Saudi bankruptcy law offers comprehensive procedures for businesses facing financial distress, aiming to protect creditors while allowing debtors a chance at economic recovery.
1. Preventive Settlement:
This procedure enables a debtor to reach an agreement with creditors to settle debts without full court supervision.
Conditions for filing a Preventive Settlement application:
- The debtor must be in financial distress or anticipate it.
- The application must be submitted before actual bankruptcy occurs.
- The debtor must not have a final court judgment for liquidation against them.
Stages of the procedure:
- Submitting the application electronically via the “Ifllas” platform.
- The court appoints a trustee.
- Creditors are invited to a meeting to vote on the proposed plan.
- The plan is approved and implemented.
2. Financial Reorganization:
This procedure aims to restructure a debtor’s debts under judicial supervision with a trustee appointed by the court.
Application procedures:
- The debtor must be insolvent or in a state of bankruptcy.
- Financial statements and supporting documents must be submitted.
- The court appoints a reorganization trustee.
- A reorganization plan is presented to the creditors’ committee.
Advantages of this procedure:
- Suspension of claims.
- Possibility of modifying executory contracts.
- Protection of the debtor’s assets.
3. Liquidation:
Liquidation is the final procedure involving the sale of the debtor’s assets and the distribution of proceeds to creditors.
Conditions for a creditor to file a liquidation application:
- The creditor must prove that the debtor is bankrupt or insolvent.
- The debt must be due and undisputed.
- The creditor must provide evidence of unsuccessful attempts to collect the debt.
Steps of the procedure:
- A judicial liquidator is appointed.
- The opening of liquidation is announced.
- Assets are inventoried.
- Assets are sold through auction or negotiation.
- Proceeds are distributed based on debt priority.
Bankruptcy Procedures for Small Debtors:
1. Preventive Settlement for Small Debtors This is a simplified version of the preventive settlement, requiring:
- The debtor’s debts do not exceed a specific limit (set by the regulation).
- Submission of a simplified plan and approval by a simple majority of creditors.
2. Financial Reorganization for Small Debtors This is similar to the regular procedure but with simplified processes and faster litigation. Creditors can only object for material reasons.
3. Liquidation for Small Debtors This involves selling assets within a short period without complex procedures.
Key benefits of these procedures:
- Reduced litigation costs.
- Protection of both parties’ rights in a flexible business environment.
- Encouraging entrepreneurship and reducing commercial risks.
4. Administrative Liquidation in Saudi Law:
This is a special procedure used when a debtor’s assets are insufficient to cover the costs of the regular legal procedures.
Key features of Administrative Liquidation:
- The court issues a judgment to cancel the remaining procedures.
- The Bankruptcy Committee directly handles the case without appointing a liquidator.
- It is used for simple or economically unviable bankruptcy cases.
