Delisting is not the solution: Inquiry, accountability and investor protection must come first

For ordinary investors, the capital market is where savings and trust are placed. A small investor buys shares believing that a listed company is supervised and its disclosures are reliable. When that company stops production, fails to hold annual general meetings, does not submit audited accounts, or becomes non-operational, the loss is not only financial — it is a loss of confidence.

The proposal concerning 62 sick, distressed, or non-operational companies of the Dhaka Stock Exchange, including possible delisting and transfer to an OTC-style mechanism or the Alternative Trading Board, raises a serious question: should these companies simply be removed from the main board, or should DSE and BSEC first identify why they became sick, who is responsible, and how ordinary shareholders can be protected?

Delisting may look like a quick solution. It cleans the trading board, reduces speculative trading in weak shares, and signals that the market will not carry issuers that stopped production or failed compliance. But delisting alone does not cure the disease. It may shift loss from sponsors and management to ordinary shareholders. Once a company raises public money, it owes duties of disclosure, governance, transparency, and accountability.

All sick companies are not sick for the same reason. Some may have failed due to energy shortage, obsolete machinery, working capital crisis, debt burden, import restrictions, regulatory delay, or sectoral decline — and may still be revived through rehabilitation, fresh investment, restructuring, merger, or acquisition. Others may be sick because sponsors abused the listing platform, diverted funds, concealed material information, or allowed speculation while the real business collapsed. These categories cannot be treated alike.

The first response should therefore be inquiry, not delisting. Regulation 54 of the DSE Listing Regulations, 2015 allows the Exchange, where necessary in the interest of investors and with prior approval of BSEC, to inspect a listed issuer. The issuer, directors, officers, auditors, and authorised persons may be required to provide documents, information, and explanations. Delisting should be based on facts, not assumptions.

Before any final decision, each company should be examined separately. Why and when did production stop? Was the closure disclosed? Were financial statements and AGMs completed? Were dividends declared? Were assets sold or transferred? Were there related-party transactions? Did sponsors sell shares before negative information became public? Were shareholders misled? Was there genuine commercial difficulty, or mismanagement, concealment, fund diversion, or fraud?

All sick companies are not sick for the same reason. Some may have failed due to energy shortage, obsolete machinery, working capital crisis, debt burden, import restrictions, regulatory delay, or sectoral decline — and may still be revived through rehabilitation, fresh investment, restructuring, merger, or acquisition. Others may be sick because sponsors abused the listing platform, diverted funds, concealed material information, or allowed speculation while the real business collapsed. These categories cannot be treated alike.

Regulation 51 identifies grounds for delisting, including failure to declare dividends for five years, failure to hold AGMs for three consecutive years, liquidation, stoppage of commercial operation or production for three consecutive years, non-payment of listing fees, or non-compliance with securities laws. 

Regulation 52 deals with voluntary delisting and requires a scheme for buying shares from shareholders who do not wish to remain after delisting. Its valuation approach refers to last traded price, weighted average price, and net asset value. Delisting is recognised by law, but it is a serious step affecting public shareholders.

The framework may require amendment. Regulation 51 should not merely empower delisting for prolonged non-compliance, stoppage of operation, failure to hold AGMs, or failure to declare dividends. It should also contain an investor-protection mechanism. 

Before compulsory delisting, there should be a mandatory buyback or another fair exit option, especially where failure is connected with sponsor mismanagement, concealment, false disclosure, fund diversion, or breach of listing obligations. 

The exit price should be objective, considering net asset value, last traded price, weighted average market price, earnings per share, audited financial position, and other indicators. Without such amendment, delisting may clean the board but leave minority shareholders without liquidity, fair value, or remedy.

The concern becomes greater when delisting results in transfer to OTC or ATB. Such transfer may provide a technical platform, but not real liquidity, fair price discovery, or a practical exit. Sponsors may get a safe exit from scrutiny, while investors remain trapped with illiquid shares. 

Any compulsory delisting framework must include safeguards: prior notice, hearing, appeal, rehabilitation plan, minority protection, and fair valuation. A hearing should not be a formality, rehabilitation should not be a paper plan, and minority protection should not be a vague assurance.

Where revival is possible, a mandatory rehabilitation plan should be considered. It may include fresh capital, debt settlement, revival of production, professional management, board restructuring, merger, acquisition, disposal of non-core assets, and time-bound milestones. The plan should be submitted to DSE and BSEC, monitored periodically, and tied to consequences. If rehabilitation is used only to delay accountability, delisting and enforcement should follow.

Management restructuring may also be necessary. Many distressed companies fail because of weak governance, passive boards, lack of independent oversight, poor internal controls, and non-disclosure. Regulators may require stronger governance, independent directors, reconstituted board committees, enhanced reporting, special audit, and stricter monitoring of sponsors and directors to prevent asset stripping and restore discipline.

A special financial audit is equally important. Ordinary audit reports may not reveal why a company collapsed. A forensic audit can examine fund utilisation, asset transfers, related-party transactions, bank liabilities, inventory, receivables, unpaid dividends, tax exposure, and diversion of capital market proceeds. If public money was raised and misused, the matter cannot end with delisting — audit can expose what delisting may hide.

Regulation 45 provides a route for accountability where false or misleading information is found. It prohibits issuers, directors, sponsors, officers, and auditors from giving information they know, or have reasonable cause to believe, to be false, incorrect, misleading, or motivated in any material particular. Regulation 55 may be relevant for clarification or guidelines, while the contravention provision is Regulation 56, under which contraventions or inspection findings may attract securities law consequences.

The Securities and Exchange Ordinance, 1969 also provides tools. Section 21 supports enquiry and requires relevant persons to furnish information connected with securities transactions. Section 17 deals with fraudulent acts, manipulative conduct, false or misleading trading appearances, and similar misconduct. 

Section 24 provides punishment for contravention of Section 17, including imprisonment for a term which may extend to five years, or a fine of not less than Tk5 lakh, or both. If inquiry reveals fraud, manipulation, concealment, or deliberate misstatement, the matter should not end with delisting.

Civil liability is equally important. If investors traded relying on false disclosure, concealment, or manipulation, wrongdoers should not hide behind the corporate veil. Where fraud, diversion, or misconduct is proved, proceedings may be taken against the company, sponsors, directors, officers, auditors, or connected persons. Subject to law, due process, and proof, recovery and attachment of personal assets may be considered. Auditor accountability also deserves attention, as investors rely heavily on audited financial statements.

Bangladesh's capital market needs new listings, products, bonds, mutual funds, faster settlement, efficient IPO processing, and better foreign investor access. But these reforms will not succeed unless listed companies are prevented from misusing public trust. 

The way forward should be graded: disclose each company's real status; conduct inquiry; separate business failure from fraud; require rehabilitation, merger, acquisition, or restructuring; conduct special audit where public funds or disclosures are in question; protect minority shareholders through buyback or fair exit; take civil, criminal, and regulatory action where wrongdoing is proved; and delist only where revival is impossible, compliance has failed, and investor protection measures have been exhausted.

Delisting may sometimes be necessary. No stock exchange should carry dead companies forever. But delisting should be the final regulatory step, not the first reaction. Bangladesh's market needs cleaning — but cleaning must not mean sacrificing ordinary shareholders. The message is simple: delisting alone is not the solution. Inquiry, accountability, legal reform, and investor protection must come first.

AM Masum, barrister-at-law and fellow of the Chartered Institute of Arbitrators, is an advocate at the Supreme Court of Bangladesh (Appellate Division).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.