The Appellate Division of the Supreme Court of Bangladesh has issued a stay order on the previous High Court ruling in a writ petition filed by a foreign investor against the Bangladeshi securities regulator.
"Chamber bench of Justice Hasan Foez Siddique today [Thursday] issued a stay order on the High Court issued rule. A full bench of the Appellate Division will hear the matter on December 9," said Barrister Imtiaz Farooq, a lawyer representing the respondent of the writ.
UK-based investment firm City of London Investment Management (CLIM), as a unitholder of the EBL First Mutual Fund, filed the writ petition against the Bangladesh Securities Exchange Commission (BSEC) on October for allowing listed mutual funds to run for an additional 10 years without ensuring the opinion of majority unitholders as suggested in the mutual fund rules and the fund's prospectus.
Following the case, the High Court bench of Justice Moyeenul Islam Chowdhury and Justice Khandaker Diliruzzaman had issued a ruling calling upon the respondents to show cause on why the decision should not be declared unlawful.
The show cause notice also asked why the respondents should not be ordered to liquidate the closed-end fund and distribute all the proceeds among its unitholders.
The court also ordered the concerned asset manager not to take any asset management fee until the ruling is disposed of.
The Investment Corporation of Bangladesh (ICB), as the trustee of the fund, and Bangladesh Race Management Private Company Ltd, as the asset manager of the fund, had also been included among the respondents.
The certified copy of the order was issued on November 13.
According to the writ petition, the securities regulator failed to ensure compliance with the relevant securities law and the prospectus of the fund while allowing the fund to extend its tenure.
It mentioned that, rule 50B of the Bangladesh Securities and Exchange Commission (Mutual Fund) Rules 2001 dictates that the life extension of the fund is subject to a consent from owners of three-fourths of the units.
On the other hand, the prospectus of the fund declared a tenure of 10 years before its units were to be offered to the public.
Investors put their money into mutual funds with a hope to get their money back in time.
However, in September 2018, following a finance ministry recommendation to allow tenure extension of closed-end mutual funds scheduled to go off or convert into open-end ones within 2023, the BSEC said the funds may extend for another term for the same period, and the total tenure of any fund cannot exceed an aggregated life of 20 years.
But as it did not mention anything regarding unitholders' opinion before that, asset managers took the opportunity for extension just before their funds approached maturity.
Prior to the September 2018 order, the BSEC had fought and won a legal battle in the Supreme Court to uphold its strong regulatory stance for timely liquidation or conversion of closed-end mutual funds.
But the unexpected U-turn, for the sake of retaining the funds' money in the market, damaged the confidence of mutual fund investors, as they are forced to wait for another term to get their money back.
If investors are not ready to wait until the deferred maturity of the funds, they have to sell the units at a significantly lower price compared to the assets within the mutual funds.
Listed mutual funds are already trading at prices 43-44 percent lower than the average present value of their portfolio assets.