Legal Environment of Business in Bangladesh LAW 234

Legal Environment of Business in Bangladesh
Legal Environment of Business

in Bangladesh
1
A Report On
“Legal Environment of Business in Bangladesh”
Course Title
Legal Environment of Business
Course Code
LAW-234
Submitted to
Abeer Khandker
Lecturer
Faculty of Business Administration
ASA University Bangladesh
Submitted by
Name ID
Hosnain Ahmed 092-12-0002
Riyadh Ahmed 092-12-0003
Mahmudul Hassan 092-12-0006
Tasmia Kamal 092-12-0017
Nafisa Halim 092-12-0021
Sanjida Akter 092-12-0024
Habiba Sultana 081-12-0220
Date of Submission: 20th April, 2011
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Table of Contents
Introduction................................................................................................................................................ 4
Legal Procedures to Starting a Business...............................................................5
Banking Companies.................................................................................................................................5
Financial Institutions................................................................................................................................6
Legal Procedures to Continue a Business.............................................................7

Financial Institutions................................................................................................................................7
Other Companies.....................................................................................................................................9
Dealing with licenses...........................................................................................................................9
Employing workers............................................................................................................................10
Registering property..........................................................................................................................10
Getting credit.....................................................................................................................................11
Paying taxes.......................................................................................................................................12
Protecting investors...........................................................................................................................13
Trading across borders......................................................................................................................13
Enforcing contracts............................................................................................................................14
Legal Procedures to Ending a Business...............................................................16

Banking Company..................................................................................................................................17
Financial Institutions..............................................................................................................................25
Summary of Indicators - Bangladesh.................................................................27

Conclusion.........................................................................................................29
Reference..........................................................................................................30
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Introduction
The Legal Environment of Business commences with the systems approach to management and
an analysis of the relationship between law and ethics. The first module reviews the
foundations of the legal environment of business, including agency law and the law of
fiduciaries generally.
This module also addresses the laws of contracts and torts. It introduces the elements
necessary for a binding contract and demonstrates ways managers can use contracts to
strengthen business relationships and allocate risk and reward.
A tort is a civil wrong, such as fraud or negligence. Tort law is designed to protect individuals
from physical and mental harm, and to protect property interests and certain other economic
interests and business relationships.
Every business manager should be aware of the legal environment in which their business
operates. Business law will introduce employees to the legal environment by discussing such
topics as procedure of starting business, procedure of continues business & procedure of
ending business.
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Legal Procedures to Starting a Business

Entrepreneurs in Bangladesh do not need to put up any minimum capital to start a business,
but that is about all the relief they get. Bangladesh has a worldwide rank of 68 on the ease of
starting a business. The process requires 8 procedures taking 37 days at a cost of 88% of income
per capita—a decline from 94% in 2005. Within the region, only Bhutan and India make start-up
more burdensome.
The greatest obstacle is cost, which is higher in Bangladesh than in any other South Asian
country. Only Nepal (where start-up costs 79% of income per capita), Afghanistan (67%) and
India (74%) are in a comparable league. Elsewhere in the region it takes less than 22% of
income per capita to start a business (table 2.2).
Within Bangladesh start-up takes 30 days in both Khulna and Bogra and 37 days in Dhaka and
Chittagong. While all entrepreneurs have to complete all 8 procedures, the cost of starting a
business in Bogra, Khulna and Chittagong (62% of income per capita in each case) is lower than
in the capital city, Dhaka (88%).
Banking Companies
1. Short title - (1) This Act may be called the Banking Companies Act, 1991. (2) It shall be
deemed to have come into force on 14th February 1991.
2. Application of other Acts.- The provisions of this Act shall be in addition to, and not, save as
hereinafter expressly provided, in derogation of, the Companies Act, 1913 (VII of 1913) , and
any other Act for the time being in force.
3. Limited application of this Act to co-operative banks and other financial institutions.
Nothing in this Act shall apply to a co-operative bank or any other financial institution
registered under the Co-operative Societies Ordinance, 1985 (Law of 1985) or any other Act for
the time being in force relating to co-operative banks:
Provided that the Bangladesh Bank may carry out inspections of and issue directions to co-
operative banks as prescribed for banking companies under section 44 and 45 of this Act.
4. Power to suspend operation of this Act. - (1) The Government if, on a representation made
by the Bangladesh Bank in this behalf it is satisfied that it is expedient so to do, may by
notification in the official Gazette suspend for at most 60 days the operation of all or any of the
provisions of this Act in relation to any specified banking company.
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(2) The Government may, by notification in the official Gazette, extend from time to time, the
period of any suspension under sub-section (1) for such period or periods, not exceeding 60
days at one time, as it thinks fit, so however that the total period does not exceed one year.
(3) Notifications issued under this section shall be submitted to the national parliament as
follows:
a) If it is in session, within 10 days of the issue of the notification, and
b) If it is not in session, within 10 days of the beginning of the session following the issue of the
notification.
Financial Institutions
1. Short title and commencement. –
 This Act may be called the Financial Institutions Act, 1993.
 It shall be deemed to have come into force on first Bhadra, 1400/ 6th August, 1993,
respectively.
2. Act to override other laws. - Notwithstanding anything contained in any other law for the
time being in force, the provisions of this Act shall have effect.
3. Minimum capital.-
 The Bangladesh Bank shall prescribe the minimum capital of every financial institution.
 No financial institution shall be granted a license under this Act, if the amount of its
issued capital and paid-up capital is less than the minimum capital prescribed under sub-
section (1) and existing licenses, if any, shall be cancelled.
4. Reserve fund. - Every financial institution shall maintain a reserve fund in such manner as
may be prescribed by regulations.
5. Restriction on the payment of dividends.- No financial institution shall pay any dividend on
its shares, unless all its capitalized expenses including preliminary expenses, organization
expenses, commission for share selling and brokerage, losses and other items have been
completely written off.
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Legal Procedures to Continue a Business

