently, provided with a reorganization order to repay the debts subject to the consent of two thirds of the creditors. In addition to this, the insolvent shall have the right to apply for a protection order to be protected from any type of arrest or detention for debts and for this purpose the court may order such protection and necessary actions. Under Section 31(3) of the Act, while the proceedings are continuing, no creditor is permitted to claim compensation or take any action against the estate or exempt property without the permission of the court.

Also, Section 51 grants certain additional benefits to a bankrupt who has been discharged by the court i.e. he will be discharged from all kind of claims, debts and debts except for any debt due to the government; any debt or liability incurred through fraud or fraudulent breach of trust to which he was a party; any debt or liability in respect of which he has obtained abstention by any fraud to which he was a party. In addition to this, a discharged bankrupt will have the right to claim the bar against all liabilities that arose prior to the filing of the petition.

Although the Bankruptcy Act offers certain benefits to stakeholders, the Act suffers from several shortcomings. For example, the law did not address issues relating to legal persons and cross-border bankruptcies. Although the Companies Act 1994 contains some of the aspects of corporate bankruptcy in different forms, bankruptcy law should include company bankruptcy and also cross-border bankruptcy as per the UNCITRAL Model Law on cross-border insolvency. In addition, any arrest or seizure of property in the process of recovering money should not prevent the debtor from filing a petition to open bankruptcy proceedings in favor of the debtor himself, because that person arrested or the owner of the seized property should not be deprived of the right to be bankrupt. The provisions relating to the plan of reorganization are subjective in nature where no particular criteria have been set which could give rise to arbitrary actions by the receiver. Alternative dispute resolution mechanisms should be improved. Being laws of the same nature, the Artha Rin Adalat Ain, 2003 and the Bankruptcy Act, 1997 should complement each other. However, no such correspondence is judged, but the cases are judged by the various courts. Despite some disadvantages, debtor bankruptcy could give a bankrupt a fresh start and has the potential to be an armor for a troubled debtor instead of a sword for creditors.

The author is a lawyer at the Supreme Court of Bangladesh.