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BB plans to rehabilitate sick enterprises

Published : Wednesday, 16 April, 2025 at 12:00 AM  Count : 544
MS Siddiqui
A business unit may face several odds during its implementation and operation stage because of a number of factors in the environment - internal and external. Industrial sickness does not occur suddenly in the life cycle of an industrial unit. It does not develop in a single day or does not burst overnight. There are few stages of the sickness process: initial / Normal stage, Tending towards sickness stage, incipient sickness stage and final stage. The sick industries are unable to utilize the production capacity or produced goods and services. The crisis has been left only to the market forces and recovery of loans by any means and the policy was not a solution and failed to serve the purpose of society and economy.

Bangladesh Bank has constituted a five-member committee on 30thJanuary 2025 to select industries and business entities, which were badly affected by reasons beyond their control such as hit hard by Covid-19, Russia-Ukraine war, external factors, floods and uncertainty over mass uprising. The committee will suggest policy support for their revival of the selected sick enterprises on case-to-case basis. The committee will design the nature of support to borrowers with outstanding loans exceeding Tk 50 crore. The committee got wide authority to recommend a policy to rehabilitate some of the sick industries. The selection guideline is not available in the policy.

About 35 years back, after a political decision by the government, the Board of Investment (BOI) once formed a ?Sick Industries Cell? to assess the reasons for sickness in 1991 and the FIs initiated some rehabilitation programs but they did not end up with any fruitful result.

The Bangladesh Bank categorizes borrowers as defaulters and non-defaulters, with "sick industry" often used in the context of loan defaults. Bangladesh law does have any reference of sick enterprises. Bangladesh has no such law or rule of rehabilitation of sick industries. Bangladesh law, the Arto Rin Adalat Act, 2003 is loan recovery law but there is no provision for prevention of industrial sickness.

A repealed law - The Bangladesh Small & Cottage Industries Corporation act 1957 had given responsibility to BSCIC under Section 24 (i) provide assistance to sick small and cottage industries but the new law namely Bangladesh Small & Cottage Industries Corporation act 2023 omitted the clause of Sick industries.

The Registrar of Joint Stock Companies and Firms (RJSC) cannot directly close sick or defunct companies according to the company law of Bangladesh. Companies that cannot be revived may be ordered to be liquidated by the court. The policy specified the reasons of "hit hard by Covid-19, Russia-Ukraine war, external factors, floods and uncertainty over mass uprising but borrowers are affected by many other reasons. The above committee will consider the sick enterprises having loans above Tk50 crore and but not the SMEs. A BIDS survey (1998) showed that various industries, such as 19.6% of textile, 14.3% food, 5.75% of non-electrical, 5.4% of leather industry became sick. It also showed that 72.5% of small-scale industry, 19.7% of medium industry and 4.8% of large scale industry became sick.

Another surveyed in 1992 on the causes of sickness found that the internal causes are problems in marketing (31%), management and entrepreneurial problems (22%), faulty project plan and Appraisal (14%), improper management and other techniques (12%) , delay in implementation ( 12%) and other (9%). The external factors are location selection (22%), working capital management (2.8%), power shortage (15%), changes in policy (13%), unavailability of raw materials (11%), labor shortage (5.7%), (5%), and other (8%).

The major causes pushing the industrial units towards sickness in Bangladesh are management, production, technical, marketing, finance, financial institutions, environmental and above all many other reasons beyond control of the entrepreneurs. The problem requires both the prevention and cure of industrial sickness depending upon the ability to identify the sickness of the company. Rehabilitation program comprised of suitable training on project management, marketing management, financial management, and human resources management can be conducted for the sick and other vulnerable industries.

Pakistan's Corporate Rehabilitation Act 2004 and Industrial Reconstruction Corporation of India (IRCI) provide reconstruction and rehabilitation assistance to sick and closed units. The rehabilitation programs include feasibility study on survival of the company and the arrangement of funds necessary for rehabilitation.

The Indian Companies Act, 2013 on revival and rehabilitation of sick industries has given a broader and more balanced corporate rescue procedure, applicable to all companies. Section 253 (1) in the act empowered to creditor to identify a debt-defaulter or sick unit when the outstanding amount of debt the company has failed to pay within a period of thirty days of the notice or any secured creditor may file an application to the National Company Law Tribunal (NCLT) Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company.

According to the Indian Companies Act, 2013, there shall be formed a fund to be called the Rehabilitation and Insolvency Fund for the purposes of rehabilitation, revival and liquidation of the sick companies and there shall be credited to the fund- (a) the grants made by the central government for the purposes of the fund; (b) the amount deposited by the companies as contribution to the fund; (c) the amount given to the Fund from any other source; and (d) the income from investment of the amount in the fund.

The Securities and Exchange Commission of Pakistan made rules under the section 506, of the Companies Rules (Rehabilitation of Sick Industrial Units), 1999. The government set up a task force, known as the ?Task-Force for Revival of Sick Industrial Units' under section 296 of the ordinance. Task-force shall determine the parameters with the approval of the commission for declaring a company as a sick company. A bankers' committee will recommend of the industrial units facing financial or operational problems to the task-force under section 5 (1). With the commendation of the taskforce, the federal government shall give their opinion whether the company is a sick company or not. It may declare the company to be a sick company and shall ask the taskforce to prepare a plan for its rehabilitation.

Banking laws in Bangladesh do not distinguish between innocent borrowers and willful defaulters, treating them the same although recently the Banking companies act has been amended to differential between willful and non-willful defaulters. The committee should recommend a policy guideline for rehabilitation and revival of sick enterprises not only re-financing some fortunate individual sick enterprises. The minimum default threshold of Tk50 crore should be reviewed to cover the SMEs as those are mostly hit hard by various internal and external reasons. Bangladesh may have a sick enterprises rehabilitation law to resolve the problem of sickness.

The writer is a CEO, Bangla Chemical


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