Recovery proceedings brought by a financial institution are not ordinary litigation. They run under a specialised, expedited procedure in which a borrower has no automatic right to defend — leave must be obtained, on affidavit, within a short period.

Borrowers who treat a Banking Court summons like an ordinary civil suit lose before the merits are ever examined. That is the single most important thing to know.

Leave to defend, and the deadline

Under the Financial Institutions (Recovery of Finances) Ordinance 2001, a defendant served with a summons must apply for leave to defend within the period prescribed, supported by an affidavit.

The application must do real work. It should:

  • Answer the plaintiff's claim specifically — not with a general denial
  • State the substantial questions of law or fact said to arise
  • Set out the borrower's own figures and where they diverge from the bank's
  • Deal with each facility, each disbursement and each repayment relied on
  • Annex the supporting documents

If leave is refused, the court may proceed to decree. That is why the affidavit is the case, and why it must be prepared properly rather than filed to buy time.

The deadline is short and strictly applied. If you have been served, take advice the same week.

Defences that are actually run

The account statement is wrong. Banks claim on a statement of account. Excessive or incorrectly applied markup, charges not provided for in the facility, wrongly applied recoveries, and arithmetical errors all appear more often than borrowers expect. Reconcile independently.

The facility terms were not as pleaded — the rate, the tenor, or the security.

Payments not credited, or credited to the wrong facility.

The security was not validly created, or does not cover what is claimed.

Guarantor liability — whether the guarantee was validly executed, whether it covers this facility, and whether it was discharged by a variation made without the guarantor's consent.

Restructuring or forbearance agreed and not honoured, particularly where the bank continued to accept payments on a revised basis.

Limitation, in appropriate cases.

Note what is not a defence: that business conditions were difficult, that the borrower intends to pay, or that the property is worth more than the debt. Those matter commercially and may support a settlement, but they will not obtain leave to defend.

Talk to the bank in parallel

Litigation and negotiation are not alternatives here. Banks generally prefer a performing restructured facility to a forced sale, which realises less and takes longer.

Approach it with a proposal that is actually deliverable: a realistic schedule, a lump sum where one can be raised, additional or substituted security, or a voluntary sale of the mortgaged property at market value rather than a distressed auction.

Where the borrower can bring a credible buyer, a negotiated sale usually produces a materially better outcome than an auction, and banks know it.

Get any agreement in writing, executed. Oral forbearance is regularly denied later.

Stopping or challenging a sale

Where the bank proceeds to sell mortgaged property, the points that arise include whether the procedure and notice requirements were followed, whether the valuation was proper, and whether the sale process was conducted fairly.

Act before the sale. Challenging a completed sale, particularly once a third-party purchaser has acquired an interest, is far harder than restraining the process while it is under way.

Guarantors and directors

Personal guarantees given by directors and family members are enforced routinely, and guarantors are frequently sued alongside the borrower.

If you have guaranteed a facility, obtain a copy of the guarantee and the facility documents now rather than after a summons. The scope of the guarantee — whether it is limited in amount or in time, and whether it extends to renewed or enhanced facilities — determines your exposure.

See also when a company that owes you money collapses for the position where the borrower is a company.

Practical advice

Do not ignore the summons. The procedure moves quickly and by design.

Reconcile the account independently before conceding the amount claimed.

Gather the documents: facility letters, sanction advices, security documents, guarantees, statements, and all correspondence about restructuring.

Do not make ad hoc payments without advice on how they will be applied.

Do not transfer the mortgaged property or other assets once proceedings are in prospect. It will be challenged and it damages your position.

How the firm can help

We act for borrowers and guarantors in Banking Court proceedings: preparing leave to defend applications and the supporting affidavit, challenging account statements and the validity of security, defending guarantee claims, and restraining defective sale processes.

We also negotiate restructuring and settlement with financial institutions alongside the proceedings, which is frequently where these matters actually end.

Because the firm also acts for lenders, we know how these claims are built — see banking and finance.

The deadline for leave to defend is short. If you have been served, contact the firm or telephone the chambers immediately.