- Mon - Fri: 08:00 - 21:30
Debt collection or debt recovery is the process of pursuing payments of debts owed by individuals, companies, or organizations. An organization that specializes in the recovery of debt is known as a collection agency or debt collector.
Kakakhel Law Associates Business Restructuring and Creditor Rights Practice Area represents debtors and creditors in all aspects of business restructurings, workouts, and bankruptcies. Our value proposition lies in providing top-tier expertise with a client-focused approach. The practice consists of partners and associates based in the firm's offices in Karachi, Lahore, and Islamabad.
We have extensive experience in the automotive, steel, telecommunications, basic manufacturing, retail and wholesale goods, and distressed debt trading industries. Our attorneys frequently represent clients in bankruptcy courts in Karachi, Lahore, and Islamabad and also handle cases pro hac vice in 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 (KLA) 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.
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.
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.
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:
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.
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.
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.
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:
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:
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:
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.
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.
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.
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.
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.
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.
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.
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.
But there may be times when you decide you want to seek advice from a solicitor. You should note that:
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.
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