What is the bankruptcy law in Saudi Arabia, and what can a struggling company or its creditors do under it?
The bankruptcy law in Saudi Arabia is the Bankruptcy Law issued by Royal Decree No. M/50 dated 28/5/1439H. It gives debtors and creditors a court-supervised way to deal with unpaid debts: a settlement with creditors, a reorganisation of the business, or an orderly liquidation. The cases are handled by the Commercial Court, and the aim is to treat creditors fairly while giving a viable business a chance to recover.
This guide explains who the Law covers, the seven procedures it creates, who can apply, the key deadlines, and what happens to claims and assets once a case opens. It is general information, not advice on a specific case.
Is your company behind on payments, or is a debtor not paying you? You can send a short summary on WhatsApp and the Al-Safwa Law Firm team will review the facts and the stage of the matter in confidence before you take any step.
Table of Contents
Bankruptcy law in Saudi Arabia at a glance
| Procedure | Who can apply | Purpose |
|---|---|---|
| Preventive settlement | The debtor | Reach an agreement with creditors early, while the debtor keeps running the business |
| Financial reorganisation | The debtor, a creditor or the competent authority | Restructure debts and operations under a trustee and court supervision |
| Liquidation | The debtor or a creditor, within the Law’s conditions | Sell assets and distribute the proceeds to creditors |
| Small-debtor versions | Qualifying small debtors | Simpler versions of settlement, reorganisation and liquidation |
| Administrative liquidation | Under the Law and its Regulations | Closing a case where asset sales are not expected to cover the cost of liquidation |
Who is covered by the bankruptcy law in Saudi Arabia?
Article 4 sets the scope. The Law applies to:
- Natural persons who carry on commercial, professional or profit-seeking activity in the Kingdom.
- Companies and profit-seeking entities registered in the Kingdom.
- Non-Saudi investors who own assets in the Kingdom or operate through a licensed establishment. For these investors, only their assets located in the Kingdom are subject to the procedures.
Some debtors are regulated by a sector authority, such as banks, finance companies and insurers. For them, Article 3 involves the competent authority before the filing is registered, and the authority has 30 days to respond. If you run a company, a company liquidation lawyer can tell you whether your entity falls within these rules.
How does the bankruptcy law in Saudi Arabia treat foreign investors?
A non-Saudi investor is covered if the investor owns assets in the Kingdom or operates through a licensed establishment here. The key limit is territorial: only the investor’s assets located in the Kingdom are subject to the procedures. A foreign owner of a Saudi company should therefore separate two questions. What is the position of the Saudi entity under the bankruptcy law in Saudi Arabia, and what is the position of the parent company elsewhere? Our guide to commercial registration in Saudi Arabia explains how a licensed establishment is set up.
What are the seven procedures under the Saudi bankruptcy law?
Article 2 lists seven procedures: preventive settlement, financial reorganisation, liquidation, the same three procedures for small debtors, and administrative liquidation. The right path depends on how deep the financial trouble is and whether the business can continue.
Preventive settlement
Preventive settlement is the earliest option. Only the debtor can apply to the Commercial Court (Article 13). The debtor may apply if it expects financial difficulty that could lead to default, if it is already in default, or if it is already bankrupt. A debtor that used this procedure, or its small-debtor version, in the previous 12 months cannot apply again.
- The court sets a hearing within 40 days of registering the request (Article 15).
- Claims against the debtor can be stayed for up to 90 days from opening. The debtor can ask for extensions of 30 days each, but the total stay cannot exceed 180 days (Article 18).
- During the stay, no action or claim may be taken against the debtor’s assets, and an act that breaks this rule is void (Article 20).
Financial reorganisation
Financial reorganisation suits a business with deeper problems that still has a future. Under Article 42, the debtor, a creditor or the competent authority may apply. If someone other than the debtor applies, the court must notify the debtor within five days (Article 44). The court appoints a licensed trustee from the official list (Article 50), and the debtor continues to manage the business under the trustee’s supervision (Article 69).
The reorganisation proposal is put to creditors in classes. A class accepts the proposal when creditors holding two-thirds of the voting debt in that class vote in favour (Article 79). Creditors then know the plan has real support, and the court can ratify it.
Liquidation
Liquidation is the route when the business cannot continue or when other procedures fail. A trustee takes control of the assets, sells them and distributes the proceeds to creditors under the Law’s order of priority. A creditor who wants to open liquidation must meet a minimum debt value. The Bankruptcy Committee regulation leaves that amount to the Committee, so check the current figure before you file.
Small-debtor procedures and administrative liquidation
The Law provides simpler versions of the three main procedures for small debtors. Administrative liquidation applies when asset sales are not expected to cover the costs of a normal liquidation, so the case can be closed in an orderly way without spending more than the assets are worth.
Preventive settlement, reorganisation or liquidation: which one fits?
| Your situation | Usual starting point |
|---|---|
| Payments are getting late, but the business is healthy | Preventive settlement |
| Debts are heavy, but the business is viable with a restructuring plan | Financial reorganisation |
| The business cannot continue or has stopped trading | Liquidation |
| Assets would not cover liquidation costs | Administrative liquidation |
| You are a creditor and the debtor has stopped paying | Reorganisation request or liquidation request, depending on the facts |
This table is a starting guide only. The court decides whether to open a procedure, and each one has conditions in the Law. A bankruptcy lawyer can match your documents to the right procedure.
