SECTION E - COLLECTION AND RECOVERY OF UNSECURED DEBT

E1. Negotiations

(a) Where a corporate borrower is in financial difficulty and an unsecured debt has become due, would it be usual or customary for an unsecured creditor (particularly, a bank creditor) and/or the corporate borrower to attempt to negotiate some suitable arrangement for repayment of the debt before the creditor invokes legal recovery methods?

Yes. Please note that unsecured debt beyond a certain limit (which is very low in quantum) is not allowed under the State Bank of Pakistan Prudential Regulations for Commercial Banks. Under these Regulations a bank is not permitted to grant an unsecured loan exceeding the amount of Pakistan Rupees One hundred only (Rs.100). This amount is equivalent to about US Dollars 1,945.

E2. Enforcement

(a) What mechanism are available under the legal system of this country for unsecured creditors to collect debts owed to them by the corporate debtor?

An unsecured creditor, a banking company, would have recourse, as discussed above, to the Banking Courts under the Banking Act, whilst an unsecured creditor which is not a banking company would have recourse byfiling a suit in the Civil Courts of Pakistan under the CPC.

(b) In practice, which method(s) of recovery of unsecured debts are most commonly employed by unsecured creditors of a corporate debtor?

Recovery through negotiation is obviously the preferred choice, but where this is not possible a banking company may institute proceedings under the Banking Act, whilst a non-banking company may file a Suit in the other Civil Courts under the CPC. This is, of course, of academic interest, because of the very small amount upto which a bank can grant unsecured loans to a customer.

E3. Effectiveness of judicial system

(a) How effective is the judicial and court system for the purposes of debt collection?

Our answer at C4(a) above appearing, applies mutatis mutandis to this question as well.

E4. Effect of insolvency proceedings

(a) What effect, if any, does the commencement of insolvency proceedings against a corporate debtor have on debt recovery proceedings?

Our answer at C5(a) above appearing, applies mutatis mutandis to this question as well.

(b) What effect, if any, does the formal pronouncement of an insolvency administration in respect of the corporate debtor have on debt recovery proceedings?

Our answer at C5 (b) above appearing applies mutatis mutandis to this question as well.