1. Acknowledgement of receipt of deposits - Where a financial institution receives from any
person a deposit, it shall, as a proof of having received the money, immediately make out a
receipt to such person.
2. Restrictions regarding credit facilities, etc. - No financial institution shall-
a) Accept any such deposit as is repayable on demand through cheque, draft or order of the
depositor;
b) Deal in gold or any foreign coins;
c) grant credit facilities in excess of thirty per cent or, subject to the consent of the Bangladesh
Bank, of hundred per cent of its capital to any particular person, firm, corporation or company or
any such company, person or group as controls or exerts influence on such person, ,firm,
corporation or company;
d) Grant credits in excess of 50 per cent of its credit facilities or in excess of such percentage of
its credit facilities as the Bangladesh Bank may determine from time to time;
e) Grant any unsecured advance, credit or credit facilities to any firm in which any of its
directors, individually or jointly, is interested directors unless the total amount of such facilities
does not exceed 10 per cent of its paid-up share capital and reserves;
f) Grant, in the manner mentioned in clause e), advances, credits or credit facilities in excess of
Taka 500 000 to any person or group of persons other than those stated in the said clause.
(2) "Unsecured advance", "unsecured credit" or "unsecured credit facilities" as mentioned in sub-
section (1) (e) mean any advance, credit or credit facilities granted without security or surety,
and shall include, in the case of advances, credits or credit facilities granted against securities or
sureties, that part of the credit which exceeds the market value of the securities or sureties and, in
the case that, in the opinion of the Bangladesh Bank, securities or sureties have no market value,
the amount settled by the said Bank.
(3) No financial institution shall grant any advance or credit allowing its own shares as securities
or grant credits or advances to any other institution for the purpose of buying and selling its own
shares.
(4) Where there arises any loss as a result of the granting of any unsecured advance, credit or
credit facilities in contravention of the provisions of sub-section (1), all the directors of the
financial institution shall, jointly and individually, be responsible for the compensation.
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3. Restrictions regarding the business of financial institutions –
(1) No financial institution shall, alone or in a body, be engaged in any wholesale or retail
business including export and import trade otherwise than for the purpose of carrying on its
financing business.
2) No financial institution shall carry on any business other than the business of financing and
such business as has been mentioned in this Act.
4. Restrictions on investments - No financial institution shall expend or use more than 25 per
cent of its paid-up capital and reserves for the acquisition or holding of any kind of shares of
financial, commercial, agricultural or industrial institutions or of any similar institution and shall,
as fast as possible, sell to the institutions concerned the shares acquired in the interest of
realizing the credits granted by it:
Provided that any financial institution may, subject to its application and on consent of the Bank,
expend or use up to 50 per cent of its paid-up capital and reserves for the acquisition and holding
of the abovementioned kind of shares.
5. Restriction on the possession of immovable property - No financial institution may acquire

