With the presence of seven solutions offered by the new Saudi bankruptcy law, to regulate the situation of insolvent companies, the question arises about the reality of the goal that this law aims to! Does the new Saudi bankruptcy law seek to help and support these companies to continue their activities, or does it aim to end their commercial activities and exit them from the market?
In this article! Together, we will get acquainted with the most important and prominent features of the new Saudi bankruptcy law, which was issued by Royal Decree No. (M/50) on 28 Jumada Al-Ula 1439 AH corresponding to February 14, 2018, as attempt to define the law's goal towards insolvent companies.
A glance at the new bankruptcy system!
In cooperation with one of the largest international expert houses specializing in the field of bankruptcy, taking advantage of the most important international practices in this field, and analyzing the bankruptcy laws of (England and Wales - France - America - Germany - Czech Republic - Singapore - Japan), the new Saudi bankruptcy law was issued In eighteen chapters, and two hundred and thirty-one articles, to be applied to commercial and other non-commercial economic activities, and for grant commercial courts an exclusively competent to consider issues related to it, with the exception of criminal matters.
According to the law, the new bankruptcy law aims to several main objectives, some of which contribute to correcting the debtor's situation and continuing to carry out his business without prejudice to the rights of creditors instead of conducting liquidation, and thus the law is keen as much as possible to continue the debtor's activity.
In general, the objectives of the bankruptcy law are determined in the following objectives:
1- Addressing the shortcomings of the previous law, due to its lack of a comprehensive and integrated organization regulating the issues of bankruptcy and restructuring of economic projects.
2- Encouraging economic and investment activities and projects by creating an efficient bankruptcy system that reduces the costs associated with bankruptcy and restructuring procedures.
3- Improving the investment environment and attracting more foreign investments by providing a legal framework for bankruptcy and restructuring that emulates the best international practices.
4- Giving the defaulting debtor an opportunity to rectify his situation by reaching a settlement with creditors that preserves their rights, and enables the debtor to return to his commercial activity.
5- Enhancing confidence in the credit market and financial transactions in general by creating a legal framework that takes into account the rights of creditors.
6- Stimulating small and medium enterprises to take the initiative and engage in economic activities, by providing bankruptcy procedures commensurate with the nature of these enterprises, in addition to facilitating their access to financing from the credit market.
7- Enable the financial sector regulators to organize bankruptcy cases and restructure the establishments operating in those sectors in proportion to the sensitivity of the sector and the risks associated with it.
bankruptcy procedures!
The bankruptcy law provided for seven procedures, the first is the preventive settlement procedure, which is a procedure to facilitate the debtor’s reaching an agreement with creditors to settle his debts while the debtor retains the management of his business, and the second is the financial reorganization procedure, which is a procedure aimed at facilitating the debtor’s reaching an agreement with Creditors to the financial reorganization of its activity under the supervision of the trustee of financial reorganization.
The third procedure: relates to liquidation, which is a procedure for limiting the claims of creditors, selling the assets of the bankruptcy, and distributing its proceeds to the creditors under the management of the liquidation trustee.
While the following three procedures are related to small debtors, the fourth procedure is the preventive settlement of small debtors, which is a procedure to enable the small debtor to reach an agreement with creditors to settle his debts within a reasonable period through simple procedures at low cost and high efficiency, while the debtor maintains the management of his business.
The fifth procedure: It is represented in the financial reorganization of small debtors, which aims to reach the small debtor to an agreement with the creditors for the financial reorganization of its activity within a reasonable period through simple procedures at low cost and high efficiency, under the supervision of the trustee, and the sixth procedure is: the liquidation procedure for small debtors With the aim of selling the assets of the bankruptcy and distributing its proceeds to the creditors within a reasonable period through simple procedures at low cost and high efficiency, under the management of the trustee.
Finally, the seventh procedure: the administrative liquidation procedure, which also aims to sell the bankruptcy assets, the sale of which is not expected to result in proceeds sufficient to meet the expenses of the liquidation procedure or the liquidation procedure for small debtors, under the management of the Bankruptcy Committee
Simplified procedures for small debtors!
The law’s interest in small and medium enterprises and its keenness to motivate them to engage in economic activities has emerged by distinguishing between the bankruptcy procedures followed by small debtors from those that must be followed by large enterprises, in order to enable the small debtor to rearrange its troubled financial conditions at a low cost and high efficiency within a reasonable period And through simplified procedures, without prejudice to the rights of creditors.
According to the new bankruptcy law, the small debtors are the debtors whose debts do not exceed two million Saudi riyals. This type of debtor has the right to take the procedures stipulated in the bankruptcy system, whether it is a preventive settlement, financial reorganization, or liquidation, but according to simplified procedures commensurate with the size of the business of these debtors and their debts. The bankruptcy system included simplified models of preventive settlement procedures, financial reorganization, and liquidation; For individuals and small entities with limited assets, with the aim of reducing the duration and cost of these procedures and achieving their goals with high efficiency.