Understanding Saudi bankruptcy law, procedures

The bankruptcy law applies to any natural person practicing any commercial, professional or profit-seeking activity in the country

Image of Saudi riyal used for illustrative purpose.

Image of Saudi riyal used for illustrative purpose.

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The bankruptcy law in Saudi Arabia is one of the most important laws governing the mechanism of insolvency proceedings.

People associated with the world of business should be aware of the key aspects of the law because penalties include up to five years in prison and SR5 million ($1.3 million) in fines.

The bankruptcy law applies to any natural person practicing any commercial, professional or profit-seeking activity in the country.

The statute is also applicable to commercial and professional companies, organized entities and other companies and profit-seeking entities registered in the Kingdom.

Non-Saudi investors with a natural or legal character who own assets in the country, or carry out commercial, professional or profit-making businesses through an establishment licensed in the Kingdom are also applicable to the law.

It is important to note that only the assets of an investor in Saudi Arabia are subject to legal procedures.

If someone is going bankrupt, or they are already insolvent, there are procedures set up to regulate their financial conditions so they can resume activities.
The Saudi bankruptcy law also protects creditors’ rights. It maximizes the value and regular sale of assets as well as ensures fair distribution to creditors upon liquidation.

The legal system wants to reduce the cost and length of legal proceedings, especially when rearranging the affairs of a small debtor or selling bankruptcy assets and distributing them to creditors within a specified period.

There are several organizing bankruptcy procedures within the law.

The protective settlement procedure facilitates an agreement between the debtor and the creditors, in which the former maintains management of his or her activity.

The financial reorganization procedure facilitates the same agreement but under the supervision of a financial reorganization secretary.

Another procedure is called liquidation. This procedure counts the creditors’ claims, sells the bankruptcy assets and then distributes the proceeds to creditors under the management of a liquidation trustee.

The administrative liquidation procedure is used when assets are sold to pay debts.

The law in the Kingdom protects the rights of all parties in any commercial conflict or matter. Exploiting any bankruptcy procedure, such as exaggerating asset values or if a debtor makes an agreement that is detrimental to other creditors, will be punished.

The Public Prosecution office has the authority to investigate and prosecute criminal acts under the bankruptcy law.

Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif

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