Bankruptcy Law in Bangladesh 2026: The Bankruptcy Act 1997, Winding Up, Bank Resolution and Reform

How bankruptcy law Bangladesh courts apply works in 2026

Bankruptcy law Bangladesh courts apply is built on one statute, the Bankruptcy Act 1997, which lets a creditor or a debtor ask the District Judge, sitting as the Bankruptcy Court, to declare a person bankrupt, vest their property in a receiver and distribute it among creditors.[1] Around that Act sit three other regimes: winding up of insolvent companies under the Companies Act 1994, resolution and liquidation of failed banks under the Bank Resolution Act 2026, and recovery of bank loans in the Artha Rin Adalat.[10] [11]

This guide explains how the 1997 Act works from petition to discharge, why it is so rarely used, how it interacts with bank recovery suits and company liquidation, what directors risk when a business fails, and the reforms now in draft: a comprehensive Insolvency and Bankruptcy Act and a Distressed Asset Management Act. Company winding up, Artha Rin defence and secured lending each have their own TRW guide, linked below, so this article concentrates on the bankruptcy regime itself and the decisions it forces on creditors and debtors.

Summary: The Bankruptcy Act 1997 applies to individuals, firms and companies that live or do business in Bangladesh. A creditor owed at least Tk 5 lakh can petition after an act of bankruptcy, such as ignoring a 90-day formal demand; a debtor can petition if debts reach Tk 20,000. On adjudication the estate vests in a receiver, secured creditors keep their security, and the bankrupt can later be discharged from most debts. Companies are normally wound up under the Companies Act 1994, and failed banks are resolved or liquidated under the Bank Resolution Act 2026.

Key point: Bankruptcy is not debt forgiveness. Creditors are paid from the bankrupt's non-exempt assets in a statutory order, government debts and fraud debts survive discharge, and an undischarged bankrupt cannot borrow from banks, stand for Parliament, act as a company director or leave Bangladesh without the court's permission. Debtors who use a petition to stall bank suits while hiding assets face scrutiny, transfer reversal and prosecution.

At a glance

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Table of Contents

The statutes that make up bankruptcy law Bangladesh uses in 2026

Bangladesh has no single insolvency code. Which statute applies depends first on who the debtor is. Natural persons, partnerships and, in principle, companies can be adjudged bankrupt under the Bankruptcy Act 1997, Act No. 10 of 1997.[1] Companies registered under the Companies Act 1994 are, in practice, wound up under Part V of that Act, and its section 324 imports bankruptcy rules into the winding up of insolvent companies.[10] Scheduled banks and finance companies sit in a separate regime under the Bank Resolution Act 2026.[11]

The second question is what the creditor wants. A bank that wants its money usually sues in the Artha Rin Adalat under the Artha Rin Adalat Ain 2003, a recovery statute rather than an insolvency law. A bankruptcy petition is collective: it freezes individual remedies, gathers all assets into one estate and shares them out. That difference explains most strategic choices, and most of the abuse, discussed below. For the recovery route, see our guides to the Artha Rin Adalat and to defending a bank suit.

The table summarises the regimes. On a phone, scroll it sideways.

The Bankruptcy Act 1997 and the Bankruptcy Court

The 1997 Act replaced the Insolvency (Dacca) Act 1909 and the Insolvency Act 1920, and it is supplemented by the Bankruptcy Rules 1997.[2] It is divided into chapters on the court, acts of bankruptcy and petitions, interim proceedings, adjudication, administration of the estate, discharge, offences and appeals.[1]

District Judges as Bankruptcy Judges

Section 4 makes the District Judge the court with jurisdiction to try and dispose of proceedings under the Act within the district. The District Judge may empower any Additional District Judge in the judgeship to hear bankruptcy proceedings, and the court so constituted is called the Bankruptcy Court.[1] Special Bankruptcy Courts headed by Additional District Judges were set up in Dhaka and Chittagong in 1997.[2] In practice, many bankruptcy suits are heard by courts that also carry heavy civil lists, which is one reason they are not prioritised.[6]

Wide powers over every question

Section 5 gives the court power to decide every question of title, priority or any other kind arising in a bankruptcy proceeding, and makes its decisions final and binding, subject to appeal.[2] Sections 6 to 8 add general and special powers and the procedure the court follows.[1] Appeals lie under section 96 and revisions under section 99, both of which section 33 refers to expressly.[1]

