If your company or business is in difficulty and can no longer pay its debts, closing down is no longer the only option. The Saudi Bankruptcy Law (نظام الإفلاس) offers procedures that protect the business and organise its dealings with creditors: from a settlement that protects the company while it keeps trading, to financial restructuring, to an orderly liquidation when there is no hope left. The law was issued by Royal Decree No. (M/50) dated 28/5/1439H, followed by its Implementing Regulations. Here we explain its procedures, who can use them, and when to consider them.
Bankruptcy procedures
| Procedure | Purpose | When it fits |
|---|---|---|
| Protective settlement | An agreement with creditors to settle the debts while the debtor keeps running the business | When difficulty is expected or beginning and the business can continue |
| Financial restructuring | A plan to restructure the business and its debts under the supervision of a trustee | When the business is actually in difficulty but can still be rescued |
| Liquidation | Selling the assets and distributing the proceeds to creditors in the order set by law | When there is no realistic chance of continuing |
| Small-debtor procedures | Simplified forms of settlement, restructuring and liquidation | For debtors whose debts are below the threshold set by the Implementing Regulations |
| Administrative liquidation | Liquidation handled by a competent body when assets are insufficient | When the assets do not cover the costs of an ordinary liquidation |
Who can use the law?
The law applies to individual traders, commercial and professional companies, non-Saudi investors in the specified cases, and others it names. Individuals who are not traders are covered instead by the insolvency rules in the Enforcement Law. Read about the Enforcement Law and insolvency.
What happens when a procedure is opened?
- Suspension of claims: as a rule, claims and court proceedings against the debtor are suspended for the duration of the procedure, within the limits set by law.
- Listing the debts: creditors submit their claims, which are listed and classified.
- Voting on the proposal: in a settlement or restructuring, creditors vote on the proposal by the majorities set by law.
- The trustee's role: a licensed bankruptcy trustee is appointed in the procedures that require one.
Bankruptcy applications are heard by the commercial courts. Proceedings are in Arabic, so foreign-language contracts and financial statements will need an Arabic translation. Read about the Commercial Courts Law.
Directors' liability when the business is in difficulty
In certain cases the law holds the manager and board members liable if they kept trading or dealt with the company's money in a way that harmed creditors while knowing of the difficulty, or if they delayed applying to open a procedure. Acting early therefore protects the manager as well as the company. Read about company director liability.
Frequently asked questions
Does bankruptcy mean the company closes?
Not necessarily. The purpose of a protective settlement and of financial restructuring is to keep the business going. Only liquidation ends with the business closing.
Can a creditor apply to make its debtor bankrupt?
The law allows a creditor to apply to open certain procedures, such as financial restructuring or liquidation, subject to conditions.
When should I act if my company is in difficulty?
Early. The longer the application is delayed, the fewer the options and the greater the liability on management.
Is your business in difficulty, or are you owed money by one that is?
The team at Usus Law Firm handles bankruptcy procedures for debtors and creditors as part of its commercial cases and commercial claims work, in Riyadh and Tabuk, and advises in English.
This article is general legal information and is not a substitute for advice on your specific case. Court proceedings in Saudi Arabia are in Arabic; the official Arabic text of each law prevails.
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