The Insolvency Act in Pakistan 2016, also known as the Insolvency and Bankruptcy Code, is a federal law in Pakistan that governs the process of insolvency and bankruptcy for individuals, companies, and other legal entities. The Act provides a framework for the resolution of insolvency and bankruptcy cases in an efficient and time-bound manner. It also establishes the Insolvency and Bankruptcy Board of Pakistan (IBBP), which is responsible for overseeing the implementation of the Act, and the National Company Law Tribunal (NCLT), which is the court responsible for hearing insolvency and bankruptcy cases.
The Insolvency Act in Pakistan 2016 was passed by the National Assembly of Pakistan in 2016, and it came into effect on May 28, 2018. The Act replaces the previous laws governing insolvency and bankruptcy in Pakistan, which were scattered across various laws, including the Companies Act 1913, the Banking Companies Ordinance 1962, Insolvency Act 1920, and the Sick Industrial Companies (Special Provisions) Act 1985. The new Act aims to address the issue of non-performing loans and help businesses and individuals to restructure their debts and revive their businesses in a timely manner.
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Purpose of the Insolvency Act in Pakistan
The Insolvency Act in Pakistan 2016 was enacted to provide a comprehensive framework for the resolution of insolvency and bankruptcy cases in Pakistan. The Act aims to achieve the following objectives:
- To provide a time-bound process for the resolution of insolvency and bankruptcy cases
- To ensure that the assets of the debtor are efficiently utilized for the benefit of all stakeholders
- To provide a fair and transparent process for the resolution of insolvency and bankruptcy cases
- To ensure that the debtor’s business is revived and restructured if viable To provide a mechanism for the recovery of debts
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Key Features of the Insolvency Act in Pakistan
The Insolvency Act 2016 has several key features that make it a comprehensive framework for the resolution of insolvency and bankruptcy cases in Pakistan. Some of the key features of the Act are:
- The Act applies to both individuals and legal entities, including companies, partnerships, trusts, and societies
- The Act provides for two types of insolvency proceedings: insolvency resolution and bankruptcy The Act establishes the Insolvency and Bankruptcy Board of Pakistan (IBBP), which is responsible for overseeing the implementation of the Act
- The Act establishes the National Company Law Tribunal (NCLT), which is the court responsible for hearing insolvency and bankruptcy cases
- The Act provides for a time-bound process for the resolution of insolvency and bankruptcy cases, with a maximum of 180 days for insolvency resolution and 90 days for bankruptcy
- The Act provides for a fair and transparent process for the resolution of insolvency and bankruptcy cases, with the rights of all stakeholders protected
- The Act provides for the recovery of debts, with the assets of the debtor being used to pay off creditors.
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Insolvency Resolution in Pakistan
Insolvency resolution is the process by which a debtor’s assets are used to pay off creditors and the debtor’s business is revived and restructured, if viable. Under the Insolvency Act 2016, the following are the key steps in the insolvency resolution process: Filing of an insolvency petition: A debtor or a creditor can file an insolvency petition with the National Company Law Tribunal (NCLT)
- Appointment of an interim insolvency professional: The NCLT will appoint an interim insolvency professional to manage the debtor’s assets.
- Creditor’s meeting: The interim insolvency professional will convene a meeting of creditors to approve a resolution plan Approval of a resolution plan: A resolution plan is a plan for the revival and restructuring of the debtor’s business and for the payment of creditors. The resolution plan must be approved by the creditors with at least 75% of the voting shares
- Implementation of the resolution plan: If a resolution plan is approved, the interim insolvency professional will implement the plan
- Liquidation: If a resolution plan is not approved, or if the debtor’s business is not viable, the NCLT will order the liquidation of the debtor’s assets, and the proceeds will be used to pay off creditors
Punishment and Remedies According to Insolvency Act in Pakistan:
The Insolvency Act 2016 provides for several forms of punishment and remedies for those who violate the provisions of the Act. Some of the key punishment and remedies provided by the Act are:
Fine and imprisonment:
The Act provides for fines and imprisonment for those who violate the provisions of the Act, such as failure to disclose assets or providing false information
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Disqualification from being a director:
The Act provides for disqualification from being a director for those who violate the provisions of the Act Bar from filing a resolution plan: The Act provides for a bar from filing a resolution plan for those who violate the provisions of the Act
Bar from being an insolvency professional:
The Act provides for a bar from being an insolvency professional for those who violate the provisions of the Act
Recovery of assets:
The Act provides for the recovery of assets from those who violate the provisions of the Act