Who can be adjudged bankrupt

The reach of bankruptcy law Bangladesh enacted in 1997 is defined by residence and business presence, not nationality. Section 11(1) reaches any person who is resident in Bangladesh or keeps the head office of their business here, who at any time in the year before the petition was ordinarily resident or had a residence or place of business here, or who carries on business here through an agent.[1] "Person" is not limited to individuals, which is why bank petitions have been brought against companies as well as against individual defaulters.[6]

The exclusions matter as much as the reach. Section 11(2) bars petitions against government bodies, including Parliament and judicial bodies, charitable or religious organisations, statutory bodies whose main purpose is not profit, and autonomous institutions established by the government or with its financial assistance.[1] A creditor of a state-owned enterprise therefore has no bankruptcy route and must rely on suit, arbitration or negotiation.

Acts of bankruptcy under section 9

A creditor cannot petition simply because a debt is unpaid. It must show an act of bankruptcy committed within the year before filing. Section 9(1) lists nine.[1]

• Transferring all or nearly all of the debtor's property, in Bangladesh or abroad, to a third party for the benefit of creditors generally, including property held benami in the name of a spouse, children or others.
• Transferring any property with intent to defeat or delay creditors. A transfer without reasonable value by a person unable to pay is deemed to have that intent.
• Transferring, mortgaging or charging property in a way that would be void as a fraudulent preference if the debtor were adjudged bankrupt.
• With intent to defeat or delay creditors, leaving or staying outside Bangladesh, leaving home or place of business, hiding from creditors, or colluding in a decree against their own interest.
• Having property sold in execution of a money decree.
• Petitioning to be adjudged bankrupt.
• Giving a creditor written notice of suspension, or impending suspension, of payment.
• Being detained in prison in execution of a decree for an unpaid debt.
• Failing, within 90 days of service, to pay or secure a matured debt of at least Tk 5 lakh demanded by formal demand.

The last ground is the one creditors control. Section 9(2) requires the formal demand to be in the prescribed form and to state the consequence of non-compliance, and section 9(3) treats an agent's act as the principal's.[1] A demand that departs from the prescribed form risks the whole petition, so it should be drafted against the Rules, served by a provable method and diarised for the 90 days.

Creditor petitions: the Tk 5 lakh threshold

Section 2(39) defines an eligible creditor as one who, alone or jointly with others, has served a formal demand under section 9(1) for a matured debt of at least Tk 5 lakh.[1] Section 12(1) then requires the petitioning debt, alone or combined, to be at least Tk 5 lakh, prima facie evidence of an act of bankruptcy, and an act of bankruptcy within the year before filing.[1]

Section 12(2) contains a trap for lenders. A secured creditor that petitions must state an estimated value of its security in the petition; if it does not, it is treated as having elected to be an unsecured creditor.[1] A bank holding a mortgage should value the collateral carefully before it files, because an omission can surrender its priority.

Bank bankruptcy suits and the Artha Rin Adalat

Banks are the main users of creditor petitions. Of 179 bankruptcy cases under trial in mid-2021, 111 had been filed by banks and non-bank financial institutions, and the High Court Division had stayed 61 of them; about Tk 2,600 crore of bank money was tied up in those cases.[6] A bank petition makes sense where a borrower owes several lenders, has assets spread or disguised across relatives, or has already made preferential transfers that only a receiver can reverse.[2]

The two regimes collide at section 33. Once an adjudication order is made, any pending suit or proceeding for money or property against the debtor, including an Artha Rin suit, must be transferred to the Bankruptcy Court, and section 31(3) bars creditors from pursuing other remedies against the estate without the court's leave.[1] Experts have reported that defaulters exploit this by filing their own petitions to derail recovery suits.[6] Lenders defending against that tactic should read our guide on the legal consequences for loan defaulters.

