(Nov. 2, 2017) On September 21, 2017, the Saudi Minister of Commerce and Investment, Majid al-Qasabi, announced that the Ministry had referred to the Shura Council (a 150-member legislative advisory body to the King that proposes new legislation and amends existing laws) a bill governing the bankruptcy of corporations. The bill is expected to be implemented by the end of the first quarter of 2018. The purpose of the bill is to attract foreign investors and encourage small and medium corporations to grow financially. (Saudi Arabia Grants License to Top Global Firms, AL-ARABIYA (Sept. 21, 2017; Majlis Al-Shura (Consultative Council), Royal Embassy of Saudi Arabia (Washington, D.C.) website) (last visited Oct. 30, 2017).)
Content of the Bill
The bill consists of 18 chapters and 320 articles. Its main goal is to provide for the operation of indebted corporations while they gradually pay off their debts. The bill allows creditors and debtors to enter into agreements to schedule the payment of debts, a measure that will enable indebted corporations to achieve a stable financial status. (Bankruptcy System Bill (last updated Mar. 1, 2017), Ministry of Commerce and Investment website (in Arabic).)
The bill addresses three vital concepts of the bankruptcy process: preventive settlement proposals; reorganization, and liquidation. (Id.) With regard to preventive settlement, article 11 of the bill states that the indebted corporation may request a preventive settlement from the court under two conditions: 1) the corporation has declared bankruptcy or failed to pay its debts; or 2) the corporation expects future financial and economic difficulties that will lead to the default of its debts. (Id.) Article 12 stipulates that the indebted corporation is not allowed to request preventive settlement if it has already requested a reorganization or liquidation. Moreover, under article 39, the court may approve a preventive settlement proposal submitted by the indebted corporation if the proposed settlement was approved by creditors representing more than half of the corporation’s debts. (Id.)
Concerning reorganization and liquidation, according to article 40, if the majority of the creditors disapprove the proposed preventive settlement, the indebted corporation has the right to request from the court a reorganization or liquidation. (Id.) Article 57 stipulates that the court has a legal right to review the corporation’s request and decide whether to approve it or dismiss it. (Id.) Article 97 indicates that the court is authorized to initiate the liquidation of the indebted corporation in one of two situations: 1) if the corporation has declared bankruptcy by failing to pay its debts; or 2) when the court has rejected the indebted corporation’s request for reorganization. (Id.)
Reaction to the Bill
The Ministry of Commerce and Investment has published the bill on the its official website to receive citizens’ feedback. The Ministry also declared that the bill was written in cooperation with an international expert in the field of bankruptcy and follows the bankruptcy models of an array of countries, such as the the Czech Republic, England, Wales, France, Germany, Japan, Singapore, and the United States. According to the Ministry of Commerce’s website, those countries are considered by international institutions such as the World Bank and the United Nations Commission on International Trade Law to have the best laws that deal with the process of bankruptcy of corporations while securing the rights of creditors. (The Commerce and Investment Ministry Proposes the Bankruptcy Bill for Public Opinion After Studying the Best International Practices, Ministry of Commerce and Investment website (last updated Mar. 1, 2017) (in Arabic).)
The International Monetary Fund (IMF) declared that the proposed bill is considered a vital legislative tool for helping private sector corporations attain monetary stability and grow financially at a stable rate. An IMF representative added that the bill will help new investors to establish small and medium businesses without worrying about the negative impact of bankruptcy. (Press Release, No. 17/178, International Monetary Fund, IMF Staff Completes 2017 Article IV Mission to Saudi Arabia (May 17, 2017).)
Prepared by Ammar Alsallumi, Law Library Intern, under the supervision of George Sadek, Legal Research Analyst.