This presentation describes the main highlights of the draft Saudi Arabian Bankruptcy Law circulated for public consultation on 25 September 2016.

1. PRESENTATION ON THE DRAFT
SAUDI ARABIAN BANKRUPCTY LAW
DR. ZAID MAHAYNI
1
18 November 2016

2. HISTORY OF DEVELOPMENTS
2
The Ministry of Commerce
and Investment (“MoCI”)
published a policy paper
on 17 March 2015
announcing that a
bankruptcy law was under
preparation and spelling
out the main components
that it would likely
include.
At present, the legislative
framework governing
bankruptcy remains largely
underdeveloped. It is
constrained to very few
provisions in the
Commercial Court Law, as
well as to the Bankruptcy
Preventative Settlement
Law.
On 25 September 2016, the
MoCI circulated the draft
Bankruptcy Law and a
Clarification Guide.
The MoCI described the Draft Bankruptcy Law as a step taken towards the encouragement of
economic activity and the implementation of the 2020 National Transformation Plan and Vision 2030.
According to the MoCI, the Draft Bankruptcy Law’s mechanisms attempt to maximize and expedite
recoveries by creditors while safeguarding the rehabilitation/continuation of economically viable
businesses.
SIGNIFICANCE
According to MoCI, the Draft Bankruptcy Law attempts to palliate the typical challenges met by
merchants and investors.
It is yet not clear when the
Bankruptcy Law will be
enacted.

3. SCOPE OF APPLICATION – THE DEBTOR
3
Saudi registered
legal entities
Saudi individuals
engaged in a
commercial,
professional, or
lucrative activity in
Saudi Arabia
Foreign investors
(either individuals or
companies) which/who
own assets in Saudi
Arabia or which/who
conduct a commercial,
professional or lucrative
activity in Saudi Arabia
Not applicable to:
Non-merchant
natural persons

4. SCOPE OF APPLICATION – REGULATED SECTORS
4
Specialist regulators may enact
supplementary (but subordinate)
legislation governing the entities
operating under their scope of
oversight.
(e.g. The Capital Market Authority
in respect of investment firms or
the Saudi Arabian Monetary
Agency in respect of banks and
insurance companies).

5. BANKRUPTCY COMMITTEE – MOST NOTABLE POWERS
5
The creation of a register
of individuals and/or
entities which have
engaged any of the
insolvency mechanisms
The oversight of the
effectiveness of the
bankruptcy framework
The preparation of
templates for any
documents or forms
referred to the in the
Draft Bankruptcy Law
Raising public awareness
regarding the bankruptcy
framework and its
mechanisms
The creation of a list of
trustees and experts
Composed
of 5
members
-
Created by
the Council
of Ministers

6. TERMINOLOGY – TYPES OF DEBTORS
6
A person who – in
addition to having
stopped paying his
debts – has debts
that exceed all of his
assets
A person who has
stopped paying his
debts
A person who
anticipates
becoming unable to
pay his debts
‫المضطربة‬ ‫المدين‬
‫أوضاعه‬
‫ا‬‫المفلس‬ ‫لمدين‬‫المتعثر‬ ‫المدين‬
The Insolvent
Debtor
The Distressed
Debtor
The Bankrupt
Debtor

7. 7
INSOLVENCY
MECHANISMS
Preventative Settlement / Conciliation
• This process aims at reaching a settlement with
the creditors regarding the value of debts owed to
them and the maturity date.
• The day-to-day management of the business
remains with the debtor.
• The settlement proposal is voted on by creditors
(who are divided into classes) and may hence be
imposed on dissenting creditors.
Simplified processes
exist for low-value
estates
Financial
Restructuring /
Rehabilitation
• A trustee is appointed to
take over day-to-day
management of the
debtor’s business.
• The restructuring proposal
is voted on by creditors
(who are divided into
classes) and may hence be
imposed on dissenting
creditors.
• Restructuring action can
include such things as debt
rescheduling, debt write-
offs and debt-to-equity
swaps.
Liquidation
This process involves the gathering of assets, their
liquidation, and the distribution of the proceeds by a
trustee to creditors in circumstances that the company
cannot be saved.
Administrative Liquidation
This process is engaged where the pool of liquidation
assets is insufficient to settle creditor claims and cover
the costs of the liquidation process.
1st
Option
2nd
Option
Last
Resort

8. 8
Possibility to
obtain new
financing
with
preferred
ranking
Stay of
(Moratorium
on) Creditor
Claims
Right to
cancel
transactions
and claw
back assets
Restriction on
the
termination of
contracts by
the debtor’s
counterparties
Restrictions
on Set-Offs
Restrictions
on the
acceleration
of debts
RESTRICTIONS AND COURT PREROGATIVES AVAILABLE IN
SUPPORT OF THE INSOLVENCY MECHANISMS

9. CREDITOR CLAIMS RANKING
9
The Draft Bankruptcy Law articulates the following priority ranking for unsecured creditor claims:
 one month salary for the debtor’s employees;
 alimony for the debtor’s spouse, children and/or relatives, as required by law or a court judgment;
 (i) fees, charges and disbursements for the provision of goods and services required for the
debtor’s business, provided that they became due following the commencement of the liquidation
process; (ii) any dues owed by the debtor and tied to the obligations performed by this latter in his
sphere of activity; and (iii) any dues owed by the debtor and tied to the assets under liquidation;
 ancillary disbursements and costs associated with any decision taken, following the
commencement of the liquidation process, to continue the debtor’s business;
 charges and disbursements associated with any of the Draft Bankruptcy Law mechanisms engaged,
including the fees of the trustee and the fees for the preservation and liquidation of assets;
 any wages and other entitlements owed to the debtor’s employees pursuant to the Labor Law;
 any contributions (including late payment charges) due to the General Organization for Social
Insurance;
 any customs due on merchandize;
 any other debts owed to governmental authorities;
 any creditors with prioritized rights under any legislation;
 any unsecured new financing obtained by the debtor pursuant to the Draft Bankruptcy Law.
 the generality of unsecured creditors;
 unsecured creditors who have contractually agreed to subordinate their rights to those of other
unsecured creditors; and
 the shareholders of the debtor.

10. 10
Penalties and
Sanctions for
Fraudulent Actions
that Compromise
the Processes of the
Draft Bankruptcy
Law
Continuation of
trading while
there are no
reasonable
prospects of
avoiding
liquidation
Settlement of
debts owed to
a single
creditor, in a
manner that
harms other
creditors
Provision of
false accounts
or information
on behalf of
the debtor
Provision of
false or
exaggerated
creditor claims

11. 11
Thank you