Debtor petitions and personal insolvency in practice

Under section 13(1), a debtor may petition only if the petition states specifically that they are unable to pay their debts and either the debts are at least Tk 20,000, or the debtor has been arrested or imprisoned in execution of a money decree, or an attachment order over their property was in force when they filed.[1] A debtor whose earlier adjudication was annulled for failing to pursue discharge needs the court's permission to file again, and gets it only for reasonable cause or materially different facts.[1]

The petition must offer up everything

The petition must state the inability to pay, the amount claimed, a detailed list of property and its value, and a declaration that the debtor will submit all property and account books to the court.[3] That declaration is not a formality. On 19 May 2026, in Kamal Hossain v Manager, Islami Bank Bangladesh PLC, the High Court Division upheld the rejection of a debtor's plaint by the District Judge, Brahmanbaria, for want of the declaration required by rule 5(2) of the Bankruptcy Rules 1997, while noting that rule 11(3) leaves the debtor free to file a fresh suit.[9]

What a 2026 debtor case looks like

On 14 September 2026 the Dhaka Bankruptcy Court declared businessman Osman Ghani bankrupt on a petition filed on 30 January 2024 against 267 defendants, seven of them financial institutions, listing total dues of Tk 252 crore 24 lakh. Lawyers for 72 defendants told the court that assets had been concealed, and the debtor surrendered more than 2,000 decimals of land and factories.[7] As of August 2026, 197 bankruptcy cases were pending before the Dhaka court; 46 debtors had applied in 2026 and 81 the year before.[8]

For an individual with genuinely unpayable personal or business debts, a petition offers protection from arrest, an orderly realisation and an eventual discharge. The cost is total surrender of non-exempt assets, years of restrictions and close scrutiny of every transfer made to family members. Debtors with a viable business are usually better served by negotiated rescheduling with their lenders, covered in our guide to loan defaulter rules.

From petition to adjudication order

Sections 14 to 22 govern filing in the competent court, verification, contents, withdrawal, consolidation of proceedings, substitution of the petitioning creditor, continuation after the debtor's death and admission of the petition.[1] Creditors are summoned, notice is published in national dailies, and the matter proceeds through written replies, evidence, cross-examination and argument.[7]

Interim protection of the estate

Before adjudication, the court may appoint an interim receiver under section 23 and take interim proceedings against the debtor under section 24. Section 25 sets the debtor's duties, section 26 deals with release of a debtor under arrest or detention, section 28 deals with dismissal of the petition and section 29 with payment of compensation.[1] A creditor that petitions tactically, without a genuine act of bankruptcy, should expect the compensation provision to be raised against it.

The adjudication order and its effects

If the petition is not dismissed, section 30 requires the court to make an adjudication order. For an individual, the order must fix the date on which the court will first consider discharge under section 47(3), and state that the debtor may appeal under section 96 only after depositing an amount the court fixes, of not less than 10 per cent of the eligible creditors' claims.[1]

Under section 31, the bankrupt must assist in realising and distributing their property; all non-exempt property vests in the receiver, or in the court if none is appointed, as the distributable estate; and the order takes effect from the date of the petition.[1] Section 34 provides for publication of the order.[1] Section 35 allows protection orders against arrest or detention for debts, which are discretionary rather than automatic.[2]

Receivers, exempt property and secured creditors

After adjudication the court appoints a receiver from a government-approved list. The receiver takes possession of the estate, manages and sells it, compromises or arbitrates claims, can examine the debtor and others, investigates conduct and reports to the court on possible offences and on discharge.[5] Receivers bear initial costs, which makes the role unattractive, and a Dhaka University Law Journal study recommended better remuneration.[2] Where there are more than five creditors, they may form a committee.[7]

Exempt property

Section 32 protects an individual debtor's tools of trade, clothing, household goods and other necessities of the debtor, spouse and children, up to a combined value of Tk 3 lakh, and an unmortgaged dwelling of up to 2,500 square feet in an urban area or 5,000 square feet elsewhere.[1] Everything else passes to the receiver. In short, bankruptcy law Bangladesh applies protects a modest home and the means of working, but not investment property or business stock.

Secured creditors stand outside the estate

Section 31(4) preserves a secured creditor's right to enforce its security in the ordinary way.[1] Read with section 12(2), the practical rule is that a secured creditor should value its collateral, enforce or preserve it, and prove in the bankruptcy only for any shortfall.[1] Perfection is decisive: an unperfected charge is ineffective against a bankruptcy receiver, as our guide to secured transactions explains.

