Bankruptcy & Restructuring
Overview of the Saudi Bankruptcy Law
The Saudi Bankruptcy Law was issued pursuant to Royal Decree No. (M/50) dated 28/5/1439H, with the objective of regulating bankruptcy procedures and establishing a comprehensive legal framework to address financial distress in a manner that balances the interests of debtors and creditors while supporting the national economy.
The Law regulates seven bankruptcy procedures, namely:
- Preventive Settlement
- Financial Restructuring
- Liquidation
- Preventive Settlement for Small Debtors
- Financial Restructuring for Small Debtors
- Liquidation for Small Debtors
- Administrative Liquidation
Objectives of the Bankruptcy Procedures
These procedures share certain aspects and differ in others. Pursuant to Article Five of the Law, their objectives are as follows:
a) Enabling a bankrupt, distressed, or potentially financially troubled debtor to benefit from bankruptcy procedures in order to reorganize their financial affairs, resume their activities, and contribute to supporting and developing the economy.
b) Ensuring fair consideration of creditors’ rights and guaranteeing equitable treatment among them.
c) Maximizing the value of bankruptcy assets, ensuring their orderly sale, and guaranteeing fair distribution of the proceeds to creditors upon liquidation.
d) Reducing the cost and duration of procedures and increasing their efficiency, particularly in reorganizing the small debtor’s affairs or selling bankruptcy assets and distributing them fairly among creditors within a specified period.
e) Providing for administrative liquidation of a debtor where it is not expected that the sale of assets will generate proceeds sufficient to satisfy the expenses of liquidation or liquidation for small debtors.
Purpose of the Law and Description of the Bankruptcy Procedures
The Law aims to regulate bankruptcy procedures as stipulated in Article Two, as follows:
Preventive Settlement: A procedure aimed at facilitating the debtor’s reaching an agreement with creditors for the settlement of debts, while the debtor retains management of their business.
Financial Restructuring: A procedure aimed at facilitating the debtor’s reaching an agreement with creditors to financially restructure their business under the supervision of a financial restructuring trustee.
Liquidation: A procedure aimed at verifying creditors’ claims, selling bankruptcy assets, and distributing the proceeds to creditors under the management of a liquidation trustee.
Preventive Settlement for Small Debtors: A procedure aimed at enabling a small debtor to reach an agreement with creditors to settle debts within a reasonable period through simplified procedures characterized by low cost and high efficiency, while the debtor retains management of their business.
Financial Restructuring for Small Debtors: A procedure aimed at facilitating a small debtor’s reaching an agreement with creditors to financially restructure their business within a reasonable period through simplified procedures characterized by low cost and high efficiency, under the supervision of a trustee.
Liquidation for Small Debtors: A procedure aimed at selling bankruptcy assets and distributing the proceeds to creditors within a reasonable period through simplified procedures characterized by low cost and high efficiency, under the management of a trustee.
Administrative Liquidation: A procedure aimed at selling bankruptcy assets where it is not expected that the sale will generate proceeds sufficient to satisfy the expenses of liquidation or liquidation for small debtors, under the management of the Bankruptcy Commission.
Who Is Subject to the Law
Pursuant to Article Four of the Law, its provisions apply to:
a) Any natural person conducting commercial, professional, or profit-generating activities in the Kingdom.
b) Commercial and professional companies, regulated entities, and other profit-seeking companies and entities registered in the Kingdom.
c) Any non-Saudi investor, whether a natural or legal person, who owns assets in the Kingdom or conducts commercial, professional, or profit-generating activities through a licensed establishment in the Kingdom. Only the investor’s assets located within the Kingdom shall be subject to the Law’s procedures.
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