What happens to debts and claims once a case opens?
Opening a procedure changes how creditors can act:
- Claims are stayed. In preventive settlement, creditors cannot start or continue actions against the debtor’s assets during the stay. In reorganisation, claims are suspended from filing until the application is rejected, the proposal is ratified or the procedure ends earlier (Article 46).
- Debts do not become due early. Filing or opening a procedure does not accelerate due dates or payment terms under contracts (Article 22).
- Creditors file their claims. The trustee publishes the opening, and creditors submit claims within the period set by the Law. Article 56 sets a 90-day period for claims in reorganisation.
- Creditors vote. In reorganisation, creditors vote by class on the proposal.
Creditors with a court judgment or an unpaid cheque should also think about parallel routes. If you hold an enforceable judgment, an enforcement court lawyer can explain how enforcement and insolvency procedures interact. For a general debt claim, see our guide on recovering money in Saudi Arabia.
What protection does the debtor have?
The Law is not only about creditors. It also protects the debtor in limited ways:
- A debtor who is an individual may keep assets that allow a reasonable living for the debtor and dependants, as set by the court (Article 66).
- During reorganisation, the debtor keeps managing the business, but needs the trustee’s written consent for listed acts, such as taking new financing or transferring assets outside the normal course of business (Article 70).
- The stay of claims gives time to negotiate without enforcement actions.
The debtor also has duties. Hiding assets, giving inaccurate financial information or favouring one creditor can expose the debtor, and in some cases partners or managers, to consequences under the Law and other rules. Honest, complete disclosure is the safest approach.
Why timing matters under the bankruptcy law in Saudi Arabia
Most of the useful tools in the Law are time-limited. A preventive settlement hearing is set within 40 days of registering the request. The stay of claims cannot exceed 180 days. A debtor that has used preventive settlement cannot use it again for 12 months. Because of these limits, a debtor who waits until suppliers have already sued, or until assets are seized, may find that the best options are no longer practical. Creditors face the same clock: a creditor who is considering a reorganisation or liquidation request should collect the contract, invoices, notices and proof of default early.
What documents do you need to apply?
The Bankruptcy Committee issues a regulation listing the information and documents that must accompany each type of request. In general, expect to prepare:
- Company registration and authority documents, including the resolution authorising the filing
- Recent financial statements and a list of assets and liabilities
- A list of creditors with amounts, due dates and any security
- Key contracts, guarantees and pending cases
- For reorganisation, a proposal that shows how the business will pay creditors
Prepare these before you file. Prepare them before you file, because the time limits in the Law are short and the stay period is capped.
Common mistakes to avoid
- Waiting until the business has stopped. Early options such as preventive settlement are only open while there is still something to preserve.
- Applying again too soon. A debtor that used preventive settlement in the last 12 months cannot file for it again.
- Assuming the stay lasts indefinitely. It is capped at 180 days in preventive settlement.
- Hiding or rounding information. Incomplete or inaccurate disclosure to the court and the trustee can damage your case and your credibility with creditors.
- Ignoring sector approvals. Regulated entities must deal with the competent authority first.
Frequently Asked Questions about the bankruptcy law in Saudi Arabia
Which court handles bankruptcy cases in Saudi Arabia?
The Commercial Court. The Law defines the court as the Commercial Court and gives it authority to issue rulings, supervise implementation and resolve disputes arising from the procedures.
Can a creditor start a bankruptcy procedure against a debtor?
Yes, within the Law’s conditions. A creditor can apply for financial reorganisation under Article 42, and can apply for liquidation if the debt meets the minimum value set by the Bankruptcy Committee.
Does the Saudi bankruptcy law apply to individuals?
It applies to individuals who carry on commercial, professional or profit-seeking activity in the Kingdom. It also covers non-Saudi investors, but only for their assets in the Kingdom.
How long can creditors be stopped from suing during preventive settlement?
The stay can last up to 90 days from opening, with 30-day extensions at the debtor’s request, and it cannot exceed 180 days in total.
Does the debtor lose control of the business during reorganisation?
Not completely. The debtor continues to manage the business under the supervision of a trustee, and needs the trustee’s written consent for certain acts listed in the Law.
What is the difference between reorganisation and liquidation?
Reorganisation tries to keep the business alive by restructuring its debts and operations. Liquidation ends the business, sells its assets and pays creditors from the proceeds.
This guide covered the bankruptcy law in Saudi Arabia from the first filing to the creditor vote: who is covered, which of the seven procedures fits each situation, and what the key deadlines are. If you have a real debt problem, contact us through the WhatsApp button at the bottom of the screen.
Sources:
- Bankruptcy Law – Experts Commission at the Council of Ministers (Arabic)
- Executive Regulations of the Bankruptcy Law – Experts Commission (Arabic)
- Bankruptcy Law – Ministry of Justice Legal Portal (Arabic)
- Regulation of information and documents under the Bankruptcy Law – Ministry of Justice (Arabic)
A legal advisor holding a Bachelor’s degree in Law from the prestigious Cairo University. He possesses extensive experience spanning over 25 years in criminal, civil, and family law, during which he has achieved notable accomplishments that have solidified his reputation as a valuable asset to any legal team
