New Saudi bankruptcy law 'tries to find balance' between investor and creditor interest

Saudi Arabia's new bankruptcy law is expected to be implemented in late August
The Saudi bankrupty law will offer protection to creditors and embattled companies seeking to conduct their affairs without fear of asset seizure.
By Bernd Debusmann Jr
Mon 16 Jul 2018 09:24 AM

Saudi Arabia’s new bankruptcy law will come into effect in late August, according to officials, in a move that experts say will help attract foreign and domestic investment in private businesses.

According to local media reports, the law includes 231 clauses distributed across 17 chapters designed to outline bankruptcy proceedings, and will offer protection to creditors and embattled companies seeking to conduct their affairs without fear of asset seizure.

In a written legal note posted online, Dario Najm, an associate in the corporate and M&A practice of Ahmad bin Hezeem & Associates in Saudi Arabia, said that the law “tries to find the perfect balance between the interests of investors and creditors and allows indebted corporations to maintain their operations while gradually settling their debts.”

“This introduced process will encourage corporations to fulfil their obligations and reorganise their financials with the aim of retaining their business operations,” he added.

Additionally, Najm noted that the bankruptcy law will give Saudi Arabia a legal infrastructure to efficiently deal with companies that are facing financial difficulties, and will benefit both creditors and debtors by allowing them to enter into agreements on debt payment schedules, reducing the cost and time commitment needed for bankruptcy procedures, and encouraging SMEs to invest in the commercial market.

The law is applicable to any person practicing commercial, professional or profitable activities in Saudi Arabia, as well as any Saudi-registered companies or foreign investors that own assets in the kingdom through a Saudi-licensed entity.

When implemented, the law will be the sole regulation covering bankruptcy, effectively replacing previous rules passed in 1996.

Najm added that the law – which is expected to come into effect on the 18th - will have a positive effect on the wider Saudi economy.

“Although the first draft of the bankruptcy law was introduced in 2016 and has been under study for almost two years, the long consultations ended up the favour of both the investors and the creditors as the end product drafted by the legislator emulates those used in developed and industrial countries,” he said.

Najm added that “this move will be entertained by most economists, SMEs and start-ups as they as they will look forward to investing in the KSA, knowing that there’s a slight risk of losing their companies in case of bankruptcy.”

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Last Updated: Mon 16 Jul 2018 10:50 AM GST

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