Reversing transfers and preferences

Section 60 lets the court set aside transfers made within 15 years before adjudication with intent to defeat a debt, except transfers for proper value and inherited property, and except transfers more than six years before adjudication where the transferee proves the debtor could then pay all debts without the property.[2] Under sections 61 and 62, a preference given to a creditor while the debtor was unable to pay is void if adjudication follows within one year.[2]

Distribution, discharge and disqualification

After secured creditors, the receiver pays administration costs and the receiver's fee, then priority debts in this order: taxes and other government debts; wages for services in the six months before the petition, up to Tk 2,000 per employee; debts owed to banks and financial institutions; unsecured claims; and subordinated claims. Any surplus pays interest at up to 6 per cent a year before returning to the debtor.[2] Creditors receive what the assets yield, not their full claims.[7]

Discharge

Discharge is considered from the date fixed in the adjudication order. In a debtor's own case, the original petition is treated as the discharge application; a creditor-petition bankrupt must apply.[3] The court may weigh the debtor's conduct before and during the proceedings,[3] and the receiver may recommend that discharge be refused, postponed or made conditional.[5] Under section 51, discharge releases provable debts but not government debts, debts arising from fraud or fraudulent breach of trust, or court-ordered maintenance.[2] [3]

Disqualifications and restrictions

Section 94 disqualifies an undischarged bankrupt from Parliament and local bodies, from judicial and magistrate office, from acting as a receiver and from borrowing from banks and financial institutions; the disqualifications end on annulment or discharge.[2] The bankrupt must report acquired property periodically and cannot leave Bangladesh without the court's permission.[3] Concealing assets can lead to imprisonment of up to two years.[8]

Composition and reorganisation

A debtor may also apply for a reorganisation order to repay its debts, which requires the consent of two-thirds of creditors. Commentators criticise the reorganisation provisions as subjective, with no set criteria, leaving room for arbitrary decisions by receivers.[3] That gap is one reason the reform draft discussed below rebuilds rescue from first principles.

Why bankruptcy law Bangladesh enacted in 1997 is so little used

The numbers are small for an economy of Bangladesh's size. The Dhaka Bankruptcy Court received 343 cases between 1997 and 2007, about 34 a year, with filings falling after 2003.[2] By mid-2021 about 638 cases had been filed nationwide since enactment; only 11 were filed between January 2016 and December 2020, and only one company had been declared bankrupt in the previous ten years.[6]

Four reasons recur. First, the Artha Rin Adalat Ain 2003 gave lenders a faster individual recovery route, and they moved to it.[2] Second, High Court Division stays freeze cases for years: the Dhaka University study found stays lasting up to a decade, and 61 of 111 bank cases were stayed in 2021.[2] [6] Third, the Act gives no stay-type protection that would let a viable business restructure before adjudication.[5] Fourth, the debtor threshold of Tk 20,000 is low and invites tactical petitions; the study proposed raising it to Tk 2.5 lakh.[2]

The 2026 pattern is different: debtor petitions are rising, and court officials have voiced concern that some applicants move money abroad or hold assets in relatives' names before seeking bankruptcy.[8] For creditors, that makes the transfer-reversal powers in sections 60 to 62 the most valuable part of bankruptcy law Bangladesh offers.

Corporate insolvency: winding up under the Companies Act 1994

A company that cannot pay its debts is ordinarily wound up by the court under the Companies Act 1994. Section 241 lists the grounds and section 242 when a company is deemed unable to pay its debts, including failure to pay a creditor owed more than Tk 5,000 within three weeks of a written demand.[10] [5] Section 243 allows winding-up matters to be sent to the District Court, and sections 255 to 266 govern the official liquidator.[10]

Three provisions link company liquidation to bankruptcy law. Section 324 applies bankruptcy rules to the winding up of insolvent companies; section 325 sets preferential payments; and section 327 avoids fraudulent preferences.[10] Neither Act explains how a debtor moves from one regime to the other.[5] Petitions, the liquidator's powers and dissolution are covered in our guide to winding up a company in Bangladesh.

Director liability when a company is insolvent

Bangladesh has no wrongful trading rule and the Companies Act does not use the term "fraudulent trading".[5] Directors who keep trading while insolvent are not automatically liable for new debts, which is a significant difference between bankruptcy law Bangladesh applies and the regimes of England, Singapore or India. Their exposure comes from four other sources.

