Bangladesh apparel trade group readying exit policy for Covid-hit units

Published 04 Feb,2021 via The Financial Express - The apparel trade group has moved to develop insolvency or exit policy framework in order to salvage the industry battered by the pandemic.

The objective of the framework is to detect early and resolve the financial distress in entities, including the current provisions of corporate debt restructuring mechanism.

Resolving bankruptcy and insolvency through a considered balance between reorganisation and liquidation are also the key focus areas of the exercise, according to the Terms of Reference prepared by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The framework will be prepared by forming a working group with the participation from both in the public and private sectors, garment entrepreneurs, international buyers, legal professionals, chartered accountants, retired senior policy makers, retired high court officials, experienced liquidators, economic policy experts and bankers.

A technical exercise will be conducted by the group to facilitate improvements and reforms in Bangladesh's business exit regime and practices.

In a recent letter to the National Board of Revenue (NBR), the BGMEA president Rubana Huq sought a member from the board for the group.

When contacted, Ms Huq said the COVID-induced lockdown and the resultant economic downturn in the main export destinations, Bangladesh's clothing sector has come across many business hurdles, including the prospect for voluntary and involuntary exit.

The BGMEA has initiated the formal exercise to assess the current exit or insolvency regime and practices, and identify necessary improvement measures, reflecting pertinent improvements relevant to the garment sector, she said.

It would support the government for enacting the necessary reforms or improvements in the legal and regulatory framework for business exit, she added.

Through the exercise, the group will identify necessary improvement measures.

"The proposed working group is envisaged as an advisory platform to provide strategic guidance, inputs and advice to the BGMEA in its efforts to assess gaps in the current insolvency/exit policy and enforcement, indentifying improvement opportunities and recommendations for reforms," said a background note, prepared by the BGMEA.

Ms Huq said the initiative has been taken to facilitate improvements and reforms in Bangladesh's insolvency and restructuring policy, with a particular focus on highlighting improvements relevant to entrepreneurs in the RMG sector.

For effective completion of the assessment, including reflection of ground-realities and context and to create the necessary awareness and broad-based support for successful implementation of reform recommendations, the lobby group finds it to be of "high importance" on the active participation of and input from all relevant stakeholders, she said.

The BGMEA identified some areas where changes in legal and regulatory framework are required to ensure simplified and time-bound implementation of the measures.

It would assess the possible mechanisms for adoption of overall moratorium, the ToR said.

The framework would address concerns specific to the RMG industry such as cancellation of orders, bankruptcy of overseas buyers, he said.

It would assess role of alternative dispute resolution for insolvency or bankruptcy, it added.

"In Bangladesh, insolvency and bankruptcy proceedings are organised under the Bankruptcy Act-1997. As per reports, the act is not very popular and is rarely used," the ToR of the working group said.

Since enactment, only one company has been declared bankrupt under its provision, it added.

Most creditors prefer to use the Money Loan Courts Act, 2003, which provides for time-bound and faster recovery mechanism.

There are also reports that suggest that the bankruptcy regime favours the cause of banks and financial institutions over the insolvent firms.

It said the Covid-19 has exacerbated the hurdles to RMG industries and there are prospects for voluntary and involuntary exit for the companies.

The platform would also recommend necessary reforms in legislations, policies, institutions and process.

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