or possess immovable properties exceeding in value 25 per cent of its paid-up capital and
reserves:
Provided that nothing contained in this section shall be applicable in the case of immovable
property required for the granting of facilities to employees of the financial institution and in the
case of property acquired in the interest of realizing unrealized credits granted by it.
6. Power of the Bangladesh Bank to regulate certain matters.- The Bangladesh Bank may by
order regulate the following matters, namely:-
a) The highest rate of interest to be paid by financial institutions on various kinds of deposits,
b) The highest amount of credit to be taken by financial institutions from any person,
c) The last date for repayment of credits granted by financial institutions,
d) The highest rate of interest to be paid on various kinds of credit granted by financial
institutions and the manner in which to calculate such rate,
e) The upper limit of credits granted by financial institutions in favor of any person,
f) The reserves to be maintained by financial institutions at the Bangladesh Bank,
g) Other matters to be regulated in the public interest or for the development of monetary policy.
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Other Companies
Dealing with licenses
Registration is only the beginning. Businesses then need to obtain an array of permits and
licenses to begin operating— a cumbersome process in Bangladesh. As an example it takes 13
procedures and 185 days to obtain the permits and licenses to build a warehouse. While the
number of procedures is comparable to the OECD average (14 steps), and better than the
regional average (16 steps), the time to complete the warehouse licensing process (185 days) is
more than a month longer than the OECD average of 150 days. While the cost of licensing
(272% of income per capita) is almost three times the per capita income, and much higher than
the OECD average of 72%, it is lower than the regional average of 376%, which includes
Pakistan’s cost of 973% and 606% for India. The three most burdensome steps are obtaining
project clearance from the Department of Environment (30 days, costing on average $400),
obtaining project clearance and the building permit from the City Development Authority (75
days, costing $70) and obtaining a power connection (40 days, costing from $100 to $1,000
depending on the project size). Obtaining a license in Chittagong and Bogra, especially in the
pre-construction period, requires more procedures (in total 15 and 14 procedures, respectively)
but less time (150 and 146 days, respectively) compared with Dhaka (13 procedures in 185
days). The cost of licensing in terms of percentage of income per capita is the highest in Dhaka
(272%), more than twice as much as in Chittagong (128%), Khulna (104%) or Bogra (115%),
mainly because of the cost of obtaining facilities from utilities authorities (about $760) and a
$400 fee to obtain project clearance from the Environment Department in Dhaka.
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Employing workers
Bangladesh scores among the best in the region and ranks 75th worldwide on the ease of
employing workers. There is no variation for all indicators of employing workers at the sub-
national level because the same national employment regulations apply throughout the
country. The cost of hiring is zero—there are no social security taxes or payroll taxes associated
with hiring a new employee. By contrast, in India, Pakistan and Sri Lanka the cost of hiring
ranges between 12 and 17% of salary. It is also relatively easy to fire a worker in Bangladesh.
Employers are not required to obtain approval from a third party before dismissing one
redundant worker or even for collective dismissal. There is no legal requirement to retrain or
replace workers prior to dismissal. Only 1 months’ notice is required and there is no legally
mandated penalty for redundancy dismissal. Severance payments can be costly though,
amounting to 47 weeks. The rigidity of hours worked is also quite low in Bangladesh. Until
recently, trade union activity was not allowed within export processing zones. The government
has recently enacted a law allowing limited trade union activities in the export processing
zones.
Registering property
Bangladesh has a worldwide rank of 167 on the ease of registering property, among the worst
global rankings by any South Asian country on any of the Doing Business indicators. It takes 8
procedures and 425 days to register property. By contrast in Nepal 3 procedures are required
and in Pakistan and India, 6. Sri Lanka also has 8 procedures— but the process there takes only
63 days. The cost of registering property is also high in Bangladesh, at 10.5% of the property
value compared to a regional average of 5%.
The longest delay is in registering the property at the municipal deed registry office, which
takes between 180 and 540 days. The buyer may obtain a certified registration document
within a week, but obtaining the original certificate may require about 6 months to 1½ years, or
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even up to 2 years in some cases. By contrast, in Sri Lanka it takes only 36 days to register at the
land registry, In Pakistan, 38 days. In Nepal, it takes only 1 to 2 days for registration of the deed
at the land revenue office and issuance of a new title certificate. Obtaining the permission from
the municipality office, the RAJUK, to transfer property ownership, one of the early steps in the
process, adds 60 days to the process in Bangladesh. Verification of the record of rights from the
land revenue office adds another 15 to 60 days. The ease of registering property varies by city.
While there are seven common registration procedures throughout the country, for the land
being developed by City Development Authority (for instance, RAJUK’s development of model
towns in Gulshan, Banani, Baridhara, Uttara and the Nikunja Residential Area) one additional
step is required—obtaining permission from the City Development Authority to transfer
ownership of the property—which makes the registration process in Dhaka lengthier and
costlier than in the rest of the country. In the case of Bogra and Chittagong it takes 391 days
and costs 10% of property value and in Khulna it takes 373 days and costs 9% of property value,
compared to Dhaka (425 days and 10.5% of property value).
Getting credit
Bangladesh ranks 48th worldwide and ahead of the South Asian average on the ease of getting
credit. There is no regional variation within Bangladesh. Although no private credit bureau
operates, a public credit registry functions reasonably well. Bangladesh scores 2 out of 6 on the
credit information index—at the same level as Nepal but behind Pakistan, India and Sri Lanka.
With a score of 7 out of 10, Bangladesh is the top performer in the region on the index of legal
rights for borrowers and lenders, higher than the OECD average of 6 (figure 2.2). This high score
is in large part a result of the Money Loan Court Act of 2003. The reform significantly sped
foreclosure on collateral by introducing summary proceedings and allowing credit institutions
to sell collateral by public auction after giving due notice to the defaulting debtors.
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Further improvements are needed. It is estimated that 6 million households in the middle
category (small businesses, and small and marginal farmers), are too poor for the formal
banking sector and too rich for the traditional microfinance sector. Only 7% of one million
potentially eligible small businesses are currently served by the banking sector. Private
commercial banks cannot profitably serve this missing middle segment because they do not
have the appropriate products and processes to reach it. For example, a typical application for a
small business loan requires up to 29 steps, 9 meetings with the client and over 50 different
documents totaling 200 pages. Such cumbersome procedures make it very expensive for banks
to lend money to small businesses. At the same time margins in the private banking sector are
still sufficiently high that banks neither have to look for new markets nor invest in developing
new products and technologies.
Paying taxes
Bangladesh ranks 72nd worldwide on the paying taxes indicator. A typical business makes only 17 tax
payments per year, compared with 61 in Sri Lanka, 59 in India and 47 in Pakistan. However, the time
needed to comply with tax rules is very high, at 400 hours, compared with 264 in India and 274 in
Bhutan. At 40.3% of commercial profits, the total tax burden is still relatively high although below the
regional average of 45.1% and OECD average of 47.8%. In Nepal, for example, the total tax burden is
only 32.8% of commercial profits.
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Protecting investors
Bangladesh has a global rank of 15 on the protecting investors indicator—the top performer in the
South Asia region. As the indicator examines areas governed by national legislation in Bangladesh, there
are no differences at the sub-national level. Bangladesh performs particularly well in the director liability
index and shareholder suits index, which measure the ease with which an investor can take directors
and controlling shareholders to court—and win—for violations of their duties to the company.
Bangladesh also scores well in the disclosure index and the investor protection index. On all four indices,
Bangladesh scores above the regional average and higher even than the OECD average, except on the
disclosure index. There were no revisions to the investor protection regulations between 2005 and
2006.
Trading across borders

