Article 188 of the Saudi Bankruptcy Law
المادة 188 من نظام الإفلاس · الفصل الحادي عشر: المقاصة والديون التبادلية
The article prohibits automatic set-off after protective settlement and financial reorganization (and their small debtor versions) open, and allows the proposal to provide for set-off of specified mutual debts.
Official text (Arabic)
This article has not been amended since the law was issued.
مع مراعاة أحكام الفصل (الرابع عشر) من النظام، تحظر المقاصة التلقائية بعد افتتاح أي من الإجراءات الآتية:
أ - التسوية الوقائية.
ب - إعادة التنظيم المالي.
ج - التسوية الوقائية لصغار المدينين.
د - إعادة التنظيم المالي لصغار المدينين.
واستثناء من ذلك، يجوز أن ينص المقترح في أي من الإجراءات على إمكانية إجراء المقاصة في ديون محددة، إذا كانت ديوناً أو تعاملات تبادلية. وتكون الديون أو التعاملات تبادلية إذا كانت بين ذات الأطراف وكانت لهم ذات الصفات والحقوق بالنسبة لتلك الديون أو التعاملات.
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 188 explained in plain English
Set-off is where each of two persons owes the other a debt, so the two debts cancel to the extent of the smaller. This article prohibits automatic set-off after any of the following procedures is opened:
- Protective settlement.
- Financial reorganization.
- Protective settlement for small debtors.
- Financial reorganization for small debtors.
The prohibition is qualified by the phrase subject to the provisions of Chapter Fourteen of the Law, so that chapter must be consulted to learn the related provisions.
The exception: the proposal in any of these procedures may provide for the possibility of set-off in specified debts, provided they are mutual debts or dealings. The article defines mutual debts or dealings as those between the same parties, who have the same capacities and rights in respect of those debts or dealings.
Article 189 complements this provision, providing that this prohibition does not affect calculating the value of a creditor's claim for the purpose of voting on the proposal, as its value for voting is calculated by what remains of it after deducting what the debtor is entitled to.
The aim of the prohibition is to preserve the existing position while an attempt is made to rescue the debtor, so that a creditor does not collect its right individually outside the proposal. To assess a particular situation, it is advisable to consult a lawyer specialized in bankruptcy and commercial matters.
Practical example
A distribution company in Riyadh has had the protective settlement procedure opened. It is owed SAR 100,000 by one of its customers, and the customer is owed SAR 60,000 by it. The customer may not automatically deduct its debt from the amount it owes after opening, unless the proposal provides for set-off in this debt and the two debts are mutual.
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 188 of the Saudi Bankruptcy Law
May a creditor deduct its debt from what is due to the debtor after protective settlement opens?
No. Automatic set-off is prohibited after protective settlement, financial reorganization and their small debtor procedures open, unless the proposal provides for set-off in specified mutual debts.
What is meant by mutual debts?
Debts or dealings between the same parties, who have the same capacities and rights in respect of them.
Does the prohibition on set-off affect the right to vote?
No. Under Article 189 a creditor's claim for voting is calculated by what remains of it after deducting what the debtor is entitled to.
More articles on Set-Off and Priority of Debts
- Article 81
A financial restructuring proposal may not include anything that contravenes the provisions of the law and relevant laws on set-off and priority of debts, and any contravening act is void.
لا يجوز أن يتضمن المقترح ما يخالف أحكام النظام والأنظمة ذات العلاقة بشأن حقوق المقاصة وأولويات الديون، ويعد باطلاً أي تصرف خلاف ذلك.
- Article 82
The trustee sells the bankruptcy estate assets securing the debtor's debt under the plan and with court approval, deposits the net proceeds in a separate account for the secured creditor, and the surplus in the debtor's account.
يتولى الأمين -بناء على الخطة وبعد موافقة المحكمة- بيع أي من أصول التفليسة الضامنة لدين المدين خلال فترة الإجراء بالأسعار المتداولة وقت البيع. وعليه بعد استيفاء
- Article 113
The article makes undue debts that are established against the debtor payable and due as soon as the liquidation procedure is opened.
تكون الديون غير الحالة الثابتة في ذمة المدين واجبة ومستحقة الأداء فور افتتاح إجراء التصفية.
- Article 116
The article governs the trustee's decision to distribute the proceeds of selling the estate assets to creditors, notice of it, objecting to it, and reserving amounts for debts in court dispute.
1- يصدر الأمين قراراً بتوزيع حصيلة بيع أصول التفليسة على الدائنين وفقاً لما تحدده اللائحة، ويتولى الأمين توزيع هذه الحصيلة على الدائنين مرة واحدة وفقاً لترتيب ا
- Article 187
The article provides that any secured financing the court approves is considered priority financing.
كل تمويل مضمون توافق عليه المحكمة يعد تمويلاً ذا أولوية.
- Article 189
The article provides that the set-off prohibition does not affect calculating a creditor's claim for voting on the proposal, which is counted at what remains after deducting what the debtor is entitled to.
لا يؤثر الحظر المنصوص عليه في المادة (الثامنة والثمانين بعد المائة) من النظام في حساب قيمة مطالبة أي من الدائنين لغرض التصويت على المقترح، وتكون قيمة مطالبة الد
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.