Article 101 of the Saudi Bankruptcy Law

المادة 101 من نظام الإفلاس · الفصل الخامس: إجراء التصفية: إدارة أمين التصفية لنشاط المدين

No security created during the liquidation procedure is valid unless the creditors voted in favor under Article 108 and the court approved it.

Official text (Arabic)

This article has not been amended since the law was issued.

لا يصح أي ضمان ينشأ خلال إجراء التصفية ما لم يصوت عليه الدائنون بالموافقة وفقاً لحكم المادة (الثامنة بعد المائة) من النظام وتوافق عليه المحكمة.

This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers

Article 101 explained in plain English

This article places a double restriction on creating any new security after the liquidation procedure is opened, such as mortgaging a bankruptcy estate asset or granting security for a debt.

Security is valid only if both conditions are met:

The creditors vote in favor under Article 108 of the law.
The court approves it.

If either condition is missing, the security is not valid. The reasoning is that creating new security gives its holder priority over a particular asset, which affects the rights of the other creditors waiting for their share of the liquidation proceeds, so the law places the decision in their hands and under the court's supervision.

The provision is general, covering "any security created during the liquidation procedure", that is, after it is opened, and it does not address security created before then.

This article comes after Article 100, which makes the trustee take the debtor's place in managing its business and voids the debtor's acts concerning bankruptcy estate assets after the trustee is appointed, and before Article 102, under which the opening of liquidation leads to the start of liquidating the assets. Article 108 must be consulted for the voting provisions it refers to. To assess a particular situation, consult a lawyer specializing in bankruptcy and commercial cases.

Practical example

During the liquidation of a contracting company in Riyadh, a finance provider offered to supply an amount to complete existing works in return for a mortgage on the company's equipment. This mortgage is valid only if the creditors vote in favor under Article 108 and the court approves it.

Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.

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