Bangladesh ranks 134th on the ease of trading across borders, well below the regional average. It takes
16 documents and 57 days to import, the second longest time among the South Asian countries after
Afghanistan with 88 days. Exporters are relatively better off, requiring 7 documents and 35 days,
comparable to Nepal (44 days) and Bhutan (39 days). The key export sector—garments, which account
for nearly three-fourths of exports—can clear exports much faster. Even imports meant for the
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garments sectors clear much faster than average. In Bangladesh the total cost to import totals $1,287
per container, cheaper than Afghanistan ($2,100), Nepal ($1,800) and Bhutan ($1,950), but more
expensive than Sri Lanka ($789) and Pakistan ($1,005), and comparable to India ($1,244). The cheapest
port at which to import is Dhaka, at $829 per container, while the most expensive is Bogra ($979). It is
cheapest to export from Chittagong ($553) due to its proximity to a seaport, and the costliest to export
from Dhaka ($607).
Enforcing contracts
Enforcing a contract in Bangladesh is the most cumbersome of all countries in the region. It
requires 50 procedures and about 4 years (1,442 days) to enforce a contract, compared to 20
procedures and 837 days in Sri Lanka (figure 2.4). Costs amount to 46% of the claim, compared
to 21% in Sri Lanka. Though there is little difference among the various cities of Bangladesh in
terms of the procedures for enforcing contracts, Dhaka is the most expensive (46% of claim)
due to the high attorney fees and takes the second longest time (1,442 days). It is
comparatively less expensive in Bogra and Khulna (about 40% of claim) due to lower attorney
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fees, but takes the longest in Bogra (1,790 days), due to a 4-month delay in filing the lawsuit, as
opposed to only a week in Dhaka.
The government introduced major reforms in the Civil Procedure Code in 2003. Delays are
showing signs of improvement, but the reforms have yet to give the desired results. Two recent
reforms have improved the judicial system. The Money Loan Court Act of 2003 set up a special
court to deal exclusively with loan defaults exceeding 5 lack prescribed time limits for granting
judgments and imposed restrictions on appeals.
Legal Procedures to Ending a Business

