Bankruptcy Procedures in the Kingdom of Saudi Arabia are governed by the “Bankruptcy Law” issued by Royal Decree No. (M/50) dated 28/5/1439H. This law aims to regulate all types of Bankruptcy Procedures and provide solutions for restructuring or liquidation. Below is a detailed explanation of the core procedures outlined in the Saudi Bankruptcy Law:

Filing for Bankruptcy

A. Parties Entitled to File

• Debtor: An individual or company facing financial hardship and seeking to initiate Bankruptcy Procedures.

• Creditor: An individual or entity with financial claims against the debtor and believes the debtor is unable to pay.

• Government Agencies: Certain governmental bodies may file if circumstances require.

B. Competent Court

• Commercial Court: The bankruptcy application must be submitted to the competent Commercial Court based on the debtor’s location.

Types of Bankruptcy Procedures

A. Preventive Settlement Procedure

• Definition: Aimed at enabling the debtor to reach a settlement with creditors under court supervision, without declaring full bankruptcy.

• Requirements: The debtor must submit a preventive settlement plan approved by both the court and creditors.

B. Financial Reorganization Procedure

• Definition: Enables the debtor to restructure financial operations under court and creditor supervision, with the goal of business continuity.

• Requirements: A financial reorganization plan must be submitted and approved by the court and creditors.

C. Liquidation Procedure

• Definition: Focuses on liquidating the debtor’s assets and distributing proceeds to creditors.

• Requirements: The court appoints a trustee to manage the liquidation process.

Submission of Required Documents

A. From the Debtor

• Financial Report: Includes a list of the debtor’s assets, liabilities, and creditor obligations.

• Financial Plan: Either a preventive settlement or financial reorganization plan.

• Declarations: The debtor must declare their financial status and pledge cooperation with the court and trustee.

B. From the Creditors

• Proof of Debt: Submission of documents validating financial claims against the debtor.

• Official Claims: Claims must be submitted according to court-designated procedures.

Appointment of Trustee

A. Selection of Trustee

• Court Appointment: The court appoints a trustee to oversee Bankruptcy Procedures, selected from an approved list or nominated by the parties.

B. Role of Trustee

• Supervision: Overseeing the implementation of Bankruptcy Procedures as per the law.

• Reports: Submitting regular reports to the court on the debtor’s status and procedural progress.

Creditor Meetings

A. Meeting Procedures

• Meeting Invitations: The trustee invites creditors to discuss preventive settlement or financial reorganization plans.

• Voting: Creditors vote on the proposed plans, with required approval thresholds depending on the type of procedure.

B. Plan Approval

• Judicial Endorsement: Once approved by creditors, the court endorses the plan, making it binding.

Implementation of the Plan

A. Monitoring Implementation

• Trustee’s Role: The trustee monitors the implementation of the plan and ensures the debtor’s compliance.

• Progress Reports: Regular updates are submitted to the court.

B. Amendments and Additions

• Plan Amendments: Plans may be revised with creditor and court approval if necessary.

Liquidation Process

A. Managing the Liquidation

• Asset Evaluation: The trustee evaluates the debtor’s assets.

• Asset Sale: Assets are sold in a way that ensures optimal value distribution to creditors.

B. Distribution of Proceeds

• Priority Order: Proceeds are distributed to creditors according to legal priority.

• Judicial Oversight: The court oversees the process to ensure fairness and transparency.

Conclusion of Bankruptcy Procedures

A. Case Closure

• Final Reports: The trustee submits final reports confirming plan execution or liquidation.

• Court Decision: The court issues a decision to close the case after verifying that all Bankruptcy Procedures have been completed.

B. Legal Consequences

• Lifting Measures: All legal measures related to bankruptcy are lifted.

• Rights Restoration: The debtor regains legal rights upon case closure.

Summary

Bankruptcy Procedures in Saudi Arabia are part of effective cash flow management and aim to regulate insolvency cases in a structured and transparent manner, ensuring the rights of all parties involved. The law offers debtors the chance for financial recovery through preventive settlement or financial reorganization. If recovery is not feasible, asset liquidation and distribution follow. These Bankruptcy Procedures ensure fairness under judicial and trustee supervision.

Moreover, in cases of doubtful debts, debt write-off procedures can be initiated, helping enhance cash flow management and reduce the risk of financial statement manipulation caused by uncollected debts.