Article 127 of the Saudi Bankruptcy Law
المادة 127 من نظام الإفلاس · الفصل السادس: إجراء التسوية الوقائية لصغار المدينين: الهدف
The article states that the aim of the protective settlement for small debtors is to let a small debtor agree with its creditors on settling its debts through simple, low-cost procedures while it keeps managing its business.
Official text (Arabic)
This article has not been amended since the law was issued.
يهدف إجراء التسوية الوقائية لصغار المدينين إلى تمكين المدين الصغير من التوصل إلى اتفاق مع دائنيه لتسوية ديونه خلال فترة معقولة عبر إجراءات يسيرة بتكلفة منخفضة وكفاية عالية، مع احتفاظ المدين بإدارة نشاطه.
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 127 explained in plain English
This article opens the provisions on the protective settlement procedure for small debtors and sets its purpose. Knowing the purpose helps in understanding and interpreting the rest of the provisions of the procedure.
The procedure aims to enable the small debtor to reach an agreement with its creditors to settle its debts, and rests on four elements:
- A reasonable period: The settlement is to be reached within a reasonable time.
- Simple procedures: Simpler than the usual bankruptcy procedures.
- Low cost and high efficiency: So that the procedures do not drain the small debtor's resources.
- The debtor keeps managing its business: Management of its enterprise is not taken from it during the procedure.
In practice, the owner of a small enterprise facing difficulty paying its debts can seek an agreement with its creditors while continuing to run its business, instead of reaching liquidation.
This article does not define who the "small debtor" is; that definition is found in what the law and its regulations provide. Article 128 also explains that a small debtor may instead ask to open the ordinary protective settlement procedure, and that it may not open this procedure if it was subject to it or to the protective settlement procedure in the preceding 12 months. To assess a particular situation, consult a lawyer specializing in bankruptcy and commercial cases.
Practical example
Ahmed owns a mobile phone repair shop in Taif, and dues to suppliers have accumulated because of falling sales. Instead of closing the shop, he turned to the protective settlement procedure for small debtors to agree with his suppliers on rescheduling his debts, while remaining the manager of his shop throughout the procedure.
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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Frequently asked questions about Article 127 of the Saudi Bankruptcy Law
What is the aim of the protective settlement for small debtors?
To enable the small debtor to reach an agreement with its creditors to settle its debts within a reasonable period through simple, low-cost, highly efficient procedures.
Does a small debtor lose management of its business in the protective settlement?
No. The procedure is based on the debtor keeping management of its business.
More articles on Small Debtor Bankruptcy Procedures
- Article 102
Opening the liquidation leads to the start of liquidating the bankruptcy estate assets, carried out by the trustee, except what the court approves an individual debtor keeping for the living of the debtor and dependents.
1- يترتب على افتتاح إجراء التصفية البدء في تصفية أصول التفليسة. 2- يتولى الأمين تصفية أصول التفليسة عدا ما وافقت المحكمة على احتفاظ المدين ذي الصفة الطبيعية به
- Article 128
The article lets a small debtor choose the ordinary protective settlement, and bars it from opening a small debtors' settlement if it was subject to it or to a protective settlement in the preceding 12 months.
1- للمدين الصغير طلب افتتاح إجراء التسوية الوقائية بدلاً من افتتاح إجراء التسوية الوقائية لصغار المدينين. 2- لا يجوز للمدين افتتاح إجراء التسوية الوقائية لصغار
- Article 129
The article allows a small debtor that is distressed, bankrupt or expecting distress to issue a decision opening the small debtors' protective settlement and file it with its proposal in the bankruptcy register.
1- للمدين الصغير إذا كان يتوقع مواجهة اضطرابات مالية يخشى معها تعثره أو كان متعثراً أو مفلساً، أن يصدر قراراً بافتتاح إجراء التسوية الوقائية لصغار المدينين وفق
- Article 130
The article requires a small debtor to call the owners to vote on the proposal if it affects their rights, at least 21 days before the voting date and before the creditors vote.
إذا تضمن المقترح ما يؤثر في حقوق الملاك، فعلى المدين الصغير دعوتهم إلى التصويت على المقترح قبل حلول موعد التصويت بـ(واحد وعشرين) يوماً على الأقل وفقاً لما تنص ع
- Article 131
The article lets a small debtor ask the court to suspend claims for no more than 90 days, and explains when that period ends.
1- للمدين الصغير أن يطلب من المحكمة -خلال المدة من افتتاح إجراء التسوية الوقائية لصغار المدينين إلى موافقة الدائنين على المقترح- تعليق المطالبات لمدة لا تزيد عل
- Article 132
The article governs the form of the request to suspend claims and its attachments, and allows the court to ask for supporting documents, including a statement that creditor approval is likely.
1- يُقدم طلب تعليق المطالبات إلى المحكمة وفق النموذج الذي تصدره لجنة الإفلاس، على أن يرفق به نبذة عن مضمون المقترح وما تحدده اللائحة. 2- للمحكمة أن تطلب من المد
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.