Bangladesh is in 3rd place among its South Asian counterparts when it comes to the ease of
closing a business— after Pakistan and Sri Lanka—and 93rd place worldwide. It takes 4 years to
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go through bankruptcy proceedings, significantly lower than the 10 years it takes in India. But
that is little comfort as global best practice is 0.4 years (Ireland) and regional best practice is 2
years (Sri Lanka). The cost of insolvency is 8% of the estate value and the recovery rate for
claimants is 25%.
While in Dhaka it takes 4 years to go through bankruptcy proceedings with a cost of 8% of the
estate value, there have been less than 60 bankruptcy cases in Chittagong, Khulna and Bogra in
the last 20 years. Therefore these cities score “no practice” on the Doing Business closing a
business indicator.
Efficient bankruptcy procedures increase the amount that creditors recover from insolvent
firms. They cause credit markets to expand and investments to rise. Bangladesh can best
improve insolvency proceedings by focusing on efficient foreclosure and liquidation
proceedings. Bankruptcy should allow for a fast process whereby creditors can decide on the
highest value procedure. The process should also give qualified insolvency managers incentives
to follow quickly the most efficient procedure. Regardless of whether a firm enters foreclosure,
liquidation or reorganization, the administrator should be able to sell the business as a going
concern so that the new owners keep the intrinsic value of the operating business and not just
the assets. Bangladesh can also improve the efficiency of bankruptcy by eliminating criminal
liability for managers who allow a company to become insolvent. Such managers are forbidden
from entering into a corporate position for almost 7 years. This discourages entrepreneurship.
It also dissuades companies from starting bankruptcy proceedings early enough to save the
company.
Banking Company
1. Suspension - (1) The High Court Division may, on the application of a banking company
which is temporarily unable to meet its obligations, make an order staying for a fixed period on
such conditions as it may think fit the commencement or continuance of all proceedings against
the company, and a copy of that order shall be forwarded to the Bangladesh Bank, and the High
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court Division may from time to time extend the period. But the extended period shall not exceed
six month.
(2) No application under subsection (1) shall be receivable unless it is acompanied by a report of
the Bangladesh Bank to the effect that the banking company which made the application will be
able to pay its debts: Provided that in the case of an application not accompanied by such report
the High Court Division may, if it thinks reasonable, grant remedy under this section to that
company, and if such remedy is granted, shall call for a report from the Bangladesh Bank on the
affairs of the banking company, on receipt of which it may either rescind its order or pass such
further order as it may think fit and proper.
(3) When an application under subsection (1) is submitted, the High Court Division may appoint
a special officer who shall forthwith take into his custody or under his control all the assets,
books, documents, effects and actionable claims to which the banking company is or appears to
be entitled and shall also exercise such other powers as the High Court may confer on him,
having regard to the interests of the depositors of the banking company.
(4) Where the Bangladesh Bank is satisfied that the affairs of a banking company in respect of
which an order under subsection (1) has been made, are being conducted in a manner detrimental
to the interests of its depositors, it may make an application to the High Court Division for the
winding up of that banking company, and where such application has been made, the High Court
Division shall not extend the period of an order to stay proceedings under that subsection.
2. Winding up by High Court.- (1) Notwithstanding anything contained in section 153, 162 and
271 of the Companies Act, and without prejudice to the powers given under subsection (1) of
section 64, the High Court Division shall under this section order the winding up of a banking
company, if-
a) The banking company is unable to pay its debts;
b) The Bangladesh Bank makes an application for its winding up under this section or section 64.
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(2) The Bangladesh Bank shall make an application under this section for the winding up a
banking company if it is directed so to do by an order under clause b) of subsection (5) of section
44.
(3) The Bangladesh Bank may make an application under this section for the winding up of a
banking company,-
a) If the banking company-
i) Has failed to comply with the requirements specified under section 13; or
ii) Has by reasons of the provisions of section 31 become disentitled to carry on banking
business in Bangladesh;
iii) has been inhibited from receiving fresh deposits by an order under clause a) of subsection (5)
of section 44, or under clause b) of subsection (5) of Article 36 of the Bangladesh Bank Order,
1972 (P.O. No. 127 of 1972); or
iv) has failed to comply with any requirement of this Ordinance other than the requirements laid
down in section 13, and after being informed about its failures by a notice in writing, continues
so to do;
v) has contravened any provision of this Ordinance and continues such contravention beyond
such period as may be specified in that behalf by the Bangladesh Bank from time to time, after
notice in writing of such contravention has been conveyed to it; or
b) If in the opinion of the Bangladesh Bank-
i) A compromise or arrangement sanctioned by a Court in respect of the banking company
cannot be worked satisfactorily with or without modifications; or
ii) The returns, statements or information furnished to it under or in pursuance of the provisions
of this Ordinance disclose that the banking company is unable to pay its debts; or
iii) the continuance of the banking company is prejudicial to the interests of its depositors.
(4) Without prejudice to the provisions contained in section 163 of the Companies Act, a banking
company shall be deemed to be unable to pay its debts if-
a) It has refused to meet any lawful demand made at any of its offices or branches within two
working days; or
b) Such demand is made elsewhere and the Bangladesh Bank certifies that the banking company
is unable to pay its debts; or
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c) The Bangladesh Bank certifies in writing that the banking company is unable to pay its debts.
(5) The Bangladesh Bank shall send a copy of any application made under subsection (1) to the
registrar of the Supreme Court.
3. Court liquidator.-
(1) When, having regard to the number of proceedings for the winding up of banking companies
and the extent of the work involved in such proceedings, the Government is of the opinion that it
is necessary and expedient, for the purpose of conducting all proceedings for the winding up of
banking companies and performing such other duties in reference thereto as the High Court
Division may impose, to attach a court liquidator to the High Court Division, it may, after
consultation with the Bangladesh Bank, appoint a court liquidator for such period as it may
determine.
(2) Where there a court liquidator has been appointed under sub-section (1) and an order has
been passed by the High Court Division for the winding up of any banking company, then,
notwithstanding anything contained in section 171 or 175 of the Companies Act, the court
liquidator shall become the official liquidator of the banking company.
(3) Where there is a court liquidator attached to the High Court Division and any proceeding, for
the winding up of a banking company in which any person other than the Bangladesh Bank or
the court liquidator has been appointed as official liquidator, is pending immediately before the
commencement of this Ordinance or the date on which the liquidator is so attached, whichever is
later, then, notwithstanding anything contained in section 176 of the Companies Act, the person
appointed as official liquidator shall, on such commencement or, as the case may be, on the date
of the attachment, be deemed to have vacated his office and the vacancy shall be deemed to be
filled up by the appointment of the court liquidator as the official liquidator:
Provided that where the High Court Division, after giving the court liquidator and the
Bangladesh Bank an opportunity of being heard, is of opinion that the appointment of the court
liquidator would be detrimental to the depositors of the banking company, it may direct the
former official liquidator to continue to act as such.
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4. Appointment of the Bangladesh Bank etc. as liquidator - Notwithstanding anything

