(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?

 

Please note that unsecured debt is not allowed under SBP regulations. However, in the event of financial difficulty of a corporate borrower it would be customary for an unsecured creditor to seek an out of court settlement prior to taking recourse to the courts.

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

 

An unsecured creditor may file a suit for recovery under the civil law and obtain a decree for recovery which may include a garnishee order under Section 46A of the Civil Procedure Code. An unsecured creditor may also initiate winding up proceedings under the Companies Ordinance.

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

 

Unsecured creditors mostly take resort to civil suits.

E3. Effectiveness of judicial system

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

 

The judicial system is generally very slow.

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

 

Upon presentation of petition for winding up the Court may upon an application by the company, or a creditor or contributory stay further proceedings in any suit or proceeding against the company (Sec.313). In the absence of such order the proceedings continue.

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

 

Once a winding up order is made or provisional manager appointed no proceedings can be commenced or proceeded with against the corporate debtor without leave of the Court and subject to such terms as the Court may impose and any pending proceedings may be transferred to the Court which has passed the order for winding up (Sec.316).