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Nima Heydarian

Short Guide to Pakistani Law of Insolvency

by Nima Heydarian on January 10, 2013

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The Insolvency Act 1909 is solely applicable to cases having jurisdiction in Karachi. Any cases having jurisdiction in the rest of Pakistan are governed by the Provincial Insolvency Act 1920.Under the Provincial Insolvency Act 1920 a debtor is held to commit an act of insolvency when:

  • (i) he transfers all or substantially all his property to a third person for the benefit of his creditors; or
  • (ii) he transfers all his property with the object of defeating or delaying his creditors; or
  • (iii) where it is feared that he is about to abscond from the jurisdiction, or abandons his house or place of business or otherwise secludes himself so that he cannot be approached; or
  • (iv) where any of his property is sold in execution; or
  • (v) if he petitions to be adjudged an insolvent; or, (vi) makes an announcement that he has or is about to suspend payment of his debts; or
  • (vii) if he is imprisoned in execution of any decree against him.

Insolvency is deemed to commence from date of presentation of the petition and a debtor can be imprisoned in civil prison if he does not give security for his appearance. An interim order for the attachment of his property can be passed. An order for an arrest warrant to issue against him can also be made if it is shown that the debtor is committing various acts of bad faith. It needs to be noted that an order by the Court for discharge, does not release the insolvent person from

  • (a) Any debt due to the Crown;
  • (b) any debt or liability incurred by means of any fraud or fraudulent breach of trust to which he was party;
  • (c) any debt or liability in respect of which he has obtained forbearance by any fraud;
  • (d) any liability under an order for maintenance of wife and children made under § 488 Code of Criminal Procedure.

Last but not the least, a debtor may be liable for any acts of fraud, false representations, willful failure to perform duties imposed upon him, destruction of records, keeping or causing to be kept false books, to a year’s imprisonment and this liability continues notwithstanding his discharge or the approval of any composition or scheme of arrangement. Appeals can be preferred against any order of the court from a court subordinate to a District Court to the District Court whose order is final, provided that the High Court may call for the case to satisfy itself that the order in appeal was made according to law and may make such orders with respect thereto as it may think fit. Also, in this case, a person may also appeal from an original order of the District Court, to the High Court. Appeal must be taken to District Court and to High Court within 30 and 60 days respectively.

The above guide is only a brief overview of the way the law stands currently with regards to Pakistani insolvency rules. If you are facing a similar legal matter, you should professional legal advice, bearing in mind your special circumstances.

Author: Zulfikar Khalid Maluka, Advocate Supreme Court, Maluka And Khan Legal Consultants

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