contained in section 50, or in section 175 of the Companies Act, where in any proceeding for the
winding up of a banking company the Bangladesh Bank applies to the High Court Division to
appoint the Bangladesh Bank or any individual as official liquidator, the application shall
ordinarily be granted and the liquidator, if any, functioning in such proceeding shall vacate office
upon such appointment.
5. Companies Act to apply to liquidators –
(1) All the provisions of the Companies Act relating to a liquidator, and so far as they are not
inconsistent with this Ordinance, shall be applicable in the case of liquidators appointed under
section 67 or 68.
(2) Any reference to the "official liquidator" in this chapter or in chapter 7 shall be construed as
including a reference to any liquidator of a banking company.
6. Restriction on stay of proceedings - Notwithstanding anything to the contrary contained in

section 173 of the Companies Act, the High Court Division shall not make any order staying the
proceedings in relation to the winding up of a banking company, unless it is satisfied that an
arrangement has been made whereby the company can pay its depositors in full as their claims
accrue.
7. Submission of a preliminary report by the official liquidator.- Notwithstanding anything to

the contrary contained in section 177 B of the Companies Act, where a winding-up order has
been made in respect of a banking company whether before or after the commencement of this
Ordinance, the official liquidator shall submit a preliminary report to the High Court Division
within two month from the date of the winding-up order or where the winding-up order has been
made before such commencement, within two months from such commencement and that report
shall contain the following items, namely:
a) The information required by the Companies Act so far as it is available to him;
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b) The amount of assets in cash which are in his custody or under his control on the date of the
report;
c) The amount which is likely to be collected in cash before the expiry of that period of two
month:
Provided that the High Court Division may, if it thinks fit, in any particular case extend the
period of two months by a further period of one month.
8. Notice to preferential claimants etc. –
(1) Within fifteen days from the date of the winding-up order of a banking company or where the
winding-up order has been made before the commencement of this Act, within one month from
such commencement, the official liquidator shall, for the purpose of making an estimate of the
debts and liabilities of the banking company (other than its liabilities and obligations to its
depositors), by notice served in such manner as the Bangladesh Bank may direct, call upon every
claimant entitled to preferential payment under section 230 of the Companies Act and every
secured and every unsecured creditor of the company to send to him within one month from the
date of the service of the notice a statement of the amount claimed by him.
(2) Every notice under subsection (1) sent to a claimant having a claim under section 230 of the
Companies Act shall state that if a statement of the claim is not sent to the official liquidator
before the expiry of the period of one month from the date of the service, the claim shall not be
treated as a claim entitled to be paid under that section in priority to all other debts, and it shall
be treated as an ordinary debt of the banking company.
(3) Every notice under subsection (1) sent to a secured creditor shall require him to value his
security before the expiry of the period of one month from the date of the service of the notice
and shall state that if he does not send a statement of the claim together with the valuation of the
security before the expiry of the said period, the official liquidator shall himself value the
security and such valuation shall be binding on the creditor.
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(4) If a claimant or creditor fails to comply with the direction in the notice sent to him under
subsection (1), then-
a) In the case of a claimant, his claims will not be entitled to be paid in priority to all other debts,
but shall be treated as an ordinary debt of the banking company;
b) In the case of a creditor, the official liquidator shall himself value the security and such
valuation shall be binding on the creditor.
9. Power to dispense with meetings of creditors etc. - Notwithstanding anything to the

