Dr. Ilyas Zafar


Founder & Sr. Partner

South Asia

Dr. Riaz-ul-Hassan Gilani


Senior Partner

Kingdom of Saudi Arabia

M. M. Tariq


Senior Litigator

Karachi, Pakistan

Qazi Abdul Basit


Senior Litigator

Peshawar, Pakistan

Mian Ghulam Sarwar


Senior Litigator

Islamabad, Pakistan

Javaid Iqbal Mughal


Senior Litigator

Sialkot, Pakistan

M. Naveed Sheikh


Senior Litigator

Lahore, Pakistan

Sheikh Khalid Aslam


Senior Litigator

Gujrat, Pakistan

M. Bashar Naveed


Civil Litigator

Peshawar, Pakistan

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:: Debt Recovery Law in Pakistan

Debt Recovery Law

Here you may find information about debt recovery in Pakistan. Our dedicated team of professional lawyers best assists their clients as to debt recovery issues in Pakistan.

ZA-LLP's Business Restructuring and Creditor Rights Practice Area represents debtors and creditors in all aspects of business restructurings, workouts and bankruptcies. Our value proposition for clients lies in providing "East Coast" experience and expertise at "Mid-West" hourly rates. The practice consists of partners and associates spread among the firm's Karachi, Lahore and Islamabad offices. We have extensive experience in the automotive, steel, telecommunications, basic manufacturing, retail and wholesale goods, and distress debt trading industries. Our attorneys regularly appear on behalf of clients in bankruptcy courts in Karachi, Lahore and Islamabad and pro hac vice in bankruptcy courts across Pakistan, including in Peshawar and Quetta.

The Business Restructuring and Creditor Rights Practice represents clients in virtually every aspect of complex litigation and transactional matters involving troubled and financially distressed businesses, including the acquisition and sale of assets and claims; the prosecution and defense of preference and fraudulent conveyance claims; the formation and implementation of credit policies and procedures; the structuring of loans and other financing arrangements involving debtor-in-possession financing, letters of credit, leasing and floor-planning; and the negotiation and formulation of out-of-court restructuring arrangements and reorganization plans. As necessary to achieve clients' objectives, our practice regularly draws on attorneys in the firm's Labor and Employment, Litigation and Tax Departments, and its Mergers and Acquisitions and Real Property Practices. We also support ZA-LLP’s growing International Practice, having successfully represented businesses and individuals from USA, Canada, United Kingdom, Europe, Middle East and Asia Pacific.

Taking legal action to reclaim debt should be a last resort, and often the threat is enough to make your customers pay you. However, if your usual ways of recovering debt have failed, there are things to consider before beginning the legal process. The court generally offers three processes for settling disputes depending on the amount of money involved. The small claims process - part of the civil court system - is an inexpensive and straightforward way of settling disputes over smaller amounts. Claims over Rs. 200,000 should go through either the fast track process (up to Rs. 500,000) or the multi-track process (above Rs. 1,000,000). However, a High Court judge may also refer cases involving larger sums to the small claims process - or you can request this with your debtor's agreement.

Debt Recovery Asessment

Figure: Debt Recovery Assessment

Deciding whether to make a claim

Legal action is best kept as a last resort, so you should explore all other options:

Consider some form of alternative dispute resolution, such as mediation or arbitration. Your contracts may already specify how disputes should be resolved. Resolution procedures can make it easier to control costs and are often less confrontational than court proceedings.

Debt Recovery Legal Processing

Figure: Debt Recovery Legal Proceedings

Consider taking back your goods and services, if appropriate

Mediation is a simple, cheap method of resolving disputes. It can save you time and money and can assist all parties in reaching a mutually beneficial resolution. This can help maintain the business relationship once the dispute is settled.

Remember - you're unlikely to keep a customer that you pursue through the courts. It may be better to accept a small loss and retain a large client than risk offending them.

Even if making a claim seems the only answer, you should consider your chances of winning. In many cases your claim may not be disputed. But in others, it could be difficult to prove the customer is at fault.

Make sure the customer can pay

Remember that you can't be certain of receiving the money owed - let alone any costs or expenses - if the person or company you're taking action against has no assets or a history of bad debt. Credit reference agencies should be able to give you a credit rating for the defendant and details of any unpaid court judgments.

If you win the judgment, the customer is required to pay the sum claimed. If properly claimed, they are required to pay court fees and interest as well. If they do not pay, you must be prepared to take steps to enforce the judgment.

Be prepared for the costs

Note that:

  • Court fees are payable when you issue a claim and if you have to enforce the judgment;

  • Fees are payable if you lose or do not succeed in enforcing your judgment; and

  • You may have solicitor's costs and other costs - if you win and succeed in enforcing the judgment, you may be able to claim these back from the defendant.

You will have to pay court fees in advance. However, they can be recovered from the defendant if you win. If you lose or you do not succeed in enforcing your judgment you will not be able to reclaim those costs.

Choosing the right legal route

If you decide to issue a claim, the amount of your claim will determine which court may handle it - the civil court, or the High Court.

The civil court is where most claims are issued and you should go to this first to make a claim. Civil courts deal with a range of claims, including debt recovery. Larger and more complex claims will normally be heard in the High Court.