Misfeasance and prosecution in a winding up

Section 331 empowers the court to act against directors and officers for misfeasance, and section 333 provides for delinquent directors to be prosecuted.[10] On application by the liquidator, a creditor or a contributory, the court can examine the conduct of a director who misapplied or retained company money or committed breach of trust, and order repayment with interest; the application must be made within three years of the liquidator's first appointment.[5] Section 236 governs the liability of directors whose liability is unlimited.[10]

Personal guarantees and personal bankruptcy

Most directors of borrowing companies have signed personal guarantees. When the company fails, the bank sues the guarantor in the Artha Rin Adalat or petitions for the director's own bankruptcy, and section 9 of the 1997 Act treats benami transfers to a spouse or children as acts of bankruptcy.[1] A director who is an undischarged insolvent is disqualified under section 94 of the Companies Act.[10]

Directors of banks

Bank directors face a stricter regime. Chapter 7 of the Bank Resolution Act 2026, sections 53 to 58, deals with fraudulent use and misuse of bank funds, asset statements of responsible persons and recovery from them, and Chapter 8 creates offences by directors and officers.[11] Individuals can be held personally liable for a bank's failure, with penalties of up to Tk 50 lakh plus daily fines.[4] Board-level duties generally are covered in our guide to corporate governance and directors' duties.

Failed banks: the Bank Resolution Act 2026

Banks are not wound up like ordinary companies. The Bank Resolution Act 2026, Act No. 88 of 2026, was enacted on 10 April 2026,[12] re-enacting in amended form the Bank Resolution Ordinance the interim government issued on 9 May 2025.[4] Bangladesh Bank is the resolution authority, with tools under Chapter 4 including transfers of shares, assets and liabilities, a bridge bank under section 28, write-down or conversion of capital under section 30 and temporary public ownership under section 33.[11]

Chapter 6 contains a dedicated liquidation regime for scheduled banks. Section 43 provides for an application to the court for a liquidation order, section 44 for a liquidator, section 47 bars proceedings against a bank in liquidation, section 49 fixes the order of claims and section 52 covers voluntary liquidation; section 38 provides for cross-border cooperation and section 71 extends the Act to finance companies.[11] Section 18A, which let pre-resolution shareholders apply to buy a bank back, was repealed by the Bank Resolution (Amendment) Act 2026, Act No. 108 of 2026, dated 14 September 2026.[12] For the wider framework, see our guide to banking law in Bangladesh.

Cross-border insolvency in Bangladesh

Bangladesh has no law on cross-border insolvency and has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.[5] [3] There is no procedure for recognising a foreign insolvency proceeding or a foreign insolvency representative, and no statutory basis for a Bangladeshi court to cooperate with a foreign court.

For a foreign creditor, bankruptcy law Bangladesh currently offers only local proceedings. Three practical consequences follow. A foreign liquidator or trustee wanting Bangladeshi assets must start or join proceedings here as a creditor. A foreign moratorium does not stop a Bangladeshi creditor enforcing locally. And because section 9 counts transfers made "in Bangladesh or elsewhere" as acts of bankruptcy, a Bangladeshi petition can reach conduct abroad, though enforcing against foreign assets depends on the foreign court.[1] The only statutory exception is section 38 of the Bank Resolution Act, limited to banks.[11]

Reform: the draft Insolvency and Bankruptcy Act and distressed asset law

Reform of bankruptcy law Bangladesh has been promised for years. Bangladesh Bank sent a draft amendment of the 1997 Act to the finance ministry in December 2017, and the 2021-22 budget listed the Act among laws to be updated.[6] The current proposal is far wider: a 137-page Insolvency and Bankruptcy (Draft) Act 2025, published by at least one trade body in October 2025, whose own text styles it an Ordinance.[13]

What the draft would change

The draft would apply to companies, partnerships, sole traders and individuals, but not to statutory or autonomous bodies; banks, financial institutions and insurers could be liquidated under it only where their own regime allows.[13] It offers three routes: reorganisation, with separate tracks for large and small debtors and an accelerated route for pre-agreed plans; liquidation for registered entities; and bankruptcy for individuals.[13]