contrary contained in section 178 A and 183 of the Companies Act, the High Court Division
may, in the proceedings for winding-up a banking company dispense with any meeting of
claimants or other creditors of the company or the appointment of a committee if, in order to
avoid unjustified delay and expense, it thinks fit so to do.
10. Booked depositors' credits to be deemed proved.- In any proceeding for the winding-up of
a banking company, every depositor shall be deemed to have filed his claim for the amount
shown in the books of the banking company as standing to his credit; and, notwithstanding
anything to the contrary contained in section 191 of the Companies Act, the High Court Division
shall presume such claim to have been proved, unless the official liquidator shows that there is
reason for doubting its correctness.
11. Preferential payment to depositors –
(1) In every proceeding for the winding-up of a banking company where a winding-up order has
been made, whether before or after the commencement of this Ordinance, within three months
from the date of the winding-up order or where the winding-up order has been made before such
commencement, within three months therefrom, the preferential payments referred to in section
230 of the Companies Act, in respect of which claims have been raised in view of, and within
one month from the date of the service of the notice under section 71, shall be made by the
official liquidator or adequate provision for such payment shall be made by him .
22
(2) In the case of preferential payments in accordance with the provision of subsection (1), the
procedure shall be as follows, namely:-
a) In the first place, to every depositor in the savings bank account of the banking company a
sum of 2500 Takas or the balance at his credit, whichever is less;
b) In the second place, in order to pay what is due to the creditors of the banking company, to
every other depositor of the company fifty per cent of the balance at his credit or 2500 Taka
whichever is less.
Provided that the sum total of the amounts paid under clause a) and b) to any one person who is a
depositor in the savings bank account of the banking company and a depositor in any other
account, shall not exceed the sum of 2500 Takas, but this provision shall not apply in the case of
a person who is jointly with any other person depositor in an account.
(3) Where within the period of three months referred to in subsection (1) full payment in cash
cannot be made of the accounts required to be paid under clause a) or b) , the official liquidator
shall pay within that period to every depositor under clause a) or, as the case may be, clause b)
on a pro rata basis so much of the amount due to the depositor with assets in cash as he is able to
do, and the official liquidator shall pay the rest of the amount to every depositor as and when
sufficient assets are collected by the official liquidator in cash.
(4) After payments have been made to the depositors in accordance with subsection (1), (2) and
(3), the official liquidator shall pay on a pro rata basis the general creditors with the assets of the
banking company, and he shall then, as and when the assets of the banking company are
collected by him in cash, make payment on a pro rata basis with the collected assets, of the
further sums which are due to the depositors referred to in clause a) and clause b) of subsection
(2).
(5) In order to enable the official liquidator to have under his control in cash as much of the
assets of the banking company as possible, the securities given to to secured creditors may be
redeemed by the official liquidator-
a) where the amount due to the creditor is more than the value of the securities as assessed by
him or, as the case may be, as assessed by the official liquidator, on payment of such value; and
23
b) where the amount due to the creditor is equal to or less than the value of the securities as so
assessed, on payment of the amount due:
Provided that where the official liquidator is not satisfied with the valuation made by the
creditor, he may apply to the High Court Division for making a valuation.
(6) When any claimant, creditor or depositor to whom a payment is to be made in accordance
with the provisions of subsection (1), (2), (3), (4) or (5), cannot be found or is not readily
traceable, adequate provision shall be made by the official liquidator for such payment.
(7) For the purpose of this section, the payments specified in each of the following clauses shall
be treated as payments of a different class, namely:-
a) Payments to preferential claimants under section 230 of the Companies Act;
b) Payments under clause a) of subsection (2) to the depositors in the savings bank account;
c) Payments under clause b) of subsection (2) to the other depositors;
d) Payments to the general creditors;
e) Payments to the depositors in addition to those specified in clause a) and clause b) of
subsection (2).
(8) The creditors of each different class referred to in subsection (7) shall rank equally among
themselves and they shall be paid in full where the assets are sufficient so to do; and where the
assets are insufficient, the payments shall abate in equal proportion.
Cancellation of a license –
(1) The Bangladesh Bank may cancel the license of a financial institution granted under this Act
on account of the following reasons, namely:-
a) If it does not carry on the business for which it had been established;
b) If the financial institution goes into liquidation or if its business is closed;
24
c) If it furnishes false or misleading information’s or documents in order to receive a license;
d) If it carries on its business in a manner detrimental to the interests of the depositors;
e) If its assets are not sufficient to pay the claims of its depositors;
f) If it carries on business maintaining an amount of paid-up capital which is less than the
amount of the minimum capital;
g) If the conditions of the license are contravened;
h) If the financial institution or any of its directors is convicted for an offence under this Act.
(2) Notwithstanding anything contained in sub-section (1), no license of a financial institution

shall be cancelled without granting, through no more than fifteen days' notice in writing before
the cancellation of the license of the financial institution, an opportunity to show the reasons for
which its license should not be cancelled.
(3) Where the license of a financial institution has been cancelled, the financial institution
concerned shall be immediately informed and a notice of the cancellation shall be published in
the Gazette.
(4) Beginning from the date on which a notice under sub-section (3) has been published, the
financial institution concerned shall cease to carry out any financial transaction except, subject to
the consent of the Bangladesh Bank, such measures as may be required to conveniently suspend
its business.
(5) The provision of sub-section (4) shall not be prejudicial to the rights or claims of any person
on any financial institution or the rights or claims of any financial institution or any person.
25
Summary of Indicators - Bangladesh

Procedures (number) 7
Time (days) 19
Starting a Business Cost (% of income per capita) 33.3
Paid-in Min. Capital (% of income per

0.0
capita)
Dealing with Construction
Time (days) 231
Permits
Cost (% of income per capita) 558.1
Registering Property Time (days) 245
Cost (% of property value) 6.6
Strength of legal rights index (0-10) 7
Depth of credit information index (0-6) 2

Getting Credit
Public registry coverage (% of adults) 0.6
Private bureau coverage (% of adults) 0.0
26
Extent of disclosure index (0-10) 6
Extent of director liability index (0-10) 7

Protecting Investors Ease of shareholder suits index (0-10) 7
Strength of investor protection index

