United Law Company


Insolvency i.e., the inability to pay one’s debts as they fall due is primarily governed in Pakistan in the case of individuals under the Provincial Insolvency Act, 1920 (the “Insolvency Act”), and the Companies Ordinance, in the case of the winding up of corporate entities.

The law of personal insolvency is antiquated and dates back to 1920. Insolvency proceedings against individuals are rarely filed, as the proceedings are slow and cumbersome. Under the Insolvency Act a District Court has jurisdiction to deal with insolvency issues. The creditor or the debtor himself brings a petition to the court upon occurrence of an act of insolvency where after the court may pass an order of adjudging the debtor an insolvent called an “Order of Adjudication.” A wide variety of acts constitute acts of insolvency and include a fraudulent preference, disappearance of the debtor with the intention of delaying or defeating the payment to the creditors, sale of the property in execution of the decree of any court for the payment of money or the imprisonment in execution of a decree for the payment of money. Pending adjudication the insolvency court has the power to detain the debtor in a civil prison and order the attachment of his property.

The court may, after passing an order of adjudication, discharge the debtor. However, an order of discharge shall not release the debtor from his debts due to the government, any debt or liability incurred by means of a fraud and any liability under an order for the maintenance of his wife or children. The company law imports into the winding-up of insolvent companies the “Rules” “as are in force for the time being under the law of insolvency.” The legal status of an undischarged insolvent carries with it certain disabilities that prevent him from conducting certain businesses.

For instance, if an undischarged insolvent receives a credit of Rs.50 or more without disclosing his legal status to his creditor he shall be punishable on conviction for a term of up to six months, while a fine can also be imposed. Under the Insolvency Act an insolvent stands disqualified from being appointed or acting as a magistrate; or being elected to any office of any local authority where the appointment to such office is by election or holding any such office to which no salary is attached; and being elected or sitting or voting as a member of any local authority. These disqualifications are removed if the order of adjudication is annulled because all debts have been paid in full or if the court finds that the order should not have been passed in the first place. In addition, the company law, too, prescribes a two years imprisonment and fine for an undischarged insolvent in case he acts as a director, chief executive or a managing agent of a company. Some other laws too prescribe similar disabilities for undischarged insolvents.

You will find here a summary of the various insolvency procedures available to both companies and individuals who are experiencing financial difficulties. If your company has cash flow problems, perhaps experiencing pressure from its creditors, but with a sound business, you may wish to consider for your company

Company Voluntary Arrangement

If you are an individual with mounting debt which you are struggling to pay, but with a steady job and future income, you may wish to consider for yourself

Individual Voluntary Arrangement

If your company is solvent but would like to cease trading, perhaps because the purpose for which your company was incorporated has been achieved or you wish to retire or your company is making too many losses or there is a dispute amongst the shareholders as to future plans or simply because the company is no longer required, you may wish to consider for your company

Members’ Voluntary Liquidation

If your company is insolvent and would like to cease trading and pay its creditors as much as it can, you may wish to consider for your company

Creditors’ Voluntary Liquidation

If you or your business is insolvent and you would like to pay your creditors as much as you can, you may wish to consider for yourself


If you are a director or other person involved with the running of a company and would like to know your responsibilities as a director in an insolvency situation, you may wish to consider

Directors’ Responsibilities on Insolvency

If you are simply unsure as to any insolvency terminology or wish to know what other actions creditors may take against debtors who cannot or will not pay their debts, you may wish to consider

Terms used in Insolvency
Ancillary Actions available to Creditors

If you require any further advice, please contact United Law Company

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