Article 19 of the Saudi Bankruptcy Law

المادة 19 من نظام الإفلاس · الفصل الثالث: إجراء التسوية الوقائية: تعليق المطالبات

Article 19 requires the debtor to notify its creditors of the stay of claims decision as soon as it is issued, and to exercise due diligence to persuade them to approve the proposal.

Official text (Arabic)

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

يلتزم المدين بتبليغ دائنيه بقرار المحكمة بتعليق المطالبات فور صدوره، وعليه بذل العناية الواجبة خلال مدة تعليق المطالبات لإقناع دائنيه بالتصويت بالموافقة على المقترح.

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 19 explained in plain English

When the court orders a stay of claims, the debtor obtains temporary protection from its creditors' actions. In return, this article imposes two obligations on the debtor:

Immediate notification: The debtor must notify its creditors of the court's decision to stay claims as soon as it is issued. The aim is for creditors to know of the decision so they do not take actions that are prohibited during the stay, and so they understand the true position.
Exercising due diligence: During the stay, the debtor must exercise due diligence to persuade its creditors to vote in favor of the proposal. The stay is not a waiting period but an opportunity the debtor must use to communicate and negotiate with its creditors.

It should be noted that the second obligation is an obligation to exercise care: the text requires the debtor to make a serious effort to persuade, and does not require it to actually succeed in obtaining approval.

This article is linked to Article 18, which sets the stay at no more than 90 days, extendable up to a maximum of 180 days; this is the period during which the debtor must make its effort. It is also linked to Article 20, which sets out the actions prohibited during the stay, which is why it matters that the creditor is notified of the decision.

To manage communication with creditors at this stage, the debtor should engage a lawyer specializing in commercial and bankruptcy cases.

Practical example

After a decision to stay claims was issued for a plastics factory in Riyadh, the factory sent the decision to all its creditors the same day. It then held meetings with suppliers and banks to explain the proposal and answer their questions, seeking to persuade them to vote in favor.

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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