With rising liabilities, sick industries are losing regulator's empathy
About 2,150 out of 3,100 sick companies have been marked as vulnerable
A total of 3,100 companies, registered between 2010 and 2019, either turned sick or defunct over the years with their liabilities accumulating to Tk28,000 crore, finds the regulatory body.
The capital of these entities is just half the amount they owe banks, other businesses and individuals, standing at Tk14,500 crore.
The Registrar of Joint Stock Companies and Firms (RJSC) has revealed the numbers as it plans to clear its list of such hole-in-the-wall businesses that are producing fewer assets but more liabilities.
RJSC Registrar (Additional Secretary) Sheikh Shoebul Alam told The Business Standard that it took about a year for the RJSC to identify these institutions by looking at various complaints lodged against them.
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"There are many more such companies in the country. Initially, we have identified 3,100 and launched investigations," he said.
According to RJSC sources, investigations will be conducted in phases and debilitated companies that cannot be revived will be recommended for closure and the registration of the defunct ones will be revoked through court orders.
The registrar's office has started investigating their financials and business conditions, officials said.
These companies are causing a loss in terms of government revenue, an increase in non-performing loans of banks and non-banking financial institutions, an increase in unemployment, and a loss of production and poor productivity, said Barrister Tanjib-ul Alam, a company law expert.
Benefits of staying sick!
About 2,150 out of 3,100 identified companies have been marked as vulnerable, sources in the organisation said.
The remaining 950 are inactive or defunct. Even not in business any more, these entities have a burden of liabilities worth Tk6,000 crore against their assets of Tk4,500 crore.
It has also been seen that the managing director or chairman of a company is taking loans from various financial institutions and opening a different company in the name of his close relative or someone else with that money. They will face the music too, said an RJSC official related to the investigation.
"In addition, many companies appear to be weak or defunct in order to extract benefits from the government, from banks or from shareholders. Such companies will be recommended for winding up," the official added.
Let's take the case of RKM Fashion Ltd. Registered in 2012, this company started a business to import and export ready-made garments. But it has had no activity since 2017.
The company was supposed to submit audit reports and returns to the RJSC every year but it did not do so. It is currently facing a default loan case of Tk11 crore.
Also, a shareholder filed a complaint against the company in the RJSC to get back his shares. That is why the RJSC started an investigation against the company.
Another instance cited by the RJSC office is interbd Ltd registered in 2011 as an importer and marketer of chemicals. The company has been facing losses in business since 2019 and so far defaulted around Tk80 crore in bank loans.
But the capital of the company was only Tk30 crore. Then four banks filed a case against it for recovery of defaulted loans. Looking at the case copy, the RJSC found that the company is an ailing company.
An official of the RJSC, engaged in the investigation of this company, told TBS, "Apart from the bank loan, the company owes about Tk8 crore to some local businessmen. Once the probe is completed, a petition will be filed with the High Court to wind up the company. The RJSC will then take all steps to close down this establishment."
Another source at the RJSC said the initial investigation revealed that interbd Ltd MD started another business in the name of his wife by taking loans from various banks and money from several customers.
However, interbd MD AKM Alli Reyaz told TBS, "There is a reason why my company was listed as a weak company by the RJSC. In 2014, we had a problem in clearing a Tk40 crore shipment and incurred a huge loss. We continued business in the hope of tiding over the loss in the future but faced more losses. Now banks and other people have filed cases against us, and we will face them legally."
RJSC sources, however, said after the completion of the investigation, arrangements will be made to manage the debts of the creditors by liquidating the company.
Md Jashim Uddin, president of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), welcomed the initiative, acknowledging that some of these ailing or defunct companies are engaged in irregularities and illicit activities. "These defunct or ailing entities are having a negative impact on the overall economy. Their liquidation will help improve the business environment," the apex trade body leader said.
Distressed or ailing companies are companies which have been in existence for less than five years but have incurred accumulated losses equal to or more than their entire net worth at the end of any financial year. And inactive companies are those which have registered but have had no activity for a long time.
Requesting anonymity, an official of the RJSC, who is investigating such companies, told The Business Standard that initially only those companies which are found to be weak and unsustainable are being investigated. Emphasis is being placed on the investigation of why these companies are weak or inactive.
"If anyone deliberately makes their companies look weak or inactive, legal actions will be recommended against them," he said.
The RJSC official said after completing the investigations, petitions will be filed with the High Court as per law for action to be taken against these companies. Companies that cannot be revived will be ordered to be liquidated by the court.
Legal challenges for RJSC
Barrister Tanjib-ul Alam said according to the company law of Bangladesh, the regulatory body, RJSC, cannot directly close down such sick and defunct companies. If a shareholder of a company applies to the High Court for winding up, the court can order liquidation.
However, in many cases, if the RJSC does not receive the annual report of these companies, it can initiate an investigation. And after completing the investigation and applying to the High Court, the RJSC can take action as per the order of the court, he said.
"Neighbouring country India enacted The Sick Industrial Companies Act of 1985 to take action against sick companies. And in 2016, the Act was revised and updated. Also, the relevant organisation of that country has been given the jurisdiction to wind up defunct companies. But we don't have that in Bangladesh," Barrister Tanjib said.
Registrar of companies Sheikh Shoebul Alam, told TBS that the company registrar under the Ministry of Corporate Affairs of India has direct legal jurisdiction to take action against such companies.
"The RJSC had sent a proposal to the commerce ministry about six months ago seeking such jurisdiction. If we had that authority, then there would be more order in the industrial and economic sectors of the country," he added.
