BSEC wins stay as Appellate Court clears path for Mutual Fund conversion, liquidation

The Appellate Division’s Chamber Court has stayed a High Court order that had blocked the conversion or liquidation of closed-end mutual funds, effectively clearing the legal path for the process to move forward.

With the stay now in place, trustees of the affected funds may proceed with conversion or liquidation activities, according to lawyers involved in the matter.

The order was issued today (17 June) by Justice Farah Mahbub’s Chamber Court on an application filed by the Bangladesh Securities and Exchange Commission (BSEC). The court has also scheduled a hearing for June 22, when the appeal will be taken up before the full Appellate Division bench under the Chief Justice.

Meanwhile, a lawyer representing Bangladesh RACE Asset Management told The Business Standard that the company had also filed a writ petition on the issue. The matter is also scheduled to be heard on 22 June. Although it was listed for hearing today, no proceedings took place.

On 9 June, BSEC issued a fresh directive instructing trustees to move forward with the conversion or liquidation process. The order placed trustees in a difficult position, caught between the regulator’s directive and the High Court’s status quo order.

Later, on 11 June, the commission issued another letter directing trustees to continue the process excluding the interests of unit holders who had filed the writ petitions. However, the existing court order continued to create uncertainty among trustees.

Many feared that complying with BSEC’s directive could be interpreted as a violation of the court order. As a result, the Investment Corporation of Bangladesh (ICB) sought clarification from the regulator and decided not to take any action until the legal uncertainty was resolved.

Following Wednesday’s Chamber Court order, BSEC Executive Director and spokesperson Abul Kalam told TBS, “Some unit holders had obtained a status quo order from the court regarding the conversion or liquidation of closed-end mutual funds. BSEC has now secured a stay on that order. Therefore, there is no longer any obstacle for trustees to proceed with the conversion or liquidation process.”

In May 2026, BSEC introduced a regulation requiring any closed-end mutual fund trading at a discount of 25% or more to its Net Asset Value (NAV) to either convert into an open-end fund or undergo liquidation.

As part of the initiative, the commission instructed trustees on 7 May to begin preparations for conversion or liquidation from 12 May onward. However, unit holder Rashidul Islam challenged the directive in the High Court, arguing that BSEC lacked the authority to alter the tenure of existing funds.

On 24 May, the High Court issued a two-month status quo order and asked the finance secretary, BSEC chairman, managing directors of the stock exchanges, ICB and other respondents to explain why the directive should not be declared unlawful.

The court also questioned whether BSEC had the authority to compel the conversion or liquidation of funds whose tenures had previously been extended through a 2018 government notification.

Currently, 22 of the 36 listed closed-end mutual funds are trading at discounts of 25% or more to their NAV, making them subject to the new regulation.

Under BSEC’s proposed framework, conversion or liquidation requires approval from at least 75% of unit holders