Entry would be based on inability to pay, or likely inability, defined as a real prospect of failing to pay at least half of debts falling due in the next 90 days. Creditors could apply after a 30-day unpaid demand, with the threshold left blank. Court-appointed insolvency professionals would act as fiduciaries, and a 180-day moratorium, extendable in 30-day steps, would stop proceedings, security enforcement and, unless the court permits, actions against guarantors.[13]

Chapter VIII would introduce a Model Law-style regime for recognising foreign proceedings and cooperating with foreign courts, excluding banks. District Courts would remain the Insolvency Courts under section 166, and section 170 would repeal the Bankruptcy Act 1997 and the inability-to-pay winding-up grounds in sections 241(e) and 242 of the Companies Act, saving pending cases.[13] No insolvency statute appears among the 110 Acts passed in 2026.[12]

The Distressed Asset Management Act draft

On about 25 June 2026 the Financial Institutions Division published a draft Distressed Asset Management Act 2026 for public feedback. It would create a Distressed Asset Management Unit under Bangladesh Bank's oversight, license private companies to buy bad loans for cash and hold them in separate trusts, license loan servicers, and allow mortgaged property to be sold without a court order and distressed companies to be placed under administrators.[14] Distressed loans stood at Tk 10.91 lakh crore at the end of 2025, about 60 per cent of outstanding loans.[14] It is not yet law.[12]

A practical bankruptcy law Bangladesh checklist for creditors and debtors

For a creditor, the first decision is between individual recovery and collective proceedings. Bankruptcy is worth the cost where the debtor owes several creditors, assets have been moved, or a receiver's investigative powers are needed. For a debtor, the question is whether the protection and eventual discharge justify losing control of every non-exempt asset and accepting years of restrictions. The steps below apply to either side.

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The institutions involved are set out below.

TRW acts for lenders, trade creditors, foreign creditors, debtors and directors in bankruptcy petitions, receivership disputes, winding-up proceedings and restructurings through our restructuring and insolvency practice, and in lender recovery through our banking and finance litigation practice.

Frequently asked questions

What is the main bankruptcy law in Bangladesh?

The Bankruptcy Act 1997, Act No. 10 of 1997, with the Bankruptcy Rules 1997. Companies are usually wound up under the Companies Act 1994, and banks are resolved or liquidated under the Bank Resolution Act 2026.[1] [11]

Which court hears bankruptcy cases?

The District Judge, or an Additional District Judge empowered by the District Judge, sitting as the Bankruptcy Court under section 4. Appeals lie under section 96.[1]

How much must be owed before a creditor can petition?

At least Tk 5 lakh, alone or jointly, together with prima facie proof of an act of bankruptcy committed within the year before filing.[1]

Can I declare myself bankrupt in Bangladesh?

Yes, if you state that you cannot pay your debts and your debts are at least Tk 20,000, or you are arrested or imprisoned, or your property is under attachment, in execution of a money decree. The plaint must include the declaration required by the Rules.[1] [9]

Does bankruptcy wipe out my debts?

Not automatically. Creditors are paid from your non-exempt assets, and discharge releases provable debts but not government debts, fraud debts or maintenance orders.[2] [7]

Can a bank still sell mortgaged property after adjudication?

Yes. Section 31(4) preserves a secured creditor's right to enforce its security. A secured creditor that petitions must value its security in the petition or be treated as unsecured.[1]

What happens to a pending Artha Rin suit?

Once an adjudication order is made, section 33 requires pending suits for money or property against the debtor to be transferred to the Bankruptcy Court.[1]

What restrictions apply to an undischarged bankrupt?

No bank borrowing, no seat in Parliament or local bodies, no judicial office, no appointment as receiver or company director, and no foreign travel without the court's permission.[2] [3] [10]

Are directors liable for trading while insolvent?

There is no wrongful trading rule, but directors face misfeasance claims and prosecution in a winding up, liability on personal guarantees, and, for banks, the personal-liability provisions of the Bank Resolution Act 2026.[5] [10] [11]

Is a new insolvency law coming?

A draft Insolvency and Bankruptcy Act 2025 would repeal the 1997 Act and add a moratorium, rescue procedures and cross-border rules, and a Distressed Asset Management Act 2026 is in draft. Neither had been enacted by October 2026.[12] [13] [14]