Bankruptcy procedures in Saudi Arabia are governed by the “Bankruptcy Law,” issued under Royal Decree No. (M/50) dated 28/5/1439H. The law aims to regulate all types of bankruptcy proceedings and provides solutions for restructuring or liquidation. Below is a detailed explanation of the primary procedures outlined in the Saudi Bankruptcy Law:

Filing for Bankruptcy

. Eligible Parties to File a Bankruptcy Request

• Debtor: An individual or company facing severe financial distress and seeking to initiate bankruptcy proceedings.
• Creditor: An individual or entity with outstanding financial claims against the debtor, believing the debtor is unable to repay.
• Government Entities: Certain government bodies may also file a request if circumstances warrant it.

B. Competent Court

• Commercial Court: Bankruptcy requests are submitted to the competent commercial court based on the debtor's location.

Types of Bankruptcy Procedures

. Protective Settlement Procedure

• Definition: This procedure allows the debtor to reach a settlement with creditors under the court's supervision without entering into full bankruptcy.
• Requirements: The debtor must submit a protective settlement plan approved by the court and creditors.

B. Financial Reorganization Procedure

• Definition: Aims to enable the debtor to restructure financial operations under the court and creditors' supervision to continue business operations.
• Requirements: A financial reorganization plan must be presented and approved by the court and creditors.

C. Liquidation Procedure

• Definition: Focuses on liquidating the debtor's assets and distributing the proceeds among creditors.
• Requirements: A liquidation trustee is appointed by the court to manage the liquidation process.

Submission of Required Documents

. Documents Required from the Debtor

• Financial Report: Includes a list of the debtor’s assets, liabilities, and obligations to creditors.
• Financial Plan: Either a protective settlement plan or a financial reorganization plan.
• Declarations: The debtor’s statement of their financial status and commitment to cooperate with the court and trustee.

B. Documents Required from Creditors

• Debt Evidence: Documentation proving financial claims against the debtor.
• Formal Claims: Official submission of claims according to the court's prescribed procedures.

Appointment of the Trustee

. Trustee Selection

• Court Appointment: The court appoints a trustee to oversee the bankruptcy procedures, either from the approved list of trustees or as recommended by the parties involved.

B. Role of the Trustee

• Supervision: Overseeing bankruptcy procedures and ensuring they are conducted according to the law.
• Reports: Submitting regular reports to the court on the debtor's status and progress of the procedures.

Creditors’ Meetings

. Meeting Procedures

• Meeting Invitations: The trustee invites creditors to meetings to discuss settlement or financial reorganization plans.
• Voting: Creditors vote on the proposed plans, requiring a certain percentage of approval depending on the procedure type.

B. Plan Approval

• Judicial Confirmation: After creditors’ approval, the court confirms the submitted plan, making it legally binding.

Plan Execution

. Implementation Monitoring

• Role of the Trustee: The trustee monitors the execution of the settlement or financial reorganization plan, ensuring the debtor adheres to it.
• Periodic Reports: Regular reports are submitted to the court on the plan’s implementation progress.

B. Amendments and Additions

• Plan Modification: The plan can be modified with creditors’ consent and judicial approval if necessary.

Liquidation Procedures

. Managing Liquidation

• Asset Evaluation: The trustee evaluates the debtor’s assets.
• Asset Sale: Assets are sold in a manner that maximizes value to distribute proceeds to creditors.

B. Distribution of Proceeds

• Priority: Proceeds are distributed to creditors according to the priority established in the law.
• Judicial Supervision: The court supervises the distribution process to ensure transparency and fairness.

Conclusion of Procedures

. Case Closure

• Final Reports: The trustee submits final reports to the court on the plan's execution or liquidation.
• Judicial Decision: The court issues a decision to close the case after verifying the completion of all procedures.

B. Legal Implications

• Lifting of Procedures: All legal measures associated with bankruptcy are lifted.
• Restoration of Rights: The debtor regains legal rights following the case closure.

Bankruptcy procedures in Saudi Arabia are part of effective cash flow management , aiming to regulate bankruptcy cases systematically and transparently, ensuring the rights of all involved parties. The law provides opportunities for debtors to recover financially through protective settlements or financial reorganization. If recovery is not possible, assets are liquidated and distributed among creditors. These procedures ensure a fair and just process for both the debtor and creditors, under the supervision of the judiciary and accredited trustees.

If there are doubts regarding the collectibility of certain debts, debt write-off procedures can be initiated, contributing to better cash management and reducing the risks of financial manipulation related to uncollectible debts.