The final warning letter / legal notice

Whichever course of legal action you choose, you must send a final warning letter in form of legal notice before you begin. Do this because: it often prompts payment or the courts may penalise you on costs if one is not sent.

Using solicitors and debt recovery agents

If your case is straightforward, you could prepare the claim, present the case and handle the enforcement on your own. Most people choose not to use solicitors in the small claims track.

But there may be times when you decide you want to seek advice from a solicitor. You should note that:

  • Legal aid is not usually available for small claims cases

  • Legal costs aren't normally recoverable

  • If your claim is for a large amount, is likely to be disputed or the case is complicated, or even if you're simply not comfortable handling it on your own, it is probably sensible to get professional help. This will usually be a solicitor or debt recovery agent.

Choosing a professional attorney

Finding a professional attorney can be a challenge, and often a personal recommendation is a good way to choose. Before you make a decision, ask the following questions:

  • Is the solicitor a sole practitioner or part of a large firm?

  • Is there a department specialising in debt recovery?

  • Does the firm have a mediator or dispute resolution service so you can consider this alternative?

  • How will you be charged - rate per hour plus expenses or a percentage of the sum recovered?

  • If they do business on a "no win, no fee" basis, are there any hidden costs? Will you have to pay court costs?

Debt recovery agents

Other organisations working in debt collection are debt recovery agents and credit agents.

Debt recovery agents employ solicitors and take legal action to recover your money.

Some credit agencies, though not all, will take over the collection of debt. They usually try to recover debt by:

  • Sending out routine letters

  • Telephoning customers

Enforcing the judgment

Unfortunately enforcing the judgment is often harder than obtaining it in the first place.

Firstly, it's worth checking that the debtor can afford to pay you. Ask the court for an order to obtain information from the judgment debtor. This orders your debtor to go to court for questioning under oath about their finances. Once you know your debtor's circumstances, you can decide whether it's worth applying to the court for one of the following enforcement actions.

A warrant of execution

This allows court bailiffs to take goods from your debtor's home or business, although there are safeguards in place and certain goods cannot be taken. After a holding period the goods or assets will be sold at auction. Fees and expenses will be taken from the proceeds and you will be given the remainder.

Attachment of earnings order

This usually applies to an individual person in employment, but it can apply to private pensions too. The employer is ordered to make deductions from the person's wages or salary.

Third-party debt order

This is where the court orders a freeze on money held by a person, institution or organisation, which might otherwise be paid to a defendant against whom you have a judgment. Thus the holder is the third party and they will prevent withdrawal of the money until the court decides whether all or part of it should be paid to you.

Charging order

The court places a "charge" on the debtor's property, equivalent to the amount you are owed. The property could be a house, stocks or shares, or money. A charging order does not oblige the debtor to sell their property, but if they do, they must pay you before they can take the rest of the proceeds.

Receiver for an equitable execution

If you believe that you can't recover your debt using the methods above, you can apply to the court to approve a receiver - who you have selected - to conduct an equitable execution. This involves the receiver collecting money which the debtor is owed, e.g. rent, in order to repay you. You should seek legal advice before applying for a receiver to determine whether it's the most appropriate course of action for your business.

Winding up or bankruptcy

If the customer is insolvent, as a last resort you can apply for a bankruptcy or winding-up petition, to stop the business from functioning.

Winding up and bankruptcy petitions

Most suppliers, investors and staff try to get their money by issuing a claim. But you can issue a winding up petition or a bankruptcy petition instead.

Winding up and bankruptcy are also ways of enforcing judgment after a claim has been won, in an effort to actually get your money. However, unpaid tax and wages take priority over other debts for any of the debtor's available funds.

How winding up works

  • It applies to a company rather than an individual.

  • After the winding up the company ceases to exist.

  • If the company is insolvent at the time, not all the creditors get paid in full.

  • Rules apply and each creditor gets a percentage of what they are owed.

How bankruptcy works

  • Bankruptcy applies to a person or a general partnership. If it is a general partnership, all the partners are made bankrupt.

  • The assets are sold and the proceeds are paid to the unpaid creditors.

  • Each creditor gets a percentage of what they are owed.

The threat and how it works

Often the mere threat of winding up or bankruptcy is very effective. But if the customer still refuses to pay you might consider the following steps:

  • A statutory demand, from a legal stationer or solicitor, must be delivered to the customer, preferably by hand.

  • On receipt, the customer has a fixed number of days to pay or respond.

  • If they do not do so, you can issue a winding up petition or bankruptcy petition.

  • If you are right and follow all procedures correctly, the customer will be wound up or made bankrupt.

  • But just because you issue the petition does not mean you get priority over whatever money becomes available.

  • You should seek legal advice before you act, and you should only act if the money is definitely owing.

You have to pay fees to bring an action and the court will add these to the amount owed. However, this is no guarantee you'll be reimbursed.

As a last resort, if the amount you're owed is more than Rs. 200,000, you can apply to make an individual debtor bankrupt, or issue insolvency proceedings if the debtor is a limited company. Such proceedings can be costly.

Appointing a liquidator or trustee

Where a company is put into liquidation or a person is made bankrupt, you may have to appoint a licensed liquidator or trustee in bankruptcy.

Insolvency practitioners charge fees to the money recovered and you may have to guarantee these fees if the money recovered is not enough.

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