Understanding proposed Rescue, Rehabilitation and Insolvency Law

SRI Lanka has long recognised the need to modernise its insolvency framework, yet meaningful reform has remained in the pipeline for years.

- By Ali Sabry PC

The proposed Rescue, Rehabilitation and Insolvency (Corporate and Personal) Law now represents a significant step forward. It is not merely another statute, but a structural recalibration of how the country approaches financial distress. At a time when businesses, financial institutions and individuals continue to navigate the aftereffects of economic turbulence, this legislation signals an effort to move from a system focused primarily on enforcement and liquidation towards one that seeks rehabilitation, continuity and long-term economic stability.

Sri Lanka’s commercial legal landscape may soon witness one of its most significant structural reforms in decades. After years of discussion within legal, financial and policy circles, the proposed law has finally moved forward in legislative form. For many practitioners, bankers and economists, this development represents a long-awaited attempt to modernise how the country deals with financial distress in an increasingly complex economic environment.

In the aftermath of economic restructuring efforts that tested the resilience of businesses and individuals alike, the need for a modern insolvency framework has been widely recognised. The proposed law signals a shift in philosophy, moving away from a system largely centred on enforcement and liquidation towards one that seeks to balance creditor recovery with rehabilitation, economic continuity and institutional stability.

Sri Lanka’s existing insolvency framework is rooted in older legal concepts that were not designed for today’s interconnected financial system. Over the years, professionals across the legal and financial sectors have pointed out that outdated procedures often led to premature closures of viable enterprises, prolonged litigation, and uncertainty for creditors and debtors alike.