Article 187 of the Saudi Bankruptcy Law

المادة 187 من نظام الإفلاس · الفصل العاشر: التمويل: أحكام التمويل المضمون أو غير المضمون في إجراء التصفية

The article provides that any secured financing the court approves is considered priority financing.

Official text (Arabic)

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

كل تمويل مضمون توافق عليه المحكمة يعد تمويلاً ذا أولوية.

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 187 explained in plain English

This article is short but important to banks and financiers, since it provides that any secured financing the court approves is considered priority financing.

The rule rests on two conditions that go together:

the financing is secured.
the court has approved it.

When both conditions are met, the financing acquires the character of priority by operation of the Law. Unsecured financing, or secured financing the court has not approved, is not covered by this article.

The article comes in the context of the financing provisions: Article 186 regulates the court's approval of financing in the liquidation procedure and liquidation for small debtors, secured or unsecured, at the trustee's request accompanied by an expert's report, when necessary to preserve the value of the estate's assets or increase the proceeds of their sale, and after the creditors' approval. Such financing that is secured and approved by the court falls within this article's rule.

The practical benefit of the rule is that it reassures whoever provides financing to a debtor in a bankruptcy procedure that its financing, when secured and approved by the court, enjoys the priority status the Law provides, which encourages providing the liquidity the debtor or the estate needs. The details of the ranking of priorities are regulated by other provisions of the Law and the Implementing Regulations. To assess a particular situation, it is advisable to consult a lawyer specialized in bankruptcy and commercial matters.

Practical example

The court approved secured financing against a pledge of equipment that a bank provided to a company in the liquidation procedure in Jeddah, to preserve the value of its assets until they are sold. Under this article the bank's financing is considered priority financing.

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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