MP logo Meyer-Reumann & Partners
German Legal Expertise in the Middle East since 1981

Bankruptcy Law in Saudi Arabia

Hany Kenawi

Author: Hany Kenawi
Senior Lawyer.

Guiding Principle
Saudi Arabia is resolutely moving towards achieving the goals of its post-oil era plan, Vision 2030. The new Saudi leadership plans to diversify the country economy to face the challenges emerged because of the drop in the global energy prices, the main source of income for the Country. In this respect, the Saudi Government is working to replace several old laws, especially those related to the economic sector, by a more liberal package of legislation for improving the business environment in the country. The recent bankruptcy law enacted for the first time is one of the most significant of this legislation. The law, approved last February by the Saudi cabinet, aims to regulate bankruptcy procedures, including settlement and liquidation of assets and is expected to enable the competent authorities to enhance confidence in financial transactions in the Kingdom.

A. Saudi Vision 2030
On April 2016, the Saudi Cabinet approved the new plan for the transformation of the economic dependence of the state on oil to investment. The new plan, “Saudi Vision 2030”[1], is based on three pillars: First that Saudi Arabia is the heart of the Arab and Islamic worlds; the second pillar is turning Saudi Arabia into global investment powerhouse; the third pillar is transforming the location of Saudi Arabia into a global hub connecting three continents, Asia, Europe and Africa.

The Vision’s targets – by or before 2030 – to double the capacity of Saudi Arabia in transferring ARAMCO[2] into an industrial giant working around the world, transferring the Saudi Public Investment Fund (PIF)[3] into the largest sovereign wealth fund in the world, stimulating major Saudi companies into being multinational corporations.
The Vision includes reducing the bureaucratic procedures, expanding serving the electronic services. Adopting transparency by having a center measuring the performance of the government agencies.

B. The Saudi Bankruptcy Law
In line with the country’s vision, the Saudi Government started working on the replacement of several old laws, especially those related to the economic sector, by a more liberal package of legislation for improving the business environment in the country.

One of the major topics was to govern the process of bankruptcy in the Kingdom in a way that secures the ease of doing business in the Kingdom. Last February the Saudi cabinet approved the enactment of a bankruptcy law in the Kingdom for the first time. The law, which replaced the few governing articles from the longstanding commercial courts law aims to regulate bankruptcy procedures, including settlement and liquidation of assets and is expected to enable the competent authorities to enhance confidence in financial transactions in the Kingdom.

Composed of 231 articles, the law creates a balance between the interests of investors and the rights of creditors by providing systemic “remedies” to overcome financial difficulties and liquidate assets without compromising the rights of either party as indicated by the concerned authorities.

The bankruptcy law aims to regulate bankruptcy procedures such as preventive settlement, financial reorganization, liquidation, preventive settlement of small debtors, financial reorganization of small debtors, liquidation of small debtors, administrative liquidation.

To that end, the law has allocated procedures to suit the size and investments of small investors, by reducing the length of their accreditation and providing them with easy procedures, which increases the efficiency of exploiting opportunities and reduces the cost to them.

Amongst the aims of the law is to enable the insolvent debtor to resume his activity, it also takes due account of creditors’ rights and enhances confidence in the credit market and financial transactions.

Accordingly, the law prohibits any debtor from committing a number of acts – before the opening of any bankruptcy proceedings – that may prejudice the rights of any party including creditors. Specifically included are the use of reckless methods to avoid or delay the opening of liquidation proceedings, to liquidate cash, to enter into transactions without consideration or to pay unfairly, and to pay the debts of any creditors, thereby damaging other creditors.

Under the new law, any settlement proposal would be only acceptable if approved by the majority of the creditors.


[1] website: http://vision2030.gov.sa/en/node

[2] Saudi Aramco, officially the Saudi Arabian Oil Company, most popularly known just as Aramco (formerly Arabian-American Oil Company), is a Saudi Arabian national petroleum and natural gas company based in Dhahran. Saudi Aramco’s value has been estimated at anywhere between US$1.25 trillion and US$10 trillion, making it the world’s most valuable company.Saudi Aramco has both the world’s largest proven crude oil reserves, at more than 260 billion barrels (4.1×1010 m3), and largest daily oil production. Saudi Aramco owns, operates and develops all energy resources based in Saudi Arabia. According to a 2015 Forbes report, Aramco is said to be the world’s largest oil and gas company.

[3] Saudi Public Investment Fund, founded in 1971. Its main task is to invest in productive projects of a commercial nature which cannot be privately solo implemented, either due to the inexperience or inability to provide capital. The Fund turned with time into a portfolio of the State property of commercial nature. Fully owns many companies not included in the financial market, and owns majority stakes in major companies listed on the market.

Share:
For free subscription send us your contact details to Lexarabiae@meyer-reumann.com