6.7
(0-10)
Payments (number per year) 21
Time (hours per year) 302
Profit tax (%) 25.7

Paying Taxes
Labor tax and contributions (%) 0.0
Other taxes (%) 9.3
Total tax rate (% profit) 35.0
Documents to export (number) 6
Time to export (days) 25
Cost to export (US$ per container) 985

Trading Across Borders
Documents to import (number) 8
Time to import (days) 31
Cost to import (US$ per container) 13903
Enforcing Contracts Procedures (number) 41
Time (days) 1442
Cost (% of claim) 63.3
Recovery rate (cents on the dollar) 25.8
Closing a Business Time (years) 4.0
Cost (% of estate) 8
27
Conclusion
Bangladesh made business start-up easier by eliminating the requirement to buy adhesive stamps and
further enhancing the online registration system. Bangladesh reduced the property transfer tax to 6.7%
of the property value. If every company should maintain the legal procedure to starting, continue &
ending business, then it would be better for our nations and also for the general public. The
administrator should be able to sell the business as a going concern so that the new owners keep the
intrinsic value of the operating business and not just the assets.
28
Reference
 Book
 Legal Environment of Business, Ahmaduzzaman, Khan. Rubaeyat Hasan, Yazdani. D M Nur A,
First Edition 2008
 Internet
 http://www.doingbusiness.org/~/media/fpdkm/doing
%20business/documents/profiles/country/db11/bgd.pdf
 http://www.undp.org/legalempowerment/reports/National%20Consultation
%20Reports/Country%20Files/4_Bangladesh/4_5_%20Informal_Business_Rights.pdf
 http://www.internews.org/regions/mena/amr/bangladesh.pdf
 http://www.scribd.com/document_downloads/direct/20489685?
extension=pdf&ft=1303184335&lt=1303187945&uahk=3qYaGS8jNJSvX63g8mkigcG61k4
 http://www.scribd.com/document_downloads/direct/52943794?
extension=pdf&ft=1303185092&lt=1303188702&uahk=DWN6ZLGvIUPk0HXZpBCObvx9ztY
 http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813-
1171300070514/bangladesh.pdf
 http://www.ice.gov.it/paesi/asia/bangladesh/upload/SP24/Bangladesh
%20Board_of_Investment.pdf
 http://www.isqpm.org/2006%20Journal/Government%20policy%20and%20competitive
%20business%20environment%20in%20Bangladesh%20by%20Mondal%20and%20Ahmad.pdf
 http://www.hbs.edu/entrepreneurship/syllabi/lam-f2006.pdf
29

Legal Environment of Business in Bangladesh LAW 234

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Legal Environment of Business in Bangladesh

Legal Environment of Business

Date of Submission: 20th April, 2011

Legal Procedures to Continue a Business.............................................................7

Legal Procedures to Ending a Business...............................................................16

Summary of Indicators - Bangladesh.................................................................27

Legal Procedures to Starting a Business

a) If it is in session, within 10 days of the issue of the notification, and

 This Act may be called the Financial Institutions Act, 1993.

Legal Procedures to Continue a Business

2. Restrictions regarding credit facilities, etc. - No financial institution shall-

3. Restrictions regarding the business of financial institutions –

5. Restriction on the possession of immovable property - No financial institution may acquire

Trading across borders

Legal Procedures to Ending a Business

a) The banking company is unable to pay its debts;

4. Appointment of the Bangladesh Bank etc. as liquidator - Notwithstanding anything

5. Companies Act to apply to liquidators –

6. Restriction on stay of proceedings - Notwithstanding anything to the contrary contained in

7. Submission of a preliminary report by the official liquidator.- Notwithstanding anything to

a) The information required by the Companies Act so far as it is available to him;

8. Notice to preferential claimants etc. –

9. Power to dispense with meetings of creditors etc. - Notwithstanding anything to the

11. Preferential payment to depositors –

b) If the financial institution goes into liquidation or if its business is closed;

c) If it furnishes false or misleading information’s or documents in order to receive a license;

d) If it carries on its business in a manner detrimental to the interests of the depositors;

g) If the conditions of the license are contravened;

(2) Notwithstanding anything contained in sub-section (1), no license of a financial institution

Summary of Indicators - Bangladesh

Paid-in Min. Capital (% of income per

Registering Property Time (days) 245

Cost (% of property value) 6.6

Strength of legal rights index (0-10) 7

Depth of credit information index (0-6) 2

Private bureau coverage (% of adults) 0.0

Extent of disclosure index (0-10) 6

Extent of director liability index (0-10) 7

Strength of investor protection index

Payments (number per year) 21

Time (hours per year) 302

Profit tax (%) 25.7

Other taxes (%) 9.3

Total tax rate (% profit) 35.0

Documents to export (number) 6

Time to export (days) 25

Cost to export (US$ per container) 985

Time to import (days) 31

Cost to import (US$ per container) 13903

Enforcing Contracts Procedures (number) 41

Time (days) 1442

Cost (% of claim) 63.3

Recovery rate (cents on the dollar) 25.8

Closing a Business Time (years) 4.0

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