Largest rice miller sinks into largest bankruptcy

Not too long ago, the name Razzak was synonymous with the rice business in Bangladesh.

Lording over a rice empire was Abdur Razzak, who appeared invincible in his business pursuits, generating an annual revenue of around Tk1,000 crore at its peak.

However, the bottom fell out of his business when the government made a duty-free rice import policy in 2014, exposing his business to unmanageable market forces and then the Covid-19 pandemic hit in 2020.

Now, Razzak's rice empire has come crashing down and he has filed for bankruptcy – marking the largest such individual case in the country's history.

Burdened with a debt of more than Tk238 crore to various banks, non-banking institutions, and individuals, Razzak also finds himself entangled in 71 lawsuits seeking repayment of loans.

Razzak was pioneer in automated rice mills

Razzak's entrepreneurial journey began in Naogaon, a district renowned for its rice production. In the 1980s, as automated rice mills became the standard, Razzak established himself as a pioneer in the industry.

By 2008, he owned five large automated rice mills, employing 2,000 people, and generating an annual rice production and marketing value of around Tk1,000 crore.

His five mills – Messrs Rabeya, Kofil Agro, Bismillah, Karim, and Kofil Atab – boasted a combined annual production capacity of more than 4,000 tonnes.

These mills were equipped with modern Swiss, Japanese and Chinese machinery.

Cracks appear

Razzak's success began to falter in 2014, when the government allowed duty-free rice imports from India.

He lost the lucrative business of the government buying rice from the local market. "This policy filled up government warehouses with cheaper Indian rice and many new players entered the market," Razzak explained to The Business Standard. Razzak still had to pay duties on his production.

He could not compete with the cheaper, imported rice and was forced to sell about 2,000 tonnes of rice from his warehouses at a loss, further hurting his ability to repay loans and cover business expenses.

"Although back then I had a Tk47 crore loan lined up from a bank, they only disbursed Tk32 crore when they saw my business falter. So, I was Tk15 crore short," Razzak explained his struggle with finance as the bank became reluctant to extend further credit.

He attempted to secure cash loans and credits; he even wanted to sell his lands to keep his business afloat but the situation worsened.

"By 2018, I was forced to shut down two mills, and struggled to run the remaining three as I couldn't buy enough paddy," the trader said.

His once-thriving brands, Razzak Miniket, Razzak Paijam, Razzak Atap Rice, and Razzak Nazirshail, began to lose market share.

"Running the remaining mills was not possible. Wages of about 1,500 workers, maintenance costs, electricity bills, and loan instalments continued to accumulate," he continued.

The outbreak of the Covid-19 pandemic in 2020 delivered the final blow. "Forced to halt operations entirely, I became destitute with no government or other assistance," Razzak recounted.

"I had to sell land and houses, but the mortgaged properties are not readily disposable. Selling everything would not cover the Tk238 crore owed to banks and individuals. Finding no other options, I was forced to file for bankruptcy," he told TBS.

Tk239 crore debt, 71 lawsuits

Abdur Razzak says Akij Group acquired two of his mills, Rabeya and Kofil Agro, in 2022 by settling Tk30 crore loans with Southeast Bank and Tk32 crore with Standard Bank. He claimed to have sold the mills at a significant loss.

Despite the sale, Razzak's debt burden has not eased. He owes over Tk238.59 crore to various entities.

Six banks and non-banking institutions claim a combined debt of Tk222 crore from Razzak.

Social Islami Bank leads with Tk70.78 crore, followed by Islami Bank with Tk67.68 crore. Southeast Bank, Islamic Finance and Investment, United Finance, and Union Capital also hold outstanding claims ranging from Tk8.07 crore to Tk46.28 crore.

Additionally, 211 individual rice traders and retailers are also seeking recovery of their dues, totalling Tk16.57 crore.

Debtors have filed 71 cases against Razzak in various courts, including Dhaka and Bogura.

These include 59 civil cases and 12 criminal cases related to dishonoured cheques. Islamic Finance and Investment has filed 31 cases alone.

Citing his inability to repay, Razzak filed a bankruptcy case in Dhaka court in August last year, claiming he could not settle the debts even after selling his assets.

This case, involving 217 defendants, is the largest in the court's history in terms of individuals and the amount of money involved, according to Dhaka bankruptcy court sources.

Court documents reveal that Razzak owes 211 individual creditors varying amounts, ranging from Tk205 to over Tk1 crore.

The starkness of Abdur Razzak's financial struggles are evident by the fact that he included even a small-time rice seller named Sarwar Hossain in his bankruptcy petition – Razzak owes the local shopkeeper from Naogaon a mere Tk205.

Sarwar said this debt arose from a rice purchase in 2017.

"I used to buy around 70 maunds of rice wholesale from Razzak on a monthly basis. But now he has lost almost everything. I do not hold any personal claim to the Tk205 anymore," he told TBS.

Among his individual creditors, wholesale trader Abdul Jabbar Khan of Mohadevpur is owed the highest amount – Tk1.31 crore as an advance payment for rice that was never delivered.

"I will file a separate lawsuit to try and recover the funds. Razzak might have some other motive behind filing the bankruptcy case," Jabbar said.

Barrister Tanjib-ul Alam, a company law expert, highlighted the importance of thorough asset investigation in such cases to address potential concealment or misrepresentation.

Razzak's case status

Even though summons have been issued to all 217 defendants named in the bankruptcy petition, only banks and non-banking institutions responded. The remaining individuals' lack of response delays the trial's commencement.

Legal professionals say if the court finds valid grounds for Razzak's petition after receiving full responses, a receiver will be appointed to manage his assets before the trial begins. The incomplete summons process hinders determining the timing for appointing a receiver or starting the trial.

Bankruptcy cases in Bangladesh

With 231 pending cases involving Tk3,500 crore as of December 2023, Bangladesh's bankruptcy courts face a significant workload.

Of these, 138 cases, totalling Tk1,800 crore, involve banks seeking to declare individuals bankrupt, while the remaining 93 cases, amounting to Tk1,700 crore, are self-declared bankruptcies.

Naogaon businessman Abdur Razzak's petition to declare bankruptcy for Tk238 crore stands out as the largest in the court's history due to the amount involved and the number of defendants.

This surpasses previous high-value cases like Pubali Bank's pursuit of Tk96 lakh from six defendants of Halima Textile in 2020 and Mojammel Hossain's bankruptcy claim over an unfulfilled Tk190 crore loan in 2014.

Mizanur Rahman Chowdhury, who served as prime minister from 1988 to 1990, holds the distinction of being the first individual declared bankrupt in Bangladesh.

He established Pioneer Pharmaceuticals in the 1980s, but facing financial difficulties, filed for bankruptcy after failing to repay a Tk31 crore loan with interest.

The court ruled him bankrupt in 1999. This case, filed in 1998, also marked the first instance of a bankruptcy petition under the Bankruptcy Act 1997.

The act provides individuals and businesses facing insolvency a legal recourse to declare bankruptcy and seek debt relief.

Upon court approval, their assets are sold to settle debts, releasing them from further obligations. Additionally, creditors such as banks can initiate bankruptcy proceedings against loan defaulters.

While the core principles of bankruptcy laws in various countries, including India, Pakistan, Malaysia, and the United States, share similarities, the severity of penalties for concealing assets during bankruptcy proceedings differs.

Indian law allows for a five-year prison sentence for such offences, while US law imposes a potential fine of up to $2.5 million.

Should Abdur Razzak's case succeed, he will face certain restrictions under the act including on obtaining further loans, contesting elections, air travel and international travel without court's permission.